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Cleary Gottlieb Discusses European Merger Control During the Pandemic

As the COVID-19 pandemic causes commercial and financial difficulties, many businesses will be considering M&A to address strategic issues, take advantage of market opportunities, and, in some cases, ensure their survival.  This memorandum considers the merger control implications of the pandemic for businesses contemplating transactions at this time.

First, this memorandum provides an overview of how European agencies are responding to the pandemic.  Second, it considers how the crisis may affect the substantive assessment of transactions, including the implications of changed competitive conditions, the availability of the “failing firm” defense, and agencies’ evaluation of the counterfactual.  Finally, we provide some … Read more

Executive Override of Central Banks in the United States and the United Kingdom

What makes a central bank “independent?” As most central bank scholars and policy-makers would likely answer that question, “it depends” – it depends on the bank, the function it is performing, and the political-economy of the times.  Still, as complicated as the concept of central bank independence is, many experts could likely agree on at least one indicium of independence: a central bank’s legal freedom to make certain decisions free from executive branch interference – at least where certain of its core functions, like monetary policy, are concerned.

In a recent article, we compare the way that two different legal … Read more

The Case for Creditor Cooperation Duties in Corporate Workouts

The COVID-19 pandemic is causing financial distress to economically viable firms on an unprecedented scale.  In this post, we introduce the novel idea of creditor cooperation duties to stabilize corporate workouts.

The prospect of widespread defaults by viable firms triggered by the COVID-19 pandemic has prompted emergency legislation around the globe. To a significant degree, these measures aim to keep distressed firms out of formal bankruptcy proceedings.  For example, duties to initiate such proceedings have been suspended in Germany, Italy, and Spain; rules that govern the liability of directors of near-insolvent or insolvent companies have been relaxed in Australia, Singapore, … Read more

Cleary Gottlieb Discusses Europe’s Easing of State-Aid Rules for Pandemic-Related Recapitalizations

On May 8, 2020, the Commission published an important new communication aimed at relaxing State aid rules for COVID‑19‑related equity injections by States into non‑financial companies.[1] While previous initiatives aimed at relaxing State aid rules (in particular the so‑called “Temporary Framework”, or “TF”, adopted on March 19, 2020) [2] were focused on maintaining companies’ access to liquidity, this new communication recognizes that the economic effects of COVID‑19 will also endanger their solvency and thus require more structural (and potentially competition‑distortive) measures such as equity or hybrid capital injections or subordinated loans (i.e., debt instruments that are subordinated … Read more

Skadden Discusses How Covid-19 Prompts EU Nations to Protect Against Foreign M&A

The coronavirus pandemic has weakened European economies and companies. EU and national governments have expressed concern that foreign investors may opportunistically take advantage of the crisis to acquire domestic companies regarded as strategic.

Acquirers should anticipate the risk that governments may review and challenge acquisitions of companies perceived as strategic national assets. Potential for foreign investment review should be considered in advance, in terms of both current legislative measures and prospects for future political intervention, by means of, for example, committee inquiries by national legislatures, state defensive stake-building or even nationalisation of vulnerable domestic companies. These concerns can extend well … Read more

Wachtell Lipton Discusses UK and EU Regulators’ Latest Moves on ESG

Amid the ongoing push for standardized, comparable and decision-useful ESG disclosures, regulators in the United Kingdom and the European Union have proposed additional disclosures and benchmarks to promote sustainable economic activity. The United Kingdom’s Financial Conduct Authority (FCA) has published a consultation paper proposing that certain U.K. issuers make climate change disclosures consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) or explain why they have not. The European Commission’s Technical Expert Group on Sustainable Finance has published its final Taxonomy report for screening environmentally sustainable activities.

FCA Climate Change Disclosure Proposal

Under the FCA proposal, … Read more

Paul Weiss Discusses the Scheduled End of LIBOR

Notwithstanding numerous COVID-19-related challenges faced by market participants, UK regulators have affirmed that—at least for now—the anticipated cessation of the London Interbank Offered Rate (“LIBOR”) at the end of calendar year 2021 remains unchanged. Complying with regulators’ and working groups’ recommendations for reducing LIBOR exposure and transitioning to alternative reference rates, such as the Federal Reserve Bank of New York–endorsed Secured Overnight Financing Rate (“SOFR”) for USD LIBOR instruments, may prove even more challenging than originally anticipated.[1]

The escalating COVID-19 health crisis and accompanying global markets volatility has forced many companies to pivot their resources towards immediate priorities such … Read more

ISS Surveys Regulatory Landscape of Annual Meetings and Covid-19

In response to the COVID-19 pandemic, securities regulators in several countries have published guidance that affords publicly listed companies greater flexibility regarding the type of annual general meeting (AGM) they can hold as well as when it can be held.

As of March 31, the total number of meetings postponed or cancelled globally because of COVID-19 was approximately 557 while the number of meetings that will be virtual-only or proxy-only stood at 560. By comparison, that number stood at 286 for all of calendar 2019. These figures, as tracked by ISS and as illustrated below, are changing by the day … Read more

Artificial Intelligence and Technology in Corporate Governance

The modern boardroom is beset by huge volumes of data that directors must digest to perform their governance functions, data that are only increasing as industries rapidly change and respond to technological disruption. At the same time, corporate scandals as a result of governance failures continue to emerge. Recent Australian inquiries show that company size does complicate, but does not excuse, board transparency and accountability. Moreover, the failure to appropriately make use of existing technology that could have prevented or mitigated corporate misconduct shows that technology can bring us only so far. It has to be supplemented by sound governance … Read more

Debevoise & Plimpton Discusses Impact of Coronavirus on Foreign Investment in China

On March 11, 2020, the Chinese government announced that the novel coronavirus epidemic had peaked within the country, with the number of new cases falling significantly. By March 16, for the first time since the coronavirus was first identified last year, there were more reported cases outside of China than inside. Although the situation appears to have improved markedly, the Chinese government is still caught between efforts to contain the coronavirus and the urgent need to restart economy, which last year already saw the slowest rate of expansion in almost three decades. A Reuters poll found the coronavirus likely halved … Read more

Stealth Takeovers: How Hidden Shareholders Are Buying Companies 

In 2014, luxury firms LVMH Moët Hennessy, Louis Vuitton, and Hermès signed a truce, ending a long and arduous battle popularly known as the “handbag war.” The melee erupted in October 2010, when the fashion giant controlled by Bernard Arnault disclosed it had amassed a 17 percent stake in Hermès, which would eventually grow to over 22 percent.

LVMH had acquired a significant percentage of Hermès with relatively few people noticing. Instead of buying shares outright, it opted for equity derivatives, which did not require a shareholder to declare its position. Such takeover strategies are known as creeping acquisitions or … Read more

COVID-19: A Global Moratorium for Corporate Bonds

The alarming prospect of widespread defaults by viable firms caused by the COVID-19 pandemic has prompted various proposals for financial assistance from states. But firms might face financial distress before these measures become effective. Smaller firms with concentrated debt may be able to informally negotiate an extension of maturity with their lenders. Debtors with bonds outstanding may not be able to arrange workouts so easily. What they need is a novel form of relief.

More than half of European corporate bond issues are governed by UK or U.S. law. We suggest that emergency legislation be introduced to extend the maturity … Read more

Gibson Dunn Discusses the Coronavirus, Private Equity, and Portfolio Company Finances

With confirmed cases of COVID-19 now in more than 50 countries and the death toll rising almost daily, experts are predicting that the situation will get significantly worse before it gets better. Concerns over the impact of the virus have caused significant volatility in the stock markets over the last week and the potential scale of the impact across a very wide  range  of  industries  is  just  beginning  to  be  realized. Therefore for private equity sponsors now is the time to be checking their financing documents to fully understand how COVID-19 might have an impact on the operations and financial … Read more

Should We Ban Short Sales in a Stock Market Crash?

Few things are more predictable than loud demands for regulatory interventions to stop speculation when stock market prices plunge: In these days, as in any recent stock market crash, we hear politicians and commentators inviting regulators to enact interventions spanning from stock trading suspension to a short sales ban. In the past, stock market regulators typically bowed to such demands: Banning short sales is almost their Pavlovian response when faced with a widespread drop in stock market prices.

Over the last 20 years, unfortunately there has been no shortage of crises, so that we have had the opportunity to observe

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Why Stock Markets Are Essential at the Time of Coronavirus

If stocks were still traded in pits, stock exchanges would have been shut down in China, Korea, Italy and possibly elsewhere a while ago. A bunch of men shouting and feverishly passing each other sheets of papers would have spread coronavirus faster than the now infamous Korean sect.

But stock exchange trading was automated everywhere long ago, including at the Borsa Italiana in Milan. Nowadays, the only virus that can be transmitted by trading shares is panic selling. Is that an even better reason for shutting down stock markets, as some high-profile Italians politicians, including former Prime Minister … Read more

Cleary Gottlieb Discusses UK Merger Control Enforcement Ahead of Brexit

The UK’s Competition and Markets Authority (CMA) is strengthening its approach to merger control as it prepares for its new status as a global enforcer with expanded jurisdiction.

Following the UK’s departure from the EU on 31 January 2020, the UK entered a transition period due to end on 31 December 2020.[1]  EU competition law continues to apply in the UK until the transition period ends (and to mergers notified to the European Commission before the end of that period), meaning that the European Commission continues to have exclusive jurisdiction over transactions with an EU dimension, including those impacting … Read more

Cleary Gottlieb Discusses the Coronavirus – Force Majeure or Frustration?

The recent outbreak of novel coronavirus (also known as COVID-19) has had devastating effects since the first cases were reported in the city of Wuhan in China on 23 January 2020. As of 19 February there have been 75,285 reported cases of the virus, spanning 26 countries and resulting in 2,009 deaths.[1] On 30 January, the Word Health Organization (the “WHO”) declared the outbreak was a Public Health Emergency of International Concern (“PHEIC”).[2]

The severity of the outbreak combined with the impact of responsive measures implemented by a number governments has also caused significant disruption to supply chains … Read more

Cleary Gottlieb Discusses Upcoming LIBOR Transition

On 16 January 2020, the Bank of England (the “BoE”), the UK Financial Conduct Authority (the “FCA”) and the Working Group on Sterling Risk-Free Reference Rates (“RFRWG”) published a set of documents outlining priorities and milestones for 2020 on LIBOR transition.[1]

UK regulators have signalled that 2020 is a critical year in the transition efforts from LIBOR to alternative risk-free rates such as the Sterling Overnight Index Average (“SONIA”), the RFRWG recommended replacement rate for Sterling LIBOR-referenced transactions. The suite of publications released last month set out key priorities and milestones for transition progress in 2020, and help to … Read more

Financial Regulators Warn Over Chinese Audit Quality Amid Coronavirus Outbreak

In November 2019, we met with senior representatives of the four largest U.S. audit firms, including certain of their network representatives, to discuss audit quality across their global networks and certain of the challenges faced in auditing public companies with operations in emerging markets, including China.  Those November 2019 meetings, which were discussed in a contemporaneous joint press release,[1] were part of our ongoing efforts to address the issues highlighted in our December 2018 Statement on the vital role of audit quality and regulatory access to audit and other information internationally.[2]  Significantly, among those issues is that the

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Skadden Discusses Merger Reviews and Antitrust Investigations Under Brexit Agreement

The U.K. Competition and Markets Authority (CMA) has published “Guidance on the Functions of the CMA Under the Withdrawal Agreement” (Guidance), which sets out the regulator’s approach to merger and competition cases during the Brexit transition period that will run until at least through December 31, 2020 (Transition Period):

  • The Guidance confirms that during the Transition Period, the U.K. and the EU merger procedures will remain closely aligned. The EU competition and merger control rules will continue to apply as if the U.K. were still an EU member state.
  • The European Commission (EC) will have exclusive jurisdiction over

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