Published on Oct 13, 2021
European Commission and UK Competition and Markets Authority case handlers are grappling with parallel merger investigations into S&P Global’s (SPGI) acquisition of fellow financial data provider IHS Markit (INFO), Nvidia’s (NVDA) purchase of British chip designer Arm Holdings and Microsoft’s (MSFT) takeover of artificial intelligence company Nuance Communications (NUAN).
The concurrent reviews will provide fresh insight into the post-Brexit regulatory landscape in which transactions are assessed separately in both Brussels and London.
Some signs of fissure have already emerged between the CMA and the commission. In August, the commission opened an in-depth probe into Facebook’s (FB) planned purchase of customer relationship management software specialist Kustomer. Yet last month the CMA approved that deal unconditionally following a phase I examination.
EC officials are also conducting an in-depth probe into genomics company Illumina’s (ILMN) acquisition of blood-cancer test developer Grail—a transaction the CMA decided not to formally review despite in October 2019 determining that Illumina’s takeover of fellow gene-sequencing instrument provider Pacific Biosciences (PACB) would have significantly harmed competition.
The UK watchdog’s reticence on Grail, however, doesn’t necessarily mean the authority views the deal as competitively benign and might instead be explained by guidance that the CMA, when deciding whether to open an investigation, may take into account proceedings in other jurisdictions. That could render a CMA review less pressing, because the FTC in March challenged the merger and is currently fighting an administrative litigation battle with Illumina.
Dramatically different outcomes in jurisdictions that until this year were intrinsically linked through the UK’s membership of the EU would be detrimental for business certainty. But that outcome is far from a foregone conclusion. And on that front, all eyes are on three ongoing merger reviews that could, in short order, reveal how divergent—or harmonious—the respective approaches of the EC and CMA will be.
Obvious concerns. Both S&P’s acquisition of IHS and Nvidia’s takeover of Arm raise obvious competition concerns that the buyers have sought to address with formal concessions. S&P on October 1 offered remedies to the EC, with the commission setting a new October 22 phase I deadline, just days after the CMA’s own phase I deadline of October 19. By that date, the CMA
will announce whether the deal raises competition concerns requiring remedies for a phase I resolution.
The EC appears on track to approve the deal after seeking market feedback on a package of concessions offered by S&P to allay the regulator’s competition misgivings, according to a Reuters report, putting the spotlight firmly on the CMA. Given the global geographic market dynamics at play in the financial services industry, the merging parties will likely expect the UK authority to reach a similar conclusion. Spokespeople for S&P and IHS declined to comment.
Nvidia, meanwhile, has already offered remedies to both authorities. The CMA in July rejected the buyer’s offer to keep open Arm licenses based on equal access and interoperability, concluding it wouldn’t be appropriate to deal with its misgivings with phase I undertakings. The watchdog said the magnitude of its concerns and the complexity of the markets involved meant behavioral remedies wouldn’t be capable of ensuring effective monitoring and enforcement. The CMA is now set to conduct an in-depth competition probe.
Despite that setback, Nvidia last week offered phase I concessions to the EC—indicating the company might believe it can avoid an in-depth probe. But such an outcome, given the way the CMA process has unfolded, would be something of a surprise, with the commission most likely to also open an in-depth probe.
An alternative explanation for Nvidia’s EC phase I offer is that the company is eager to demonstrate it made its public pledge to keep Arm open in good faith—regardless of whether the EC would accept that offer during the initial investigation stage. The company upon announcing the takeover attempt in September 2020 pledged to continue to operate Arm’s open licensing model and maintain its customer neutrality.
A spokesperson for Nvidia said, “the regulatory process is confidential,” adding that the Arm acquisition “will help to transform Arm and boost competition and innovation.” Arm deferred comment to Nvidia.
While S&P and Nvidia are hurtling toward phase I decisions in Brussels and London, Microsoft hasn’t notified its acquisition of Nuance to either the EC or CMA. Last week, the Australian Competition & Consumer Commission gave an unconditional green light to the deal, saying post-transaction Microsoft couldn’t prevent either its own or Nuance’s rivals from competing effectively.
Microsoft can make a strong case for similar outcomes with the EC and CMA, though the company’s 2016 takeover of professional social network LinkedIn required interoperability and
access commitments before winning commission signoff. Competition officials this time around are less likely to view the software giant’s purchase of Nuance as problematic, though the prospect of undertakings like those offered during the EC’s LinkedIn review can’t be entirely ruled out.
Non-divestiture remedies. The LinkedIn concessions dealt with the same type of non-horizontal competition issues that could arise during the Nuance assessment and involved, for example, a pledge to allow competing professional social networks to maintain pre-merger levels of interoperability with Microsoft’s Office suite of products. While the EC has accepted behavioral remedies in several recent cases including Google’s buyout of Fitbit and the London Stock Exchange’s takeover of Refinitiv, the CMA appears more resistant.
The acceptability of non-divestiture remedies is a point of possible departure between the two competition agencies—particularly in phase I. The EC cleared Microsoft’s LinkedIn purchase in phase I and more recently approved Siemens Healthineers’ merger with Varian Medical Systems in phase I subject to an interoperability commitment. The CMA has been more circumspect: Other than two price-cap commitments involving the award of rail franchises, the UK watchdog has only accepted in phase I a single non-divestiture network access remedy within the last five years, according to the authority’s public register of cases. That clearance involved Mastercard’s purchase of VocaLink in 2017.
Microsoft will no doubt be aiming to avoid a rift where a phase I remedy might work in Brussels but not in London. Last week’s outcome in Australia will give the company comfort such a scenario won’t arise.
Kustomer relations. The starkest discrepancy so far between the EC and CMA has been the authorities’ respective approaches to Facebook’s acquisition of Kustomer, which the companies announced on November 30, 2020.
The EC opened a phase II probe, highlighting its concern that Facebook might have both the ability and incentive to either prevent Kustomer’s rivals from using the social network’s messaging channels or degrade their access to channels that include WhatsApp, Messenger and Instagram. Yet the CMA concluded that while Facebook might have an ability to foreclose access, it wouldn’t have the incentive because partnering with CRM suppliers is an “important avenue for Facebook to grow its B2C messaging business.”
For online display advertising, the EC said Facebook may hold a dominant position in several EU countries. The acquisition of Kustomer could allow Facebook to obtain data from businesses that use Kustomer’s software; by increasing its data advantage in this way, Facebook would be able to better personalize and target the advertisements it provides, according to the commission.
The CMA did find that the merger would boost the data available to Facebook but concluded “the current size of Kustomer, even considering its future potential growth, means that the additional data Facebook gains … would not be expected to raise barriers to entry in online display advertising.” The CMA even found that rivals could access data similar to the information Facebook would obtain through the merger and that most advertising competitors didn’t express concerns about the combination.
Such findings at a preliminary stage of an EC investigation don’t preclude the regulator from ultimately following the CMA by approving the Facebook/Kustomer deal unconditionally. But the commission’s decision to open a phase II review does at least suggest officials in Brussels and London don’t entirely see eye to eye.
Just over nine months since the end of the UK-EU transition period, some differences between the approaches of the authorities have emerged. S&P, Nvidia and Microsoft will hope that for their deals the respective authorities’ investigations will share more similarities than differences.
A spokesperson for the CMA declined comment. Spokespeople for Microsoft, Nuance and the EC didn’t respond to requests for comment.
A Facebook spokesperson said, “we welcome the CMA’s decision, which shows that this deal is good for competition,” adding that the company will “continue to work with other regulators to complete their reviews.” A spokesperson for Kustomer didn’t reply to a request for comment.
A spokesperson for Grail defended the company’s acquisition by Illumina, pointing to previous comments by Grail CEO Hans Bishop that the combination will “enable more patients in both the United States and worldwide to garner access to Grail’s test faster.” Illumina didn’t respond to a request for comment.
