Compliance considerations in an active era of mergers and acquisitions

The term “mergers and acquisitions” describes transactions in which the ownership of organizations or business operations within organizations are combined or transferred between companies. Merger describes the combination of at least two organizational units, whereas acquisition describes the transfer of interests or assets from one organization to another.

So far 2017 has been a banner year for high-profile mergers and acquisitions across all industries. Businesses are generating attention, press, and perhaps even revenue for themselves by ambitiously entering into deals with one another. Some prominent competitors have decided to join forces, while other companies hope to make inroads into new markets or gain access to new technologies through mergers and acquisitions activity.

  • The Amazon/Whole Foods merger has been one of the hottest topics of late summer 2017. Already the deal has had a seismic effect on the market, causing competitors from European grocery retailers to ready-to-eat meal delivery companies to major retailers such as Wal-Mart to recalibrate their own corporate strategies and expansion plans. One of the focal points of the lively conversation around this transaction has been the speed with which the US Federal Trade Commission (FTC) gave its blessing. While some professional skepticism from lawmakers on this subject is certainly welcome, the proof will be the pudding as to whether the deal encourages innovation in the sector by challenging competitors to respond creatively to the merger. If this does indeed pan out, perhaps consumers will stand to benefit, not to be harmed, by this type of deal:  Consumers the big winners of Amazon-Whole Foods merger
  • In the UK, a different regulator is not in such a rush to approve the merger between 21st Century Fox, owned by Rupert Murdoch, and broadcaster Sky. The Competition and Markets Authority (CMA) will perform a six month review of that one on the referral of the Culture Minister Karen Bradley. The stated reasons for the review were concerns about media plurality, stemming from the material influence Rupert Murdoch would gain over news providers in the UK key market plaforms, and an inadequate compliance program at Fox, which already owns a 39 percent stake in Sky:  UK competition commission to review Fox-Sky merger
  • Mergers can complicate outstanding or future legal claims, as the union between chemical industry giants Dow Chemical and DuPont is indicating. The issue dates back to a major industrial accident in 1984 in India at a factory owned by Union Carbide India. The majority owner of this company was Union Carbide Corporation, which in turn was acquired by Dow in 2001. Victims of the gas leak accident, which killed as many as 22,000 people and left more than 500,000 others injured, have struggled in the last three decades to reach justice through the complicated system of corporate liability. This is a labyrinthine system of liability and procedural quagmires already for victims to make it through, and the acquisition of Union Carbide by Dow made defining liability, both in a legal sense and in a concrete moral sense to attach to an existing corporate entity, very complicated. Already complex enough when dealing with just Dow, now that DuPont will be in the mix, the corporate structures will become even more difficult to navigate legally:  Bhopal disaster victims may never get compensation following Dow-DuPont merger, fears UN official
  • Bayer AG and Monsanto Company are set to face a regulatory review by the EU over at least the next four months in the planned merger by the major agrochemical companies. In that same sector this year, Dow and DuPont as well as China National Chemical and Syngenta AG have faced similar regulatory hurdles and had to make serious sacrifices in order to settle with the EU For their consolidations to go ahead. As companies in one industry seek to merge with each other, the industry comes out reshaped entirely, and the regulator in charge of oversight must step up to ensure the consumers are protected and that innovation continues unchecked despite fewer competitors in the market:  Bayer-Monsanto merger faces in-depth EU probe
  • Similarly, EU regulators have also expressed concern about the merger between Italian eyewear-maker Luxxotica and French lens-maker Essilor. Together the two companies will form a $55.12 billion global eyewear retailer. The EU is concerned because the combined company will be so large, likely crowding out other, smaller retailers that cannot operate on the slim margins workable for major organizations. The regulator is particularly concerned about impact this merger could have on the supply chain, as Essilor will gain access to previously untapped markets in the Americas and Asia:  EU regulators have concerns over Luxottica-Essilor merger

One conclusion that may be drawn already so far from a survey of this year’s mergers and acquisitions activity is for some, that expediency is the name of the game. Companies entering into these agreements want to come together quickly to get on with business, before the advancements in technology outpace their own participation. In some markets, regulators seem basically happy to oblige them. This apparent trend stands somewhat in contrast with standard regulatory agenda for existing companies, and the current preference in other markets, which is to identify and investigate possible anti-trust business practices for possible enforcement action or remedial measures before allowing the deal to go through.

If the US regulators continue to take the point of view that combined and strengthened competition from one market player drives the rest to be better and innovate, such as with Amazon, this will be a justification of relaxed regulatory scrutiny. It will be interesting then to observe whether regulators in the EU or other regions trend in the other direction, increasing the scope and standard of their oversight in order to reinforce their opposite protection that in these times of combination innovation may actually be more at risk than ever.

Only time will tell in this case which side has predicted the outcome correctly; one may find commerce stifled in name of caution, while the other may discover that imposing supervision after the union is more difficult than taking a measured approach from the beginning.

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