Clifford Chance

MR

Welcome to the Clifford Chance Podcast where we discuss pressing issues and trends faced by the business world today.
I'm Milena Robotham and I'm a partner in the firm's global antitrust practice, based in Brussels.
This is our Spring Meeting Roundup where we'll share the top sector takeaways from the annual ABA Spring meeting in Washington, DC.
Today, we'll be focused on the energy sector.

MV

And I am Michael Van Arsdall, a counsel in the antitrust group based in our Washington, DC office.
So I think we can get right to the questions. Milena, what are the biggest takeaways from the Spring Meeting that you would want your clients active in the energy sector to know?

MR

Well, I think, Michael, one theme that emerged and stood out to me, and this is applicable across sectors, but I think certainly of interest to our energy clients is the increase in regulatory red tape and complexity for transactions.
So generally, this relates to the constant, or what feels like the constant addition of new foreign direct investment regimes and the entry into force of the still relatively new foreign subsidies regulation, or FSR. Another point that stood out to me on FSR specifically and which made news during the ABA Spring Meeting week is that Executive Vice President Vestager announced a new ex officio investigation under the FSR into Chinese subsidies provided in connection with wind farm developments in certain EU countries, and she later stressed that the FSR's role in protecting the block's economic security. She mentioned that the EC would make full use of its regulatory tools, and the whole tenor of her comments around this investigation suggests that there is much more of the same to come. I think this message from EVP Vestager and coupled with the political focus on consumer pocketbooks in Europe, the geopolitical context and the EU strategic objectives around resilience altogether mean that energy related investments into the block in particular are likely to continue to come under scrutiny through other such ex officio investigations and the like.

MV

Interesting. Were there any other notable takeaways?

MR

One other thing to note is EVP Vestager called for increased cooperation in renewable energies moving forward, saying that major economies such as the EU and US, you know, among other groups, seven countries should agree on shared, what she called, trustworthiness standards for clean technologies.
So what we saw last week at the spring meeting was some political angling, at least on the EU side, for arriving at some common criteria for green technologies.

MV

Interesting. Obviously, speaking of green, there was talk of certain ESG factors throughout the conference. Lina Khan in particular, chair of the FTC, explained that US agencies are not authorized actually to provide exemptions for environmental issues, and that's really something that should be taken up by Congress to provide exemptions if there are to be any. Is that similar to an approach that the EU has taken, or is there a difference?

MR

There is a difference here. This is one area where we have quite significant divergence. Unlike in the US and as EVP Vestager highlighted during the ABA Spring Meeting week, there are easy guidelines that allow a safe harbor for companies that want to work together to achieve goals set out by the Paris Agreement to reduce emissions. So what about you, Michael? From your perspective, what else did you take away from the conference from an Americas point of view, that will be of interest to our energy sector clients?

MV

Certainly there was a lot covered at the spring meeting, and many of the important takeaways at the spring meeting were not limited to the energy sector or to energy sector clients specifically. One such area is the continuing and increased scrutiny of Section 8 violations, not just in the intersection, but for all sectors. Obviously Section 8 deals with interlocking directorates. Andy Forman of the DOJ confirmed that there are Section 8 investigations ongoing in every section at the DOJ. This may affect energy clients, particularly as they explore and consider investments in developing sectors, specifically renewable energy. As companies invest in other entities and broaden their portfolios, it's important to analyze the extent to which there may be competing sales between the various portfolio companies involved. Of course, Section 8 also requires continuous monitoring, so to the extent companies are considering investing even minority investments in portfolio companies, they need to analyze the competitive sales first, and if they determine that they're taking advantage of the safe harbors under Section 8, they need to monitor those revenues going forward. So for example, as the revenues of a particular portfolio company grows, they want to determine whether those companies can still take advantage of the 2 or the 4% Safe Harbor exemptions.

MR

Yeah, this seems really critical. I mean, it's a something, of course, it's been on our collective radar for some time when we're advising clients, but it does indeed seem that for, as you were saying for energy sector clients and others, going to come maybe more and more to the fore and need to be under continued assessment.
Interesting. I also heard that there might be some new legislative updates in the US that will impact our clients. What exactly, or can you tell us a little bit about those changes and how will they impact the energy industry?

MV

Certainly, one change that we have been anticipating for some time, some thought it might be announced at the spring meeting, but we are expecting it in the coming weeks, is that for the first time in 45 years, there's going to be a new HSR form. The new HSR form we believe is likely to be finalized in the coming weeks, and it will be burdensome across sectors including energy. The new form, for those already familiar with it and for those who are not, it's a dramatic departure from the information required on the current filing regime. It makes the US filing regime much closer to some of the rest of the world's merger enforcement regimes, like Europe.
To the extent that the final form is consistent with the draft form that we've seen previously, it's going to require much more information about the marketplace and the products involved. It will require information on prior deals, even if those deals were not reportable under HSR. There'll be significant information required on labor contracts and, probably the biggest change that's giving people concern, is that under the form today, only final versions are required of item 4 documents that need to be filed. And an item 4 document is obviously studies now sees and reports that are prepared by or for officers and directors analyzing certain elements of competition under the new form, all drafts of those documents are going to need to be submitted. So the takeaway going forward is that it's going to increase time to file, burden and cost. And so these days, you know, I think the idea that companies are going to put into their purchase agreements the standard 10 business days after signing, is a thing of the past. Companies are going to need to, as they're entering into purchase agreements now and going forward, consider leaving those a little bit more open ended and allowing for the appropriate time to gather the information, review the documents and submit the filing.

MR

This, it seems really huge. I wonder about the collective amount of lost sleep and handwringing by practitioners and in-house legal counsel that the new form has wrought. But do you think that the new form on its own is enough to enable agencies to take deeper looks into mergers? Do you think it'll make a substantive difference in that way?

MV

There are divergent views on this, and it's a great question.
Obviously, the government thinks it will or they wouldn't be expanding the reach of the form. I personally do not. Throughout several panels during the week, the enforcers specifically said that they're going to use all the tools in the toolbox to pursue novel cases in each sector. Now my view is that under the current structure and the existing HSR form, followed by a second request if necessary, is perfectly fine to allow the government to investigate deals that need to be investigated. I think the new form is going to be burdensome and provide a lot of information that is irrelevant to deals that need to be investigated, and certainly for deals that don't, and there doesn't seem to be any distinction between deals that might need that heightened scrutiny.
Everyone's going to have to provide this information even if the deal doesn't present significant substance issues. That said, separate and apart from the new form, we anticipate enforcers looking for transactions that touch on some of the newer and more novel theories that were articulated in the new merger guidelines that have obviously been out for some time now. That would include entrenchment and serial acquisitions, again, that might be of particular interest to energy sector clients as they broaden their portfolios and expand into adjacent sectors. So again, any one deal may not be an issue, but if they're making multiple acquisitions or investments in a particular sector that could get scrutiny. Another area again for labor and other sectors is a focus on labor. We have seen, particularly with the recent suit by the FTC against Kroger and Albertsons that the labor issues and the salary issues involved in that deal were of paramount importance. And so I think as companies are looking at strategic acquisitions, they not only need to look at what would traditionally be the competitive overlaps, but they need to kind of consider, what could the labor impacts be in that particular area.

MR

Are there any specific energy deals where you think enforcers might try to test these novel theories or, you know, flex the labor angle that you mentioned?

MV

Not specific deals, however, there's plenty to choose from. There's been congressional scrutiny of mergers in the oil and gas sector for some time. In March of this year, the other 50 democratic senators and representatives urged the FTC to investigate recent oil and gas mergers. That was led by Senator Chuck Schumer.
The democratic senators also stated that recent consolidation threatens competition in the industry and could lead to higher prices and fewer choices for businesses across the supply chain, suppress worker wages and make heating and cooling and gas at the pump more expensive for consumers. So again, those are all theories right out of the new merger guidelines and there are plenty of deals. So without focusing on a specific deal, I think if there are actions brought against some of the recently announced mergers, they will involve some of these newer theories.

MR

What about Canada, Mexico, any other countries in North and South America, Michael, were there any developments or updates during the ABA spring meeting or in surrounding events that that might affect our energy clients?

MV

Yes, there were. Andrea Marván Saltiel, the president of COFECE, said her agency specifically is directing its enforcement and advocacy efforts towards sectors that significantly impact the population, including energy, among others. And she highlighted a shift toward stronger enforcement actions with abuse of dominance cases reaching advanced stages. I think that is something in particular that we should keep in mind.

So with that, Milana, was there anything that was not covered during the spring meeting that you think should get more attention in 2025?

MR

Well, I think one absence that maybe stood out to me was, ironically focus on the energy sector. I know we've talked about a number of the highlights, but I think that given the overall focus on the energy sector in enforcement more broadly, the ex officio investigation that Vestager announced, and setting aside the comments by the President of COFECE, that the energy sector would be in the crosshairs of increased enforcement, I think other than the points we have highlighted, there were not that many energy sector-specific updates and developments that were discussed at the ABA spring meeting perhaps, and that in contrast to previous years. And I think also in contrast to the focus on other sectors, notably digital in particular.
So I think that's something that I hope would get more and more attention in 2025, because we know from our practice that indeed enforcement is active, that energy sector clients are very active in M&A. So we'll be at the forefront of these new novel theories as you say, being tested by the agencies in the US and elsewhere. That's what I'd hope to see next year at the ABA Spring meeting.

I think as we turn our minds to wrapping up, I think we should shift to a more lighthearted note. Michael, what was the highlight of the spring meeting for you?
And it doesn't have to relate to any of the panels.

MV

Great question, I think the highlight, obviously, Milena, relates to you specifically and we had 29 other partners and counsel from around the globe coming to Washington from London, Brussels, Dusseldorf, Sydney, Beijing, New York, Warsaw, Paris and Madrid, which made the entire event more enjoyable. It was great to see everyone and it showed a real global commitment to Antitrust. So that was my highlight. Thank you for participating in this podcast, thank you for coming to Washington.
We want to thank everyone for listening and for additional insights from the spring meeting. Please check out the Health and Life sciences, finance and private equity segments on our podcast channel.
You've been listening to the Clifford Chance Podcast. Please subscribe to our podcast and follow us on LinkedIn. Thank you.