With no certainty over whether the UK will leave the EU with a withdrawal agreement in place, from Monday 25 February businesses planning mergers or acquisitions will need to plan for the alternative outcome - a hard Brexit - in their transaction assessments.
Mergers filed with the European Commission on or before 25 February will receive a merger decision, which applies across the whole of the EU, prior to 29 March 2019 (the date that the UK is scheduled to leave the EU). Parties to a merger notified after that date will need to consider whether a filing to the Competition and Markets Authority ("CMA") in the UK is needed. Without proper consideration of the risks and effects, completion of transactions could be subject to delays, rising costs or even penalties.
Time is running out
Under the EU Merger Control regulation ("EUMR"), the European Commission ("Commission") has 25 working days to reach a Phase 1 merger decision. While the UK is a member of the EU, the EUMR provides a one stop shop to review mergers for all Member States.
If the UK leaves the EU without an agreement ("hard Brexit") on 29 March, the CMA may have jurisdiction to review mergers that have not completed. Notifications in the UK are voluntary, but the CMA has the power to investigate qualifying mergers up to four months following either completion, or when the transaction is made public (whichever is later). This means that transactions would need to close by 29 March to be the subject of a Commission decision approving the transaction, to ensure no risks of the CMA investigating a merger (if the UK has jurisdiction). In order to ensure obtaining EU phase 1 clearance by the 29 March deadline, the transaction must be notified to the Commission no later than 25 February 2019.
The Commission can clear mergers earlier than 25 working days, but this is discretionary. Additionally, transactions that may be referred to a Phase 2 investigation would have to take Brexit into account in any event.
What does this mean ahead of 29 March?
Every transaction that is notified between 25 February and 29 March 2019 is therefore subject to the uncertainty surrounding Brexit. The CMA, as a member of the European Competition Network, will receive a copy of all EU merger notifications, so will be able to identify mergers that are likely to trigger the UK thresholds.
Merging parties must therefore be mindful of the UK thresholds, and the impact of the UK's withdrawal from the EU in any turnover calculations.
What could happen after 29 March?
The proposed Withdrawal Agreement, which is before Parliament but does not currently have sufficient support to enter into force, provides for a transitional period, under which the Commission would continue to review and clear UK mergers under the EUMR.
Another possibility is that the EU may agree to extend the 29 March deadline for the UK's withdrawal (as an extension to the two year timeline in Article 50 of the Treaty on European Union), which would extend the period during which the Commission would continue to have jurisdiction over mergers that fall within the EUMR.
If there is a no deal Brexit, mergers notified to the EU between 25 February and 29 March will begin with the Commission. However, once the UK leaves the EU, the CMA will have jurisdiction over mergers that have not completed and trigger the UK merger control thresholds. Notifications to the CMA are voluntary, but any qualifying merger that previously would have been left to the Commission will require an assessment under the UK merger regime.
Similarly, any potential notification to the EU after 29 March will have to take into account the fact that the UK has left the EU. For example, turnover generated in the UK will no longer count towards the EU turnover threshold calculations which may have a substantial effect on where transactions would be notified.
As a result, any transactions in the pipeline will need to examine the impact of the alternative Brexit scenarios on the merger control clearances that may be required, and factor the complications into any deadlines for completion.