Published on Sep 16, 2021
S&P Global (SPGI) and IHS Markit (INFO) don’t anticipate offering remedies beyond the divestiture of businesses they’ve already proposed selling to News Corp. (NWSA) to secure competition approvals for their $44 billion transaction, The Capitol Forum has learned.
The companies last month announced the sale of IHS Markit’s Oil Price Information Service (OPIS) and related assets to News Corp. in a $1.15 billion deal. That divestiture has led DOJ staff to lean toward recommending clearance of the deal, The Capitol Forum reported earlier this week.
In addition to the DOJ nod, the transaction requires competition clearances from the European Commission and UK Competition and Markets Authority (CMA). Both watchdogs kicked off separate assessments of the merger in recent weeks.
Additional competition concerns beyond the energy price reporting overlap that drove the OPIS divestiture could emerge during the authorities’ respective market investigations. But significant misgivings that raise serious red flags aren’t said to be expected.
That’s not to say the deal doesn’t involve issues the EC and CMA will investigate closely. For example, the merger partners are both significant providers of indices—S&P with its eponymous S&P 500 as well as the Dow Jones indices, and IHS with its iBoxx fixed income indices.
Some industry players are said to be urging European regulators to consider remedies that would ensure data access post merger, citing potential vertical foreclosure issues similar to those the EC grappled with in its January approval of London Stock Exchange’s acquisition of financial data provider Refinitiv.
The EC in that investigation concluded that some Refinitiv benchmarks were key inputs for index design and calculation, and that post-merger LSE could deny that input data to rivals. That was because LSE was itself a key index provider, through offerings including the FTSE 100.
To win EC approval for the merger, LSE agreed to a package of behavioral remedies that included a commitment to provide existing and future downstream competitors access to Refinitiv benchmarks.
That said, the parallels between the two deals aren’t absolute, given that the S&P and IHS Markit offerings are for the most part complementary, with S&P particularly strong in equity indices—though the company also lists a host of fixed income products.
Aside from potential vertical access issues, that conglomerate relationship could raise questions about whether S&P could harm competition by bundling its index offerings with IHS’s post transaction.
EC guidelines, however, recognize that companies often engage in bundling to provide customers with better or more cost-effective offerings. Commission guidance also says that bundling often has no anticompetitive consequences, and “the fact that rivals may be harmed because a merger creates efficiencies cannot in itself give rise to competition concerns.”
Nevertheless, bundling can be anticompetitive when the merged entity obtains the ability and incentive to leverage a strong market position from one market to another. “Such practices may lead to a reduction in actual or potential competitors’ ability or incentive to compete” the EC guidance says, which can in turn “reduce the competitive pressure on the merged entity allowing it to increase prices.”
Anticompetitive conglomerate effects, though, are difficult to establish, and even where they exist, EC prohibitions on that basis are rare, and in recent years, non-existent.
The EC investigated and dismissed a possible bundling concern during its review of Microsoft’s LinkedIn purchase in 2016.
The commission likewise dismissed a discrete bundling concern during its investigation of Qualcomm’s ultimately doomed acquisition of NXP in 2017, though the regulator did regard as a valid concern the bundling strategy combined with an ability to increase royalties on the MIFARE ticketing and fare collection platform. Qualcomm fixed that misgiving through conduct concessions.
The EC has also dismissed bundling concerns in other recent significant cases, including Bayer’s purchase of Monsanto and the merger between Essilor and Luxottica.
The re-emergence of bundling as a significant competition concern requiring remedies during the S&P/IHS review would mark something of a change in direction for the EC, in particular.
A spokesperson for S&P Global declined to comment, while IHS Markit, EC, and CMA spokespeople didn’t immediately respond to requests for comment.
Timing. S&P filed the IHS acquisition to the EC on September 3 following months of pre-notification discussions.
That indicates the buyer was ready to notify earlier this summer but held back so the commission could conduct a comprehensive and effective market investigation once the merger partners’
customers and rivals were back in full swing in September. Such investigations during August—which traditionally is when many Europeans take their summer vacations—can yield poor results, which is far from ideal in complex cases.
Merger notifications in Brussels during early September, while not frequent, aren’t uncommon—even in cases that require phase I remedies.
Should the commission form similar competition concerns to those identified by DOJ around the companies’ energy price reporting overlap, the regulator would invite S&P to a state of play meeting to set out its misgivings. That meeting would probably take place toward the end of next week, most likely on September 24.
The EC has set an October 8 phase I review deadline, which would extend to October 22 if S&P offers concessions. The company has until midnight October 1 to submit formal commitments.
The CMA has set an October 19 deadline to conclude its phase I review, but the assessment will be extended in the event remedies are needed. Parties are given up to five additional working days to offer undertakings in the event of competition problems, and the investigation can be extended for up to 50 working days or more to finalize remedies.