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Under what circumstances is a transaction caught by merger control legislation?
The UK merger regime applies only if the European Commission does not already have exclusive jurisdiction to investigate the merger under the EU Merger Regulation. The Competition and Markets Authority (CMA) has jurisdiction to investigate a transaction where a “relevant merger situation” arises in the United Kingdom. This requires that two or more enterprises cease to be distinct and that the jurisdictional thresholds are met. An ‘enterprise’ is defined as the activities or part of the activities of a business, which can sometimes include asset transfers. Enterprises cease to be distinct when they are brought under common ownership or control. Under the UK merger control rules, ‘control’ arises when an enterprise can at least exercise material influence over the policy of another enterprise. ‘Material influence’ is an easier test to satisfy than the EU Merger Regulation’s test of ‘decisive influence’ and the acquisition of minority shareholdings can sometimes be caught.
The CMA may only refer a merger for Phase II investigation by the later of four months after completion of the merger or four months after the date on which material facts about the merger entered the public domain (eg, a press release on the company’s website). This means that if the merging parties have not voluntarily notified the merger to the CMA and the four-month period ends without the CMA having initiated its own investigation, the CMA has no power to refer the merger.
Do thresholds apply to determine when a transaction is caught by merger control legislation?
The Competition and Markets Authority (CMA) has the jurisdiction to investigate a merger if either of the following tests is met:
- Turnover test – the target business has turnover in the United Kingdom of £70 million or more.
- Share of supply test – as a result of the merger, the combined enterprise will supply or acquire 25% or more of any goods or services in the United Kingdom or a substantial part of the United Kingdom.
The share of supply test is not a market share test based on an economic definition of a relevant product or geographic market. The test can be applied to any reasonable description of goods or services and in very narrow geographical areas. Therefore, the test is easily met and the CMA has a wide margin of appreciation in relation thereto. However, it is necessary to show some overlap between the activities of the purchaser in the United Kingdom and the target which results in some increment in the combined share of supply as a result of the merger. As a result, many – even small – mergers in the United Kingdom are caught by this test, although there is a carve-out for de minimis mergers where the aggregate annual value of the market in the United Kingdom is less than £10 million.