Growing cross-border deals get closer scrutiny; Political and antitrust issues take center stage

Cross-border mergers-and-acquisitions increased to a record portion of all takeovers last year. That's good news for dealmakers, but at the same time those foreign transactions have spurred tougher scrutiny from regulators and politicians.

For bankers, the colliding trends mean devoting more time to weighing a deal's political and antitrust considerations. Many used meetings at last week's World Economic Forum in Davos, Switzerland, to network with politicians and such A-list antitrust watchdogs as Europe's Joaquin Almunia, Jon Leibowitz of the U.S. and China's Chen Deming.

"Political and regulatory intervention is tripping up more deals, so by definition, bankers are spending more time on those relationships," said Scott Matlock, chairman of international M&A at Morgan Stanley and a Davos attendee this year.

Citing domestic competitive concerns, regulators have in recent months blocked several big proposed cross-border deals.

UPS, the world's biggest package-delivery company, this month scrapped its $6.9 billion bid for TNT Express after the European Union said it would oppose the deal. In October, German Chancellor Angela Merkel, concerned about the loss of jobs and influence, scuttled a merger of EADS and BAE Systems that would have created the world's largest aerospace and defense firm.

In the U.S., the Justice Department is closely reviewing the proposed $20.1 billion takeover by Anheuser-Busch InBev of Mexico's Grupo Modelo to determine its competitive impact.

"It's important to understand how politicians and regulators think," said Henrik Naujoks, a partner and head of European financial services at consulting firm Bain & Co., who said he packed in three meetings with politicians in a day and a half in Davos. "Government and regulators have become more critical in affecting corporate strategies," Naujoks said.

The more protectionist policies may result partly from an increase in foreign deals. Cross-border transactions accounted for 50.3% of total deals last year -- even though global M&A fell 7% to $2.24 trillion, the lowest since 2010, according to data compiled by Bloomberg.

Reports by the Federal Trade Commission and the Department of Justice's antitrust division showed that more than 250 takeover filings triggered deal investigations in 2011, a 15% increase from 2010. Regulators have also gained in importance in developing economies such as China, Brazil and India, said George Washington University Law School professor William Kovacic, a former FTC general counsel. "It's a huge challenge for the traditional market economies to persuade the newer competition systems like China and Brazil that caving in to political influence is not the way to do business," said Kovacic.