The fact Merck KG is looking at a fine for misleading the Commission in the Sigma Aldrich deal is a tale of a number of stories.
Merck got clearance in 2015 for the deal, its biggest and most strategic deal ever. The deal is not being reversed but the EU have come to the conclusion they were misled when granting the clearance.
Would Merck have not got the clearance if they had provided the right information at the time? It appears they would have done so; the misinformation did not go to the substance of the underlying deal.
However after the deal the EU were tipped off by an anonymous source that Merck may not have been completely transparent on the technology they were developing. After an investigation the EU believe Merck misled them and a fine of up to 1% of their worldwide turnover is in the offing - a pretty significant additional deal cost.
Similar investigations have taken place by the EU on other cleared deals like Facebook/ WhatsApp and Canon /Toshiba so what is going on here?
The EU and other competition authorities are clamping down on companies not giving accurate information on cartel clearances. The processes to get clearances are taking time in any event and the EU and other authorities are under pressure constantly from bankers and lawyers to clear transactions in timescales set by statute or set out in public deal documents.
This pressure means deals are cleared BUT with the benefit of hindsight and in the cold light of day without the deal pressure the EU is revisiting clearances it has given especially where it receives new information or where it sees the merged companies using technology in a way that wasn't disclosed in the original clearance.
So what are the lessons here?
1) prepare even earlier to complete clearance filings. Don't leave this work stream to the back end. Give dedicated support to advisers in compiling information.
2) bidders should get their information in order way before the deal. Compiling filings should be the second issue on the list at board level after the initial business analysis on the merits of the deal.
3) keep previous filings up to date. Review them before you file again to check what may have changed, what questions could get raised. Don't put filings in a draw and forget about them until "next time". Each filing should be a live document.
4) don't mislead or cut corners on filings to get the deal through in the timeline the board expects. It will only lead to issues later.
5) beware of the sting in the tail. You may have clearance to proceed but the EU and other regulators may be reviewing the clearance and what happens in practice from afar.
6) recheck and recheck again with the target if they are satisfied with the information in the filing. Get their board to review - don't let them defer it to advisers. The target will disappear and it will be the bidder that gets the fine as a "deal cost" so it may be the target is not as diligent as it could be. The bidder ultimately has got to be satisfied but it must do its best to engage fully with the target.
7) if information subsequently proves to have been wrong think about mitigation by approaching the antitrust authorities voluntarily. This could reduce the fine or indeed avoid the fine. Don't sit there hoping no-one will find out especially if you need to file again soon on another deal.
8) if someone has misled you think about personal consequences like bonus withdrawals, stock option withdrawals or even termination.
One day the EU is not going to issue a divestment order on a deal it previously approved. The review of old filings is growing every day. It is a new post-deal risk to add to any integration plan or even to put on a board risk register.
Merck KGaA, Sigma-Aldrich Accused of Misleading EU on Merger