Takeaways
- With markets continuing to be rattled by the coronavirus crisis in the short term, the U.K. Competition and Markets Authority, or CMA, is expected to carefully analyze the long-term competitive effects of Stryker Corp.’s acquisition of Wright Medical Group.
- The CMA announced this week that it will investigate the transaction and is inviting comments from third parties until May 5. Stryker and Wright Medical Group have not formally notified the CMA of their merger, which would initiate a 40-working-day Phase 1 investigation by the agency.
- While the CMA said in guidance issued yesterday, Wednesday, April 22, that it will factor in how the coronavirus crisis will affect markets in the short term, the guidance also suggests that the authority will continue to focus on what the lasting structural effects of a merger will be on the relevant market, according to Mark Jephcott, a partner at Herbert Smith Freehills in London.
- According to a former U.S. government attorney, the CMA’s review of the transaction is likely to mirror the FTC’s review. The total ankle replacement, or TAR, market along with the hammertoe market will likely be the main focus areas for regulators.
With the coronavirus crisis continuing to affect markets in the short term, the U.K. Competition and Markets Authority, or CMA, is expected to carefully analyze the long-term competitive effects of Stryker Corp.’s acquisition of Wright Medical Group.
The CMA announced this week that it will investigate the transaction and is inviting comments from third parties until May 5. Stryker and Wright Medical Group have not formally notified the CMA of their merger, which would initiate a 40-working-day Phase 1 investigation by the agency.
Like the European Commission’s Directorate-General for Competition, the CMA may face difficulties conducting substantive assessments of transactions during the coronavirus pandemic due to the broad economic effects of the crisis. In guidance
issued yesterday, Wednesday, April 22, the CMA said that “the impacts of Coronavirus will be factored into the substantive assessment of a merger where appropriate.” The authority added that while it is clear that at least in the short term there will be a substantial impact across the United Kingdom as a result of changes in market conditions, “there remains considerable uncertainty about the extent and duration of this impact.”
Mark Jephcott, a partner at Herbert Smith Freehills in London, told Reorg that the CMA generally takes a long-term view in its analysis of transactions. While the CMA will factor in how the coronavirus crisis will affect markets in the short term, the authority’s guidance Wednesday suggests that it will continue to focus on what the lasting structural effects of a merger will be on the relevant market, Jephcott said. “The main message of the guidance seems to be that, as far as possible, it remains business as usual for the CMA.”
The CMA also said yesterday that because of difficulties that could arise in obtaining information from merging parties and third parties during the pandemic, “it is possible that the pre-notification process will take longer than it otherwise would.” This could delay when the authority begins its 40-working-day clock for a Phase 1 review in certain cases.
According to a former U.S. government attorney, the CMA’s review of the transaction is likely to mirror the FTC’s review. For example, the CMA would be expected to conduct a general review of market players, in addition to examining any specific overlaps.
As Reorg
analyzed previously, the total ankle replacement, or TAR, market along with the hammertoe
market will likely be the main focus areas for regulators.
However, the CMA’s review could be more sensitive to long-term competitive effects. Whereas the U.S. antitrust agencies generally focus on a deal’s effects within the next year or two, the CMA thus far has been looking further ahead to determine effects on market structure and innovation, the former government attorney said.
From a revenue and sales standpoint, both Stryker and Wright Medical have relatively small presence in the U.K. compared with their footprint in the U.S. According to Stryker, the company
generated 12% of its sales from the “Europe, Middle East, Africa” region in 2019. It is likely that the company’s U.K.-based revenue could be much lower. On the supply side, while Stryker has 31 manufacturing and R&D locations worldwide, the company notes that it has a distribution facility in Newbury, England.
Similarly, Wright Medical
generated roughly 16% of its sales from the Europe, Middle East, Africa and Canada, or EMEAC, region in 2019. Importantly, Wright has no material manufacturing or R&D facility in the United Kingdom The company’s presence in the U.K. is limited to subsidiary sales offices and distribution warehouses. Outside the United States, the company’s primary manufacturing facilities are located in Montbonnot, France, and Macroom, Ireland.
Two other antitrust attorneys said the FTC’s review of the transaction is likely affected by the coronavirus pandemic in both negative and positive ways. For example, on the one hand, lawyers who are working on the transaction no longer have to commute, which theoretically gives them more time, said the first of these attorneys. On the other hand, many people who are working from home have limited technological capabilities. They may be conducting work on a laptop or only one screen, rather than being able to view several screens at once, this attorney said.
These attorneys agreed that the effects thus far of the coronavirus are mixed in terms of agency reviews. Although there are some efficiencies in remote work, there are also challenges, which is why the agencies have asked for flexibility in HSR timelines, the second of these attorneys said.
Along with CMA and FTC approvals, the deal also needs antitrust clearances in Austria, Germany and Saudi Arabia.
Reorg’s previous coverage of this transaction can be found
HERE.
--Alex Wilts, Ryan Lynch and Shrey Verma