Number of Blocked Deals Falls as Companies Pre-empt Regulators

By Ben Dummett

When the proposed train merger between Siemens AG (SIE.XE) and Alstom SA (ALO.FR) was blocked by the European Union last week, several observers seized on it as fresh evidence of a regulatory clampdown on deal making.

But recent data show the number of deals blocked by regulators is actually falling.

Last year, over 29 deals worth a total of at least $52.2 billion across the U.S., the EU, Brazil, South Africa, Australia and Turkey were either blocked or abandoned in the face of regulatory scrutiny, well below the comparable 38 deals in 2017 that had a total value of over EUR130 billion ($147.0 billion), according to a report by Allen & Overy, a global law firm. Of the 29 deals, seven were blocked, down 68% from the year before.

"After a bumper year of enforcement in 2017, it appears that the landscape may now be beginning to stabilize," more in line with levels in 2015 and 2016, Allen & Overy lawyers Antonio Bavasso and Louise Tolley wrote in the report.

In certain cases, merger partners are completing deals because they're showing a willingness to compromise to ease regulatory concerns over issues such as gaining too much pricing power in certain markets.

Germany's Linde (LIN.XE) and U.S.-based Praxair Inc. took that route to win support for their merger to create an $80 billion industrial-gas giant. Last summer the companies seemed poised to complete their deal after striking separate deals to sell assets in Europe, North and South America to Japan's Taiyo Nippon Sanso Corp. (4091.TO) and a German consortium comprised of Messer Group GmbH and CVC Capital Partners. But the deal faced an additional hurdle imposed by the U.S. Federal Trade Commission that required Praxair and Linde in October to sell more assets--this time striking deals with LyondellBasell Industries NV (LYB) and Celanese Corp. (CE).

That said, the number of cases in which companies agreed to so-called remedies such as divestments to win antitrust approval for their deals declined to 139 last year from 159 in 2016, according to the Allen & Overy report.

The drop-off in blocked deals may be partly be explained by companies giving up on a transaction before receiving a formal ruling from antitrust authorities. Transactions abandoned in the face of regulatory concerns but ahead of any formal ruling rose 38% to 22 last year, according to the report, a possible sign more companies could be growing wary of the risks of facing antitrust reviews.

That's the route Qualcomm Inc. (QCOM) choose in July by dropping its $44 billion bid for rival chip maker NXP Semiconductors NV (NXPI) rather than extend the wait for Chinese antitrust regulators to approve the tie-up that was caught up in the middle of rising trade tensions between China and the U.S.

Still, the data suggest big M&A isn't being sidelined by the threat of a review. Of the deals "frustrated" last year, the failed Qualcomm-NXP deal represented 89% of the total value and only one other "frustrated" deal exceeded $1.1 billion, the report found.

Write to Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

February 14, 2019 05:00 ET (10:00 GMT)

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