Last week, the Government published:
i) a draft version of the Competition (Amendment etc.) (EU Exit) Regulations 2019 (the “draft Regulations”) and
ii) an accompanying draft explanatory memorandum, in order to address deficiencies in competition legislation that would arise in the event of a no deal Brexit.
The purpose of the draft Regulations is essentially two-fold:
i) a complete separation of UK and EU competition law and
ii) a smooth transition to a standalone UK competition regime after29 March 2019 (“Exit Day”).
In the event of a hard Brexit, there would be no provision for the UK’s continuing co-operation or case allocation with the European Commission (the “EC”). Since after Exit Day the UK will no longer be an EU Member State and therefore EU law will no longer apply, the draft Regulations provide that the “one-stop shop” of the EU Merger Regulation (“EUMR”) will no longer apply - with the result that the CMA will take over the jurisdiction to review UK aspects of mergers even where a merger was being reviewed by the EC prior to Exit Day.
This will have serious implications for the planning of M&A transactions which have both a UK and an EU nexus. In summary, provided that the UK thresholds are met (which include a market share test in addition to a turnover test of £70m), the CMA will be prevented from investigating relevant mergers only where the EC has already adopted a decision prior to Exit Day (unless that decision is annulled following an appeal). It follows that however advanced the clearance process may have been in a merger that was previously subject to the exclusive jurisdiction of the EC, those parties are likely to be required to seek competition clearance in respect of the UK aspects of the merger from the CMA as well as clearance from the EC so far as the EU is impacted. Clearly, this could have a very significant impact on the timing (and indeed the cost) of a planned transaction. Where companies anticipate that a proposed M&A transaction will raise competition concerns in the UK, the CMA has advised in its guidance on mergers that the parties should engage with it at an early stage.
The draft Regulations will not operate in the event that a withdrawal deal is reached with the EU and, whilst it is most likely that the EUMR will continue to apply as at present during any Brexit transitional or implementation period, there are a number of uncertainties which will need to be resolved before that period begins.
Against this background, when contemplating future transactions of a structural nature with a likely nexus both in the UK and the EU, businesses should consider very carefully the matters discussed above.