Identifying and understanding risks
Mitigating risks


The acquisition of a minority shareholding (which satisfies the jurisdictional criteria under the UK merger control regime) without obtaining clearance presents a range of legal and commercial risks for the parties, including that the Competition and Markets Authority (CMA) could ultimately order the acquisition to be undone.(1)

Identifying and understanding risks

To identify and understand the extent of these risks, parties may choose to undertake an initial assessment of the risk profile of the transaction to determine:

  • whether the CMA would be likely to conduct a Phase 1 investigation (eg, regarding the 'value of turnover test' or the so-called 'share of supply test' under Section 23 of the Enterprise Act 2002); and
  • whether the CMA would be likely to identify any material competition concerns and how any such concerns could realistically be addressed by the parties while ensuring that the transaction remains commercially viable (eg, by offering undertakings in lieu of reference for a Phase 2 investigation), together with the timing implications if an initial enforcement order (IEO) was to be imposed.

Mitigating risks

Where a risk profile is acceptable to the parties, they may choose to consider the possible strategies for engaging with the CMA in respect of the acquisition. For example, these may include:

  • informing the CMA of the acquisition via an informal briefing note setting out why the parties do not intend to notify and obtain clearance from the CMA (eg, on the basis that the acquisition does not give rise to competition concerns);(2) or
  • engaging with the CMA in advance to obtain derogations from any IEO that may be imposed in respect of the acquisition once completed.

Alternatively, if a risk profile raises concerns, the parties should consider:

  • whether it would be commercially viable to restructure the acquisition in order to mitigate the identified risks (including, for example, reducing the shareholding and associated rights to be acquired or introducing CMA clearance as a condition that must be satisfied prior to completion); and
  • whether they wish to continue with the transaction in view of the risks identified at this stage.

In this regard, forewarned is forearmed, and advance consideration of the likelihood (and likely outcome) of a CMA investigation is central to ensuring that the contemplated investment has the opportunity to deliver the envisaged returns.

For further information on this topic please contact Bernardine Adkins or Samuel Beighton at Gowling WLG by telephone (+44 207 379 0000) or email (b[email protected] or [email protected]). The Gowling WLG website can be accessed at www.gowlingwlg.com.

Endnotes

(1) This article is part of a series that examines minority shareholding acquisitions and the UK merger control regime. For previous articles in the series, please see: "Competition and Markets Authority's ability to investigate completed transactions", "Use of IEOs in completed transactions" and "Acquisitions of minority shareholdings under UK merger control regime".

(2) See "CMA56 Guidance on the CMA's mergers intelligence function", 5 September 2017, paragraph 11.