The UK Department for Business Innovation and Skills (BIS) is currently consulting on a fundamental review of the UK competition regime. This includes, amongst other proposals, the introduction of a mandatory merger regime and a combination of the hitherto distinct first and second phase authorities (the Office of Fair Trading (OFT) and the Competition Commission) to form a single 'Competition and Markets Authority' (CMA).

The two key concerns that BIS has identified with the current voluntary merger regime are that (i) a number of problematic mergers escape review as they are not notified to or identified by the OFT and (ii) a large proportion of problematic mergers which are reviewed have already completed, which makes it more difficult to unscramble the deal subsequently.

BIS is therefore consulting on three options for strengthening the system in a way that addresses the two issues, principally by introducing some form of suspension requirement and introducing a mandatory notification system. Each of these options is outlined below.

1. Strengthening the current voluntary system

The proposals around the current regime are principally designed to prevent the issues surrounding completed mergers.

Jurisdictional thresholds - The proposal is either to retain current thresholds (triggered where the target achieves £70 million UK turnover or where the parties' combined share of supply is 25% or more) or to remove all thresholds so that every merger can be reviewed.

Small merger exemption - In order to reduce the burden on small businesses an exemption would be introduced for mergers in which the target achieves less than £5 million UK turnover and the buyer less than £10 million worldwide turnover.

Suspension obligation - There are two proposals dealing with the 'unscrambling issue' by introducing either (i) an automatic restriction on further integration once the CMA investigates, or (ii) giving the CMA the power to issue order preventing further integration.

2. Full mandatory regime

A full mandatory regime would involve both mandatory notifications and some form of suspension.

Jurisdictional thresholds - BIS proposes to set a very low threshold: a target turnover of £5 million in UK and buyer turnover of £10 million worldwide. The aim is to capture all problematic mergers that would otherwise escape review.

These thresholds are even lower than Germany, which has hitherto operated the most stringent notification thresholds in Europe. BIS estimates that the number of notifications would rise by some 1,135 per annum, but this is likely to be a significant underestimation given that the OFT's database on which the estimate was based excluded purely foreign-to-foreign mergers.

Suspension obligation - The consultation envisages either a full automatic suspension obligation or providing the CMA with powers to prevent further integration in cases it views as potentially problematic.

3. Hybrid regime

The proposed hybrid regime seeks, as the name suggests, to combine the best aspects of both systems: to set the pre-notification thresholds at the same turnover level as the current regime but to retain the ability to investigate mergers below the thresholds that would fall within the current share of supply thresholds.

Jurisdictional thresholds - There would be a mandatory notification where the target achieves £70 million UK turnover, the acquirer's turnover being irrelevant. Mergers below that threshold would still be reviewable by (and notifiable to) the CMA if the merged entity achieves a share of supply of 25% or more. BIS expects that this would give rise to some further 292 cases over and above the current workload.

Small merger exemption - The same small merger exemption as set out above would apply. A merger would be exempt where the target achieves less than £5 million UK turnover and the acquirer achieves less than £10 million worldwide turnover.

Suspension obligation - As with the full mandatory regime, notifiable mergers would be either automatically suspended or the CMA would have the power to require the suspension of further integration measures in potentially problematic cases.

Quo vadis?

The consultation is very much in the early stages, which means that the likely outcome is equally uncertain. Given the determination by the business secretary Vince Cable to "put some sand into the merger system", it seems highly likely that some form of mandatory notification system will be introduced. However, the jurisdictional thresholds of the full mandatory system have been set at such a low level that this option becomes unrealistic within the institutional and budgetary constraints of a combined CMA. We therefore believe that the most likely outcome is that either the hybrid system will be introduced or that the thresholds for the full mandatory system will be significantly increased.