picky, picky

M&A deals taking longer, thanks to rigid regulators

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That's not how you do it. Source: Twitter

Bayer boss Werner Baumann spent many sleepless nights awake thinking about the Monsanto merger. It was more complicated, took longer and was all a lot harder than it looked when he started out.

The competition authorities were what slowed down progress in the blockbuster deal. They went into an “unimaginable level of detail,” Mr. Baumann said. Bayer submitted 4 million pages of documentation to support the merger. It took 21 months to get a green light.

Linde had the same problem. The company, a maker of gases from helium for superconductors to oxygen for water, is merging with Praxair, a rival from the US. It took regulators 20 months to give their approval. Siemens, meanwhile, wants to merge with Alstom and 12 months on, the conglomerate is still waiting for the “go ahead.”

A grueling assessment period

Regulators are taking ever longer to approve major deals. That’s a problem for managers, though they are reluctant to admit it, especially during the period of assessment. The long waits mean delays at companies in starting the all-important integration process. One M&A consultant, who didn’t want to be named, said even though firms won’t admit it, the prospective delays are likely to put them off merging, or to at least think twice about it.

The delay is even longer for global deals with regulators likely to make more demands than the merging companies expect, according to Christian Kames, who heads JP Morgans’ investment banking unit in Germany. “That means the risks involved are greater.”

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Thorough to a fault?

The reasons span from the increasing complexity of deals to high standards set by regulators. That applies to Siemens and Alstom, whose planned merger to forge a new European rail giant won’t be completed this year, as the companies hoped; Brussels wants until January to check additional paperwork.

A further problem for the rail merger is differing assessments of the market. Brussels fears a dominant company will be created and sees no risk from China. In contrast, the companies fear competition from Chinese rivals they say are “waiting on Europe’s doorstep” to break into the market.

Plus, business is changing. Regulators are often unclear how to assess a multitude of sales channels, beyond wholesalers and retailers to encompass online, too. A company like Amazon is active in numerous markets, making merger activities more complex than in analog times.

According to German company experts, another issue is that as times change and trade barriers increase, regulators are assessing industrial policy, as well as the cartel situation in markets where companies are active. That further delays process.

That’s partly what’s slowing the tie-up between Linde and Praxair. The companies each had to divest units and finding buyers took longer than expected. But worse still were the differing demands, conditions and assessments by the European and US authorities. Industry insiders said the FTC takes a notoriously hard line.

Skeptical from the start

Regulators reject these charges. More than 90 percent of mergers are approved within a month, and some within days, according to Germany’s cartel office. It processes 1,200 requests to merge with or to take over another company every year. Only a few of those require a second assessment.

The authorities also note that companies announce their plans early, before making an official application, which then comes months later. “That’s when the clock starts,” said a spokesman in Germany’s cartel office. M&A consultants, in contrast, say they register such plans months in advance of any announcement.

That’s the tip of the iceberg, it seems. Regulators are less likely to trust the information they’re given and are likely to take longer to assess the data they have, according to Maxim Kleine, an expert and partner at law firm Norton Rose Fulbright. He says a lack of trust is the worst problem a company can face.

Companies, meanwhile, are tapping their feet. Regulators may want to take more time, but Germany’s merger laws only allow a limited period – 12 months – between an offer to shareholders and regulatory approval. That time runs out for Praxair and Linde on October 24. Failed deals are also expensive, sometimes running into the triple-digit millions. Tick tock.

Handelsblatt’s Dieter Fockenbrock covers the rail industry, Axel Höpner writes about Siemens, Bert Fröndhoff focuses on the pharma industry, Jens Koenen covers airlines and Robert Landgraf writes about finance. To contact the authors: landgraf@handelsblatt.com

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