Interview with Jeremie Sneessens, McKinsey (Global Merger Control Conference - Paris, 2 December 2016)
Friday, December 2, 2016 at 8:30 AM - Wednesday, December 2, 2020 at 1:00 PM (CET)
4th Edition of the Global Merger Control Conference
MARKETS, REMEDIES AND SURVIVAL:
CUTTING EDGE ISSUES IN GLOBAL MERGER CONTROL
Interview with Jeremie Sneessens (McKinsey)
Jeremie Sneessens (McKinsey) has been interviewed by Hans Jürgen Meyer-Lindemann (Dechert) in anticipation of the 4th edition of the Global Merger Control Conference, to be held in Paris the 2 Decembre 2016. They will participate in the panel "Remedies: Can You Disarm the Harm? Divestitures, Up-front Buyers…".
To see the full program, please visit the event website.
Please explain how McKinsey can add value for companies involved in complex merger control proceedings.
Merger control proceedings are strategic in essence: they shape companies’ portfolios, both in terms of business lines and geographical markets. As an example, in the EU, over the period 2011-2016, 50% of deals going to phase 2 have been approved with remedies and 10% have been blocked. As such, preparing for and navigating through such processes require in-depth strategic thinking, which is at the core of what McKinsey does.
Further, while the framework is a legal one, the assessment itself relies much more on business and industry related topics: market trends, competitive and pricing dynamics, customer and consumer behaviors, synergies, etc.
In such context, McKinsey can bring value through a deep understanding of companies’ businesses and strategic priorities, and the markets they operate in, combined with the ability to link competition rulings (e.g., divestitures) to business outcomes and to model their financial impact. We do this by leveraging our network of experts and industry specialists (at local and global level) and their experience in interacting with regulators. Lastly, we complement this expertise of merger control proceedings with other offerings from our Corporate Finance and Merger Management practices, so as to provide an end-to-end value proposition to our clients. As such, we have found ourselves to be complementary to other advisors such as law firms, PR and communication firms, etc.
From your perspective, has the European Commission’s policy on remedies changed over the last few years?
At macro level, we see a trend towards more in-depth reviews:
At case level, we see a trend towards sophistication of the merger control proceedings, for instance:
While there is still a preference towards structural rather than behavioral remedies, some key conditional Phase II decisions involved behavioral remedies, including Licensing of a brand or asset (Liberty Global/Corelio/W&W/De Vijver Media), Granting access to a network (3G UK/Telefonica Ireland), Commitment to supply competitors and/or customers (Airbus/Safran/JV).
Greater usage of more sophisticated economic and econometric analysis. One of the examples is a recent GE-Alstom case in which EC recurred to bidding analysis in order to assess competitive positions of both parties, taking into account such factors as their common participation in public tenders, win-loss ratio in bids and influence in probability of winning a tender if facing each other
New criteria are being developed for both European Commission’s jurisdiction (number of users) and market share analysis (dynamic market penetration, network effects, online/brick and mortar) to adapt proceedings to modern, fast-changing markets (e.g. Facebook and WhatsApp)
Last but not least we see growing alignment in approaches between main regulators in US, Europe and China like in the AB-Inbev-SabMiller case and further cooperation at international level, driven by increasing share of cross-border M&A.
Would you have any general advice for companies currently considering deals that may involve complex remedies in the EU?
Past deals illustrate that required concessions can be considerable, if going through at all, not only but including, because of regulatory review. Within the last 5 years the percentage of deals approved with conditions, either in phase I or II, more than tripled. Over 50% of those decisions included complex behavioral remedies, mentioned before, that require a long-term commitment and, therefore, can have a long-lasting impact and implications on business.
In a context of increasing market concentration and globalization, the bar for M&A is raising. This is illustrated by the fact that since 2013 every month one deal with a value over 1 billion EUR involving a European player is withdrawn. We see also multi-billion breaking fees appearing, e.g. Bayer-Monsanto with 2 billion USD or Halliburton-Baker Hughes with 3.5 billion USD.
In such context, it is more important than ever to prepare well, including:
Upfront (pre-announcement) “regulatory due diligence” to understand the likely risks and implications, not only from a legal but also from a business perspective: what are likely hurdles, what are possible remedies and divestments strategies, what is the impact on the value creation potential of the deal (e.g. foregone synergies), etc.
Preparation to the process itself, including for instance:
– Market segmentation analysis and optimization: what are possible customer and market segments and what is the effect on the regulatory assessment
– What will be competitors and customers reactions and likely input to the Commission or other regulators in the merger control process (market testing on merger impact, remedy assessment, etc.)
– Preparation for potential press leaks
– Understanding of the stakeholder landscape and EC decision processes, including not only the case team and its hierarchy up to the Commissioner, but also the Legal Service, the Chief Economist, other units etc.
Post-merger management and remedy implementation including carve-outs and divestitures
1 Jan 2011: Aegean Airlines / Olympic Air
Feb 2012: Deutsche Börse / NYSE Euronext
Jan 2013: TNT Express / UPS
Feb 2013: Ryanair / Aer Lingus
May 2016: Hutchison / O2
The theme of this fourth annual Global Merger Control conference focuses on the recent proliferation of merger control regulation and enforcers. Such a proliferation leads to the inevitable question of whether, in this new regulatory environment, mergers and acquisitions have been made subject to undue obstacles. Indeed, of more that 200 sovereign states in the world, some 125 now apply merger control rules to transactions meeting thresholds of various intensity. This event is organized by Concurrences Review, with the support of Dechert, McKinsey & Company and Advolis.
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