The UK's Competition and Markets Authority (CMA) is consulting on changes to the UK merger regime proposed to reduce the burden of investigations into mergers where the parties operate in small markets.
UK merger control process
The UK operates a two-stage merger control regime. Before starting a formal merger investigation, the CMA will conduct pre-notification discussions with the parties, which typically last one to two months. Upon conclusion of these discussions, the CMA opens a formal Phase 1 merger investigation, which lasts 40 working days. If the CMA finds that the transaction may be expected to result in a substantial lessening of competition (an SLC), and the parties do not offer suitable undertakings to address the CMA's concerns (usually divestments to a third party), the CMA must refer the merger to a in-depth Phase 2 investigation, lasting a further 24 to 32 weeks. The entire process, from pre-notification to clearance at Phase 2, can last ten months or longer.
De minimis exception
The CMA need not refer a merger to a Phase 2 investigation, even if it believes the combination may result in an SLC, if the market in which the concerns arise is not sufficiently important. This is the de minimis exception.
Current CMA guidance provides that the de minimis exception is generally available in the following circumstances:
- There are no clear-cut undertakings (such as divestments) that the parties could offer in lieu of a Phase 2 investigation; and either
- The annual UK value of the market in which the concerns arise is less than £3 million; or
- The annual UK value of the market in which the concerns arise is between £3 million and £10 million and the CMA considers that the cost of reference to a Phase 2 investigation exceeds the expected consumer harm that will result post-merger.
The de minimis exception is not currently available for mergers involving markets with an annual UK value in excess of £10 million.
The de minimis exception was introduced to prevent the CMA and merging parties from incurring investigation costs that are disproportionate to the size of the market(s) in which competition concerns are identified. The CMA now has accepted the de minimis exception in 26 of the 33 mergers in which parties have argued for its use. The most recent successful use of the de minimis exception is Survitec Group's acquisition of Wilhelmsen Maritime Services. The CMA's Phase 1 investigation concluded that the transaction could result in an SLC leading to increased prices or a reduction in quality in respect of the supply of leased commercial life rafts, with no obvious undertakings available. As the value of the affected market was between £2.5 and £3.5 million, the merger was cleared without a Phase 2 reference, using the de minimis exception.
Proposed expansion of de minimis values
The CMA is proposing to update its de minimis guidance so that:
- The threshold over which the de minimis exception is not available is increased from £10 million to £15 million; and
- The threshold over which the de minimis exception is generally available is increased from £3 million to £5 million.
The CMA's proposals recognizes the burden that UK merger control can place on businesses. Merger clearance in the UK is usually a longer and more expensive process relative to the size of the transaction than in jurisdictions such as France, Germany, or before the European Commission for the entire European Union.
Possible benefits of the proposals
The CMA hopes that increasing the de minimis thresholds will encourage merging parties to self-assess whether the de minimis exception applies, and thereby decide to avoid a merger filing altogether, in the comfort that the CMA is unlikely to open an investigation on its own initiative.
For merging parties unwilling to take any such risk based on self-assessment, the proposed increased thresholds may encourage them to focus on de minimis arguments at the outset of pre-notification discussions with the CMA. This could facilitate a less burdensome phase 1 merger control review – requiring less documentation and analysis and fewer meetings with the CMA – in particular if the merging parties concede that their deal may be expected to result in a substantial lessening of competition, but benefits from the de minimis exception. This practice was adopted by the merging parties and the CMA in the review of FirstGroup's acquisition of the TransPennine Express in 2016.
The consultation is open until 13 February. Details of how to make a submission are available on GOV.UK.