DAMITT Q2 2024: Abandonments Dominate the Podium in Merger Enforcement
August 06, 2024
Key Facts
United States
- The U.S. agencies concluded 11 significant merger investigations in the first half of 2024—just one shy of the total concluded in all of 2023. Activity has picked up considerably since last year but is still below the historic DAMITT average.
- Six significant merger investigations ended in an agency-announced abandoned transaction in the first half of 2024. This is the most abandonments DAMITT has recorded in a single year. Abandonments made up more than 50 percent of outcomes in H1 2024, which feels less like a shift and more like a landslide.
- Two significant merger investigations ended with pre-complaint settlements in Q2 2024 after no recorded settlements the first quarter. Neither was a traditional consent decree, but both may offer some good insights into current agency thinking.
- The average duration of a significant merger investigation dropped to 9.4 months in Q2 2024, with only one investigation stretching over 10 months. For the first half of the year, the average duration of a significant merger investigation was 11.0 months.
European Union
- In Q2 2024, the European Commission formally concluded only one significant merger investigation, a Phase I with remedies decision. This marks an almost 80 percent decrease from the quarterly average of 4.74 significant investigations from 2011-2023 and is the first time since 2011 that no Phase II decision has been issued in Q2.
- The number of Phase I remedy cases remains very low, with only two concluded in H1 2024, representing 1.1 percent of all Phase I cases in the same timeframe.
- One deal was abandoned after the EC announced its intention to open a Phase II investigation, bringing the abandonment rate for significant EU merger investigations in H1 2024 to a staggering 33 percent – the highest ever recorded since DAMITT started tracking. This likely explains the very limited number of formal decisions issued.
- The average duration of EU Phase I remedy cases in H1 2024 was 9.3 months, aligning with the five-year average and down from the 13.1-month peak observed last year.
U.S. Merger Enforcement Activity Continues to Pick Up Steam
The Number of Significant Merger Investigations in 2024 is Already Poised to Pass 2023
The eleven significant merger investigations concluded in the first half of 2024 were just one short of the total number concluded in all of 2023. And looking ahead to Q3, we can report that the 2024 tally officially passed 2023 as of July. As a result, the U.S. agencies appear more active this year. There is certainly more to report from the agencies.
But keep in mind: as we reported in our DAMITT 2023 Annual Report, the record low number of significant merger investigations concluded in 2023 was highly unusual. By contrast, DAMITT data indicate that the average number of significant merger investigations by the end of the second quarter hovers just above 12. By that measure, the first half of 2024 fell slightly below average.
The number of significant merger investigations concluded in Q2 2024 is also slightly behind Q1. Nevertheless, when we look at the U.S. significant merger investigation heartbeat by quarter, the trend is still upwards overall in 2024.
Abandonments Hit a New Annual Record—And the Year is Not Over Yet
More than half of U.S. significant merger investigations that concluded in the first half of 2024 ended in an abandoned transaction. Rather than a shift, that feels more like a landslide.
Setting aside percentages, the overall number of abandonments is also striking. The six full abandonments reported by the agencies through the end of H1 2024 would already be a DAMITT annual record even if we saw no more abandonments through the end of the year, so any additional reported abandonments through the end of the year will only increase the magnitude of this year’s record. Looking ahead to Q3 2024, more abandonments have already been reported. This is a trend that is worth watching.
By contrast, consents (or settlements), which used to be the most common form of U.S. merger enforcement, remain near historic lows. We record two pre-complaint settlements in Q2 2024, which is up from none in Q1 2024 and only one in all of 2023. But neither of the pre-complaint settlements in Q2 2024 were traditional consent decrees.
In Exxon Mobil/Pioneer, for example, the FTC entered into a consent decree to prohibit the target’s former CEO from serving on the buyer’s board and to prevent any other potential violations of Section 8 of the Clayton Act related to interlocking directorates rather than to remedy any alleged illegal merger under Section 7 of the Clayton Act. Section 8 issues were also the subject of the only consent order issued by either agency in 2023. In line with public comments from agency officials, Section 8—which was rarely if ever raised in merger reviews in the past—has taken on increased importance in merger reviews under the current administration. As one silver lining, however, this is one rare area where the agencies appear willing to negotiate a fix under the current administration.
We also record Global Partners/Gulf Oil as a settlement for Q2 2024, even though the FTC did not require any formal consent order for that transaction. There, after an investigation that dragged on for 16 months, the parties amended their purchase agreement for five petroleum terminals to drop one terminal, along with a proportional reduction in the purchase price. In its press release, the FTC focuses on the part of the transaction that was abandoned, with the FTC Bureau of Competition Director stating: “The FTC is pleased that Global Partners has abandoned its anticompetitive acquisition of Gulf Oil’s terminal in South Portland, Maine.” Nevertheless, the remainder of the transaction moved forward and closed the same day. In permitting the parties to amend the transaction to remove the competitive concern before closing, the FTC appears to have accepted what was in effect a fix-it-first remedy without a consent order. Regardless of how it is categorized, it is newsworthy that the FTC was willing to accept this pragmatic solution to its concerns, and the agency deserves credit for it.
Average Durations Plunge in Q2 2024
The average duration of concluded significant merger investigations in Q2 2024 was 9.4 months, well below the 12.3-month average observed in the first quarter. Together, the average duration for the first half of 2024 was 11.0 months, close to the 2023 average of 10.6 months.
Of note, the average duration in Q2 2024 was skewed upwards by the Global Partners/Gulf Oil transaction, which was the only significant merger investigation that lasted above 10 months. Without that investigation, the average would have been below 8 months.
Keep in mind: none of these durations take into account proposed changes to the HSR rules that are expected to substantially increase burdens on parties filing notifications and may require additional time to prepare initial HSR filings. Any delays to initial HSR filings under the new rules, once finalized, can be expected to increase durations in the future.
Historic Low in Significant EU Merger Investigations Amid Rising Abandonments and Regulatory Scrutiny
Flatlining Warning – EC Activity Hits Historic Low in Q2 2024
Diverging from the U.S. trend, the number of significant EU merger investigations kept dwindling in Q2 2024 compared to historical patterns. With only one significant merger investigation concluded in Q2 2024, the EC count of significant merger investigations is almost 80 percent below the quarterly average of approximately 4.74 significant investigations over the 2011–2023 period.
After a few years of slow but steady heartbeat, the EC is starting to show severe signs of arrythmia which could raise questions as to overall health. Preliminary data for Q3 2024 may provide some reassurance with three significant merger investigations already concluded so far this summer. However, the overall EC pipeline is close to being empty – with only one Phase II pending at the time of this report.
Missing: Phase II Investigations
The single investigation concluded this quarter was a Phase I with remedies. This figure contrasts with Q2 2023, when the EC concluded four Phase II cases and no Phase I with remedies cases.
There is also the unusual case of EEX/Nasdaq Power, which does not meet the DAMITT definition of a significant investigation because it was not cleared in Phase I with remedies and did not get to Phase II. It is still worth noting, though. In this case, the parties did offer remedies in Phase I, but these were not accepted by the EC – in line with its increased reluctance to clear deals with remedies in Phase I. The parties then withdrew their notification on the day a Phase II would have been officially opened. As such, it cannot be counted as a Phase II investigation, but it still exemplifies the hurdles parties may face when trying to obtain clearance from the EC.
Even if we were to include this case as a significant EU merger investigation, the total number of cases concluded thus far in 2024 would remain 33 percent below the average number of cases concluded in the first half of the year over the last five years.
The only decision following a significant merger investigation concluded this quarter is a Phase I with remedies. While it is encouraging to see another Phase I remedy case added to the scoreboard, the total number of Phase I remedy cases is still a remarkably low figure compared to previous years. As repeatedly observed in past DAMITT reports, the number and proportion of cases cleared in Phase I with remedies has been steadily dropping since 2016.
In 2016, 19 cases were cleared in Phase I with remedies whereas the average number of Phase I remedy cases nearly halved to just 8.8 cases over the 2019-2023 period. In 2023, the EC concluded only four cases with remedies in Phase I in total. The data available for 2024 thus far shows that this downward trend is not likely to reverse soon, with H1 2024 recording merely 2 Phase I remedies cases, representing 1.1% of all Phase I cases concluded over the same period. This is the lowest proportion of cases cleared with remedies in Phase I since DAMITT started tracking.
H1 2024 Sees Increase in EU Merger Abandonments
While not reaching the record-high seen in the U.S., the abandonment rate for significant EU merger investigations in H1 2024 was at 20 percent, representing a nearly 12 points increase from the 7.7 percent recorded in 2023. If we were to include the abandoned EEX/Nasdaq deal, this proportion would increase to 33 percent, the highest ever recorded since DAMITT started tracking.
This confirms the trend highlighted in our DAMITT 2023 Report towards an increased number of abandoned deals. Even with the low number of significant investigations concluded in H1 2024, the number of abandoned deals is still in line with, if not above, patterns observed in 2021 and 2022, where the abandonment rates were 21.4 percent and 22.2 percent, respectively. By comparison, over the 2011-2023 period the average abandonment rate was approximately 7.7 percent, with several years, such as 2013, 2014, and 2019, seeing no abandonments at all. The recent uptick in abandonment rates suggests a growing hesitancy among companies to proceed with mergers receiving scrutiny under the current regulatory environment.
Average Duration of EU Phase II Investigations Likely to Remain Lengthy
Absent any Phase II investigation concluded in Q2 2024, the record-high average duration of EU Phase II investigations reported in our DAMITT Q1 2024 report remains unchanged over the H1 2024 period.
But there is reason for some cautious optimism for parties to deals likely to go to Phase II. Looking at preliminary Q3 data, the EC cleared the Deutsche Lufthansa/MEF/ITA deal with remedies following a Phase II 13.5 months after announcement – a duration that is closer to the theoretical timeline provided for by the EU Merger Regulation (EUMR). This shows that despite a record-high average, a 13-month clearance is still possible in the EU depending on the deal.
The Average Duration of EU Phase I Remedy Cases Returns to Norm
Moving on to Phase I remedy cases, the first half of 2024 saw an average duration of 9.3 months, reflecting a retreat from the 13.1-month peak observed last year. Both Phase I remedy cases concluded in H1 2024 were in line with the average durations of 9.3 months recorded over the past five years with durations of 8.9 months and 9.7 months, respectively.
The Transatlantic Divide Continues on Remedies
While abandonments dominated agency statements in Q2 2024, it is worth putting those abandonments into perspective. Zooming out to the first half of the year, the percentage of significant transactions blocked or abandoned in the EU remains far below the number of significant merger investigations blocked or abandoned in the U.S., as shown below.
And even in the U.S., our counts of significant merger investigations depend upon the information made available by the agencies—which does not include the results of all concluded merger investigations. Instead, “significant” U.S. merger investigations are defined as those ending in a consent order, a complaint challenging a transaction, an official closing statement by the agencies, or the abandonment of a transaction with the agency issuing a press release.
While agency statements in the U.S. increasingly focus on complaints and abandoned transactions, they do not cover transactions cleared after the completion of a Second Request investigation without a closing statement from the agencies. And based on data collected from U.S. Securities & Exchange Commission (SEC), we know that at least five transactions that had previously received Second Requests disclosed in SEC filings closed without a reported significant U.S. merger investigation in the first half of 2024. So while fewer U.S. significant merger investigations are ending with remedies, those trends say little about how many transactions may be cleared by the agencies without a remedy. Indeed, as previously reported in our DAMITT Q1 2024 Report, the proportion of Second Requests disclosed in SEC filings that end with a complaint or an abandonment appears to be falling, suggesting that more deals are being cleared by the agencies without any remedy at all.
In the EU, the first half of 2024 witnessed two notable deal terminations. First, Amazon decided to abandon its acquisition of iRobot in Phase II following indications that the EC was likely to block the transaction. Next, the EEX/Nasdaq Power deal was abandoned in Q2 2024 just as the EC was about to initiate a Phase II investigation. In that case, Deutsche Börse's European Energy Exchange (EEX) had submitted remedies during the Phase I review and withdrew the deal after these undertakings failed to address concerns about market power and product bundling. Of note, this transaction, which was referred to the EC by four Member States (Denmark, Finland, Sweden and Norway), historically would not have been scrutinized under traditional EU competition law thresholds. Instead, it is one of the three Article 22 EUMR cases (alongside Illumina/Grail and Qualcomm/Autotalks) that have proceeded to EU review since the EC revised its guidance allowing Member States to refer transactions for scrutiny even if they do not meet national or EU merger control thresholds. While it is hard to extrapolate based on such a small number of cases, it is still striking to note that 100 percent of cases referred for review under the new approach to Article 22 EUMR have been either blocked or abandoned.
As we warned as early as our DAMITT Q1 2021 Report, this use of Article 22 adds a layer of uncertainty for companies. Given the outcomes observed to date, referrals under Article 22 also may increase the substantive risks for referred deals. However, it is unclear whether such use of Article 22 will be blessed by the European Court of Justice (ECJ), which is due to decide on this issue in September. In March 2024, the Advocate General (AG) argued that the EC’s decision to block the Illumina/Grail acquisition should be annulled as Article 22 did not allow for such referrals. Whether it decides to follow its AG’s views or not, the ruling of the ECJ is likely to significantly impact the future of EU merger control. A positive ruling in favor of such Article 22 referrals will reinforce the existing uncertainty and level of risk, while a negative ruling could give strength to voices already calling for an overhaul of the EU and national merger control regimes.
Further adding to the regulatory scrutiny is the recent Digital Markets Act (DMA) regime, which requires digital gatekeepers to report acquisitions involving digital services or data collection. Since the DMA’s initial set of designations in September 2023, gatekeepers have notified seven concentrations to the EC. The DMA permits EU Member States to use this information to request the EC to examine a concentration under Article 22 EUMR. To date, none of these notifications have led to Article 22 referrals. However, this process underscores the EC's commitment to closely monitor tech mergers.
The re-election of Ursula von der Leyen as President of the EC is likely to ensure some continuity in the stricter approach to certain sectors. President von der Leyen recently emphasized in her political guidelines the need for a new approach to competition policy that ensures fair play and supports innovation: “We will ensure competition policy keeps pace with evolving global markets and prevents market concentration from raising prices or lowering the quality of goods or services for consumers.”
Overall, the EU's regulatory framework continues to be rigorous. The disappearance of Phase I remedy cases, as well as the above-mentioned examples of withdrawals, indicate that the EC is examining deals more meticulously and willing to break new ground, increasing deal uncertainty for parties.
Conclusion
Parties to transactions subject to significant merger investigations continue to face an elevated risk of seeing their deal blocked or abandoned on both sides of the Atlantic, even if the intervention rate shows relatively few deals receive this level of scrutiny. To ensure the ability to defend their deals through a potential investigation, parties to the average “significant” deal in the U.S. should plan on at least 12 months for the agencies to investigate their transaction and may want to add on additional time to address the continuing uncertainty at the agencies. Parties should also plan for another 6 to 12 months if they want to preserve their right to litigate an adverse agency decision.
On the EU side, parties to transactions likely to proceed to Phase II should allow for at least 23 months from announcement to clearance and should less than ever rely on the theoretical deadlines provided for in the EU Merger Regulation, even after the deal has been formally notified – although this trend may be reversed or at least slowed down in the second half of the year. Parties should also be aware that the European Commission is less and less likely to accept remedies without an in-depth investigation. If parties still plan on obtaining a Phase I clearance with commitments, they should factor in around 10 months from announcement to a decision, with significant time set aside for pre-notification talks with the Commission and the potential need to pull and refile their filing – and be prepared to go to Phase II even if they have taken all possible precautions.
Related Professionals
