Legislation and jurisdictionRelevant legislation and regulators
What is the relevant legislation and who enforces it?
The primary legal basis for merger control in the United Kingdom (UK) is the Enterprise Act 2002 (EA), which came into force on 20 June 2003. In April 2014, the EA was significantly amended by the Enterprise and Regulatory Reform Act 2013 (ERRA). In particular, the Office of Fair Trading (OFT) and Competition Commission (CC) were merged into a single authority, the Competition and Markets Authority (CMA). The CMA’s primary duty is to seek to promote competition, both within and outside the UK for the benefit of consumers. Published guidance explains how the provisions work in practice and secondary legislation implements some of the provisions.
The EA establishes an administrative procedure for merger control, which is now solely implemented by the CMA. In limited cases, raising defined public interest issues, the Secretaries of State for Business, Energy and Industrial Strategy (BEIS) or Culture, Media and Sport may also be involved in the decision-making process. Under the general EA merger regime:
- the CMA has a duty to refer mergers (anticipated or completed) for a Phase II review where it believes that there is, or may be, a relevant merger situation that has resulted or may be expected to result in a substantial lessening of competition (SLC) in the UK. Exceptions to the duty to refer exist in certain circumstances (see question 19);
- following a reference for a Phase II investigation, the CMA conducts a more detailed analysis to decide whether a relevant merger situation has been or will be created and, if so, whether the situation results, or may be expected to result, in an SLC within any markets within the UK. If the CMA decides that there is an SLC, it must go on to determine how to remedy, mitigate or prevent the adverse effects (see question 24); and
- different rules are in place (see question 8) for public interest, special public interest and water merger cases.
What kinds of mergers are caught?
The EA applies to a ‘relevant merger situation’, which may be a completed or anticipated merger. The CMA must make a reference for a Phase II review where it believes that there is or may be a relevant merger situation that has resulted or may be expected to result in an SLC. An ‘anticipated merger’ may be a merger that has been signed but not yet completed, or it may be a merger in contemplation. Where these conditions are met, a reference for a Phase II review must be made unless one of the exceptions to the duty to refer applies (see question 19) or, where appropriate, it may seek and accept undertakings in lieu of a reference from the merging parties (see question 25).
A relevant merger situation will arise when the following conditions are satisfied:
- two or more enterprises cease to be distinct, that is, are brought under common ownership or control or there are arrangements in progress or in contemplation that will lead to enterprises ceasing to be distinct. Control is not limited to legal control (see question 4);
- either the merger has not yet taken place, or the merger has taken place not more than four months before the reference is made, unless the merger took place without having been made public and without the CMA being informed of it (in which case, the four-month period starts from the announcement or at the time the CMA is told); and
- the transaction meets certain jurisdictional thresholds (the share of supply or turnover tests described in question 5).
The EA defines an ‘enterprise’ as the ‘activities, or part of the activities, of a business’ that are carried out for gain or reward (it need not therefore be a separate legal entity). CMA Guidance (see Mergers: Guidance on the CMA’s jurisdiction and procedure and the Merger Assessment Guidelines) indicates that an enterprise may comprise any number of components, including the assets and records needed to carry on the business and the employees working in the business, together with the benefit of existing contracts or goodwill, or both. A business need not currently be trading to constitute an enterprise. In June 2014, the CMA found, following a legal challenge, that it did have jurisdiction over Groupe Eurotunnel’s acquisition of three ferries and related assets previously belonging to SeaFrance (now liquidated). The CMA found considerable continuity between the former SeaFrance services and Groupe Eurotunnel’s new services on the same route. The assets in question were considered to form a business that was already geared up to run a ferry service; the situation was thus distinct from buying mere assets in the market. The Supreme Court upheld the CMA’s decision regarding the definition of ‘enterprise’ for the purposes of UK merger control in December 2015 (see question 32).
What types of joint ventures are caught?
The creation of a new joint venture, or a shift in control or influence over an existing joint venture, may give rise to a relevant merger situation, provided that the share of supply test or the turnover test (see question 5) is met.
Is there a definition of ‘control’ and are minority and other interests less than control caught?
The CMA documents, Mergers: Guidance on the CMA’s jurisdiction and procedure and Merger Assessment Guidelines, provide guidance on the meaning of control. Control can comprise any of the following:
- material influence - which arises on the basis of an ability materially to influence another enterprise’s policy. This can arise at relatively low levels of shareholding, perhaps as low as 10 to 15 per cent. Other factors such as board representation, industry standing and contractual relationships between the enterprises involved may also be taken into account. The Court of Appeal upheld a finding that BSkyB’s acquisition of a 17.9 per cent stake in ITV gave rise to material influence in the circumstances of the case. This concept can therefore clearly catch transactions that would not be caught by the EU Merger Regulation (EUMR). For example, the OFT referred Ryanair’s acquisition of a 29.82 per cent shareholding in Aer Lingus Group plc (the European Commission having concluded that it did not have the power to require Ryanair to divest itself of the minority stake under EU merger rules) to the CC in June 2012. The CC reached its decision in July 2013, requiring Ryanair to reduce its shareholding in Aer Lingus to 5 per cent. Its conclusion that the 29.82 per cent shareholding gave material influence was based on a range of factors including, in particular, Ryanair’s ability to block special resolutions and the sale of Heathrow slots under the articles of association. This conclusion was reiterated by the CMA in its final decision in June 2015 following an application by Ryanair to the CMA to reconsider its decision based on material changes to circumstances. Following the CMA’s final decision, in October 2015, Ryanair withdrew its application before the Court of Appeal regarding the same issue;
- de facto control - the ability to control policy, which may arise on the acquisition of a higher level of shareholding, such as 30 per cent of voting rights; or
- legal control - a controlling interest, unlikely to arise unless one enterprise holds more than 50 per cent of the shares carrying voting rights in the other. In some (exceptional) cases, acquisition of a shareholding in excess of 50 per cent may not give rise to legal control where an agreement with the other shareholders circumscribes the majority owner’s rights (see, for example, Coca-Cola Company/Fresh Trading Limited, where a shareholding increase from around 20 per cent to above 50 per cent did not give rise to legal control, as the acquirer obtained no additional voting rights (either in the shareholders’ meeting or at board meetings)).
A change from material influence to de facto control or legal control, or from de facto control to legal control, can constitute a new relevant merger situation (see question 2).Thresholds, triggers and approvals
What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?
The EA provides alternative thresholds based respectively on share of supply and turnover:
- the ‘share of supply’ test is satisfied only when the merger itself creates or enhances a 25 per cent share of supply or purchases of any goods or services in the UK (or in a substantial part of it). This is not a market share test and allows a wide discretion in describing the goods or services, which need not amount to relevant economic markets;
- the turnover in the UK of the enterprise over which control is being acquired exceeds £70 million. This is determined by aggregating the total value of the turnover in the UK of the enterprises that cease to be distinct and deducting:
- the turnover in the UK of any enterprise that continues to be carried on under the same ownership or control (eg, the acquiring enterprise); or
- if no enterprise continues to be carried on under the same ownership and control (eg, formation of a new joint venture), the turnover in the UK which, of all turnovers concerned, is the turnover of the highest value.
Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?
Filing in the UK is voluntary. However, a large number of deals are, in practice, notified prior to completion to give the parties legal certainty as, irrespective of a notification, the CMA may commence an investigation on its own initiative and subsequently refer the merger for a Phase II investigation. This carries the risk of remedies being imposed even if the transaction has already been completed. Further, the CMA monitors the market for transactions falling within its jurisdiction that have not been voluntarily notified and has significant interim measures powers, which enable it to prevent or unwind action that might prejudice the outcome of a reference for a Phase II investigation or impede remedial action. The CMA can intervene as soon as it has reasonable grounds for suspecting that it may be the case that arrangements are in progress or in contemplation, but uses interim orders mainly in the context of completed mergers (see further question 11). The CMA stated in its 2018/19 Annual Plan that, to achieve a balanced and targeted approach to investigating non-notified mergers, it will welcome informal briefings from companies to advise on whether a potential merger is likely to come under CMA scrutiny.
Filing must be by merger notice in the form prescribed by statute or by a submission containing the same information (see question 10).
Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?
There is no system of mandatory notification in the UK (see question 6). It is implicit in the jurisdictional criteria (see question 5) that at least one of the enterprises will be active within the UK (although it need not necessarily be incorporated within the UK). These principles apply equally to non-UK companies that sell to (or acquire from) UK customers or suppliers. In assessing whether a firm is active in the UK, the CMA will have regard to whether its sales are made directly or indirectly (via agents or traders) and the extent to which a firm is active at each level of trade.
In June 2013, the Court of Appeal confirmed the CC’s jurisdiction over the AkzoNobel/Metlac merger on the basis that AkzoNobel had significant influence over its UK subsidiaries, which were carrying on business in the UK, including the setting of strategies and approval of operational decisions and did not itself need to be carrying out commercial activities in the UK.
Are there also rules on foreign investment, special sectors or other relevant approvals?
The UK does not currently have a domestic legal framework that specifically governs inward foreign direct investment. However, the EA merger regime sets out special rules for mergers involving public interest issues and special public interest cases (including mergers involving certain government contractors that possess information relating to defence and of a confidential nature). Broadly, where the Secretary of State intervenes in a public interest case, that case is considered in light of both competition and public interest issues. Where the Secretary of State intervenes in a special public interest case (ie, one in which the CMA does not have jurisdiction under its normal rules) the outcome of the case is dependent on public interest issues only.
The public interest grounds on the basis of which the Secretary of State may intervene are national security, media plurality, the stability of the UK financial system and new public interest considerations that may be added by the Secretary of State. Where the Secretary of State issues an intervention notice specifying a ‘media public interest consideration’, Ofcom is required to report whether it is, or may be, the case that the merger may be expected to operate against the public interest, to assist the Secretary of State in its decision as to whether there is a plurality concern requiring further investigation by the CMA. At the request of the Secretary of State, Ofcom published a measurement framework for media plurality in November 2015. One recent example of an intervention by the Secretary of State for Digital, Culture, Media and Sport on public interest grounds is the investigation into the proposed acquisition of Sky plc by 21st Century Fox. In June 2018, the Secretary of State for Digital, Culture, Media and Sport accepted the CMA’s recommendation that the proposed acquisition was not in the public interest due to media plurality concerns and accepted the CMA’s recommendation that the most effective and proportionate remedy was for Sky News to be divested to a suitable third party.
There is also a special regime for water (and sewerage) mergers. In some circumstances water mergers are subject to mandatory reference to the CMA and are governed by the Water Industry Act 1991 (as amended by the EA and Water Act 2003) and the Water Act 2014. There are currently no special provisions for other regulated utilities (such as electricity, gas, telecommunications or rail), which are subject to the EA merger regime although various regulatory approvals are required for the acquisition of certain regulated businesses and businesses operating in the financial or insurance sector. The Industry Act 1975 confers power on the Secretary of State to prohibit changes of control over an important manufacturing undertaking where the change of control would be contrary to the interests of the UK, although this power has not been used in practice.
In June 2018, the CMA published guidance on changes to the UK merger thresholds for changes of control over enterprises that are active in any of three defined sectors: the development or production of items for military or military and civilian use; quantum technology; and computing hardware. The turnover threshold applicable to such ‘relevant enterprises’ has been reduced from £70 million to £1 million, and the share of supply test has been broadened to include mergers involving a target with 25 per cent or more share of supply of the relevant goods and services in the UK (as well as where the merger leads to an increase in the share of supply to, or above, this 25 per cent threshold, which is the requirement for those enterprises not deemed ‘relevant enterprises’). The new tests were approved by Parliament and came into force on 11 June 2018. The purpose of these changes is to ensure that the Secretary of State is able to intervene to address any national security-related issues raised by such transactions, and the CMA has stated that the amendments to the jurisdictional thresholds will not result in different treatment of the three defined sectors from a competition perspective.
As discussed further at question 35, BEIS is still considering additional long-term reforms to the public interest regime, which are intended to introduce a new notification regime for mergers relevant to national security and critical infrastructure.
Notification and clearance timetableFiling formalities
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
As there is currently no obligation to notify a merger, there are no filing deadlines and no sanctions apply if notification is not made. Where parties do not notify, however, they take the risk that, whether or not third parties complain, the CMA may call in the merger for review and adopt a decision to refer for a Phase II review (within the prescribed period of four months following a completed transaction becoming public or the CMA being informed of it) and that divestment or other remedies could be ordered following an adverse report. In addition, the CMA has the power to take pre-emptive action to preclude conduct that might prejudice the appraisal of a merger (see question 11).
Which parties are responsible for filing and are filing fees required?
Despite the voluntary nature of the regime, certain procedural considerations must be taken into account if a decision is taken to notify the transaction.
Filing is by merger notice (or by a submission containing the same information). Any person carrying on an enterprise to which the notified arrangements relate may file a merger notice. It is not necessary for merger notices to be made jointly. A merger notice requires the CMA to decide within a statutory period (see question 11) whether to refer the merger for a Phase II review.
In certain limited circumstances, informal advice may be sought from the CMA prior to notification. The CMA stated in its 2018/19 Annual Plan that, to achieve a balanced and targeted approach to investigating non-notified mergers, it welcomes informal briefings from companies to advise on whether a potential merger is likely to come under CMA scrutiny. The CMA is willing to provide such guidance for good faith confidential transactions giving rise to genuine issues. The parties must be prepared to acknowledge to the CMA any theory of harm that could reasonably lead to a Phase II reference. The CMA will not offer informal advice where there is sufficient guidance already from case precedents, nor will it advise on structuring options for water mergers. As the CMA is unable to consult third parties, any advice given is qualified accordingly and based on the assumption that the information provided is accurate.
Subject to certain exceptions, any merger that is investigated by the CMA is subject to a fee, which is payable either on publication by the CMA of a reference decision or a decision not to make a reference. For further information, see CMA guidance on its merger intelligence function.
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
The main review periods in an EA process are as follows:
- Phase I review: a binding 40-working-day period applies;
- consideration of any undertakings in lieu (UILs) of reference for a Phase II review: the parties have up to five working days from receiving a decision that the test for reference for a Phase II review is met (an SLC decision) to offer UILs (although they can do so earlier). The CMA has up to 10 working days from the date of its SLC decision to decide provisionally whether to accept the UILs and a total of 50 working days from the date of its SLC decision formally to accept the UILs, which can be extended by 40 working days for ‘special reasons’, such as needing further consultation with third parties or if the case involves an up-front buyer;
- Phase II review: 24 weeks from the date of reference, with the possibility for the CMA to extend this by eight weeks; and
- implementation of Phase II remedies: the CMA has 12 weeks (extendable by six weeks for special reasons) to accept any final undertakings offered by the parties to obtain conditional clearance.
The possibility exists for a ‘fast-track’ reference procedure. This may be used upon the request of merging parties in circumstances where there is sufficient evidence that the Phase II reference test is met at an early stage in the investigation. The CMA takes into account its administrative resources and the efficient conduct of the case in deciding whether to agree to the use of the fast-track procedure, and has used this power in five cases so far (BT’s acquisition of EE in 2015, the Ladbrokes/Coral merger in 2016, the merger between Central Manchester University Hospitals NHS Foundation Trust and University Hospital of South Manchester NHS Foundation Trust, Tesco PLC’s acquisition of Booker Group in 2017 and the proposed merger between J Sainsbury Plc and Asda Group Ltd, which was blocked by the CMA).
Although the EA regime allows parties to close transactions without notifying the CMA, there are, in practice, significant constraints on merging parties’ freedom once the CMA starts to review a merger (whether following a notification or on its own initiative). The CMA has powers to impose initial enforcement orders (IEOs) both to prevent further integration and also to unwind any integration that has already taken place.
IEOs can be imposed as soon as the CMA has reasonable grounds for believing that it is or may be the case that arrangements are in progress or in contemplation. The CMA has indicated that it is likely to use such powers for anticipated mergers only in relatively rare circumstances. However, the CMA has stated that it will normally make initial enforcement orders in investigations of completed mergers, which will remain in force until clearance or remedial action is taken. There are penalties for failing to comply with an IEO. Where the CMA considers that, without reasonable excuse, an IEO has not been complied with, it may impose a penalty of up to 5 per cent of the worldwide turnover of the addressee of the IEO. The CMA has a template initial enforcement order to which additional restrictions may be added and has released updated guidance on the use of IEOs and derogations in merger investigations (June 2019). The CMA has imposed a number of fines for breaches of an IEO in 2018 and 2019, including two separate fines of £100,000 and £200,000 in the Electro Rent/Microlease merger, a £120,000 fine in the Vanilla/Washstation merger, a £146,000 fine in the Nicholls’ (Fuel Oils)/DCC merger and a £300,000 fine in the Ausurus Group/Metal & Waste Recycling merger.
If a Phase II reference is made, the EA prohibits, except with the consent of the CMA, any party to a completed merger from undertaking further integration or any party to an anticipated merger from acquiring an ‘interest in shares’ in another. The CMA will rarely grant its consent. The EA also provides the CMA with power to accept undertakings or to make an order preventing the parties to a merger from taking action that might prejudice the eventual outcome of the merger reference. Any Phase I initial enforcement orders will usually continue in force for the duration of the Phase II inquiry and may be supplemented where appropriate with additional restrictions.Pre-clearance closing
What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?
Merger notification is not compulsory, although constraints on integration may be imposed by the CMA (see question 11). A person who has sustained loss as a consequence of a breach of a statutory restriction preventing the acquisition of interests in shares or further integration may bring an action for damages. Breach of such a provision is also enforceable by civil proceedings brought by the CMA for an injunction or for interdict or for any other appropriate relief or remedy. Similar provisions apply in relation to any breach of an undertaking or order.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
Merger notification is not compulsory in the UK, so sanctions cannot be imposed simply for closing before clearance, unless this has involved breach of a statutory obligation, an undertaking or an order (see questions 11 and 12).
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
The EA regime does not prevent closing prior to clearance (see questions 11 and 12). There are some limited restrictions on the powers of the CMA to take enforcement action in relation to foreign companies, but these are narrow and do not appear to have been an impediment to the OFT or CC previously.Public takeovers
Are there any special merger control rules applicable to public takeover bids?
If the merger involves the purchase of a public company that is subject to the Takeover Code, the Takeover Code requires that the bid should lapse if the merger is referred to a Phase II investigation prior to the bid becoming unconditional in other respects. Upon such a lapse, the bidder and the shareholders of the target company will no longer be bound by acceptances of the offer made prior to the reference. The bid may, however, be revived (within a certain time frame) if, subsequently, it is cleared unconditionally by the CMA or the CMA allows it to proceed subject to certain undertakings being given.Documentation
What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?
The company must provide, to the extent relevant, the information set out in the template merger notice, which covers the basic information that the CMA requires about the transaction and the markets involved. The company can either use the prescribed merger notice form, or provide a bespoke submission containing the same information, along with a signed and annotated version of the merger notice, indicating where in the submission the relevant information can be found. Copies of the form and current procedures are available on the CMA’s website (https://www.gov.uk/government/organisations/competition-and-markets-authority). In addition to a full description of the transaction and proposed timetable, the merger notice requires information relating to the main products and services supplied by the merging enterprises and estimates of market shares in any UK market. Information on horizontal overlaps, vertical links, entry barriers, buyer power and customer benefits are also relevant. Financial information is also required. In 2017, the CMA published a revised merger notice template following a consultation process. This new template is intended to clarify the interpretation of certain questions and guidance notes and to ensure that information provided is adequate and proportionate in the circumstances of the case (in many cases this took the form of clarifying in what circumstances certain granular data may be required of the parties). In practice, the core requirements of the merger notice have not been affected and for the most part the proposed changes reflect the CMA’s existing practice.
The time required to complete a merger notice depends on the complexity of the case and the ability of the parties to collate the relevant information promptly. The CMA will not commence its 40-working-day review period until it is satisfied that the merger notice is complete and, in practice, a series of pre-notification discussions have been completed. The CMA states that it will endeavour to review submissions and revert to the parties within a reasonable time frame, generally within five to 10 working days of receipt (although this can be longer depending on the complexity of the case).
The CMA has the power to impose penalties on merging parties for breach of procedural requirements, including for failure to comply with document requests, or for provision of inaccurate information. For example, in 2017, the CMA imposed a fine of £20,000 on Hungryhouse, during the review of its acquisition by Just Eat, for failing to provide certain documents without reasonable excuse. The information gathering process employed by Hungryhouse had failed to identify responsive documents, and the CMA found that Hungryhouse should have been aware that this was a substantial risk. In 2019, the CMA imposed a fine of £15,000 on AL-KO for late provision of certain responsive documents to two CMA document requests without reasonable excuse. Under section 117 of the Enterprise Act, it is a criminal offence to supply false or misleading information to the CMA, knowingly or recklessly.Investigation phases and timetable
What are the typical steps and different phases of the investigation?
See question 11 for details of the timetable. There is a statutory, 40-working-day Phase I timetable that the CMA must follow. The CMA has the power to ‘stop the clock’ (eg, in circumstances where the parties have not responded to an information request). The CMA can also use its ‘stop the clock’ powers in relation to the four-month period that applies to completed mergers (see question 9). This period may also be extended in certain circumstances. To increase the speed of Phase I review, the CMA’s Annual Plan 2018/2019 set a target of approving at least 70 per cent of less complex mergers within 35 working days and seeks to complete 70 per cent of Phase II cases without an extension to the 24-week statutory deadline. The basic Phase II period is 24 weeks from the date of the Phase I reference and can be extended by eight weeks for ‘special reasons’. The CMA’s Annual Plan 2018/2019 set out the target of implementing Phase II merger remedies without the need for an extension to the statutory deadline in at least 80 per cent of cases. The statutory deadline is 12 weeks and can be extended by six weeks for ‘special reasons’. The CMA concluded a review and consultation of its remedies guidance across Phase I and Phase II mergers, issuing a revised version of its guidance in December 2018.
However, additional time should be factored in outside the statutory periods for pre-notification discussions with the CMA case team, prior to formal submission of a merger notice. The CMA states in its Guidance on the CMA’s jurisdiction and procedure that it strongly encourages allowing a minimum of two weeks from submission of a draft merger notice to formal notification, even for straightforward cases, and this can be significantly longer for more complicated cases. Pre-notification discussions from submission of a substantially complete draft merger notice to the start of the statutory timeline take, on average, between four and six weeks.
What is the statutory timetable for clearance? Can it be speeded up?
The EA provides for two phases of investigation. First the CMA carries out a preliminary (Phase I) investigation to decide whether there is or may be a relevant merger situation and there is a realistic prospect that the merger will result in an SLC, in which case, it has a duty to refer the merger for a Phase II investigation. Where a reference is made, the CMA then launches a detailed investigation by an Inquiry Group to consider whether the merger has resulted, or may be expected to result, in an SLC and, if so, how to remedy, mitigate or prevent such effects.
In making its Phase I assessment, the CMA will gather supplementary information from the merging parties and will seek to verify that information with third parties (eg, competitors, major customers or suppliers; see question 29). The CMA will conduct a ‘state of play’ meeting and, where competition issues are raised, it will generally meet with the parties to discuss their submissions (an ‘issues meeting’). To help the parties prepare for this meeting, the CMA sends an ‘issues letter’ to the parties to the merger. This will set out the core arguments and evidence in favour of a reference in the case. Following the issues meeting, all of the evidence including the main parties’ and any third parties’ submissions will be considered within the CMA. Following an internal CMA case review meeting, there is a separate decision meeting at which the case is debated and scrutinised. The final decision is then communicated to the parties to the merger.
The major steps followed in a Phase II investigation are gathering information, issuing questionnaires, hearing witnesses, verifying information, providing a statement of issues, considering responses to the statement of issues, notifying provisional findings, notifying, considering and implementing possible remedies, considering exclusions from disclosure and publishing reports.
All decisions (ie, that a case is not a relevant merger situation or acceptances of undertakings in lieu of a reference), Phase II references and clearance or prohibition decisions are published on the CMA’s website, subject to excision of business secrets. The decision will also be announced through the Regulatory News Service.
Substantive assessmentSubstantive test
What is the substantive test for clearance?
The EA imposes a duty on the CMA to refer a relevant merger situation for further investigation at Phase II where it has a positive and reasonable belief, objectively justified by relevant facts, that there is a realistic prospect that a relevant merger situation will lessen competition substantially in any market in the UK. The CMA may exercise a discretion not to refer in three circumstances:
- where the market is not of sufficient importance;
- where the substantial lessening of competition (SLC) would be outweighed by benefits to consumers (rare); or
- where the arrangements are not sufficiently advanced or likely to proceed.
Following a reference, the CMA will then conduct a more detailed investigation to determine whether a relevant merger situation has been created and, if so, whether it has resulted, or may be expected to result, in an SLC within any market or markets in the UK for goods or services. Where the CMA concludes that the merger situation has resulted or is likely to result in an SLC, it will have to determine the appropriateness of taking remedial action and the action to take (itself or by others, such as the government, regulators or public authorities).
The CMA merger assessment guidelines provide that a merger may be expected to lead to an SLC where it can be expected to reduce rivalry to such an extent that competitive incentives are dulled, to the likely detriment of customers (eg, through higher prices, or reduced choice, quality or innovation). In making the assessment, the CMA will draw up theories of harm to provide a framework for its assessment and to compare the prospect for competition with the merger against a counterfactual situation without the merger. In assessing whether there may be an SLC, the CMA will generally conduct analysis under the following heads (although not necessarily systematically): definition of relevant geographical and product markets, measures of concentration, horizontal mergers - unilateral and coordinated effects, non-horizontal mergers - vertical effects, efficiencies, entry and expansion and countervailing buyer power. The guidelines and recent cases indicate, however, an increasing reliance on mechanisms for direct analysis of competitive effects in merger cases and a move away from a detailed assessment of market definition (see, for example, Unilever/Alberto Culver and Zipcar/Streetcar).
Is there a special substantive test for joint ventures?
When a joint venture constitutes a relevant merger situation, the substantive test for clearance will be the same as for any other merger (see questions 19 and 21).Theories of harm
What are the ‘theories of harm’ that the authorities will investigate?
The CMA is concerned about horizontal (unilateral and coordinated), vertical and conglomerate effects of mergers.
In assessing horizontal mergers, the CMA is concerned both with non-coordinated (or unilateral) effects and coordinated anticompetitive effects (see question 19). The possibility of coordinated effects has been an issue in a number of merger cases; see, for example, Knauf Insulation Ltd/Superglass Insulations Ltd (the CC prohibited a merger that would remove an independent competitor in an already concentrated market), James Budgett Sugars Ltd/Napier Brown Foods plc (the CC concluded that, although it was likely that coordinated effects were present prior to the merger, the merger did not make coordination significantly more sustainable or effective so an SLC could not be expected), Taminco NV/Air Products and Chemicals Inc (the CC cleared a merger that would reduce the number of European players on the market from three to two on the basis that Air Products and Chemicals Inc would in any event withdraw from the market), and DS Smith Plc/Linpac Containers Ltd (the CC cleared the merger but, given the level of concern expressed by customers, recommended that further investigation by the OFT under the Competition Act 1998 and articles 101 or 102 of the Treaty on the Functioning of the European Union would be justified).
The CMA guidelines indicate that, in its appraisal of mergers, the CMA will also investigate vertical foreclosure effects, that is, mergers that might result in input foreclosure (limiting rivals’ ability to compete by deteriorating terms of access to key inputs) or customer foreclosure (limiting access to important customers) leading to an SLC. For instance, in October 2016, the CMA found that the Intercontinental Exchange, Inc (ICE)/Trayport merger would lead to an SLC as a result of vertical foreclosure effects (in particular, that ICE would have the ability and incentive to follow a partial input foreclosure strategy) and ordered the divestiture of Trayport. In July 2017, the CMA referred Tesco plc/Booker Group plc for Phase II review to investigate, inter alia, possible vertical effects, although the merger was ultimately cleared unconditionally.
In the context of conglomerate mergers, adverse effects principally result from the fact that the merger may allow the merging firms to foreclose competition through tying or bundling or gain increased market power over a portfolio of products.
The CMA has not specifically investigated common ownership concerns as yet, but it is open for it to do so if relevant in a particular transaction. It is increasingly considering ‘loss of innovation’ theories of harm for instance in Ladbrokes/Coral and Thermo Fisher/Roper Technologies.Non-competition issues
To what extent are non-competition issues relevant in the review process?
Except for the cases where a special regime applies (see question 8), the substantive test for clearance is a solely competition-based test.Economic efficiencies
To what extent does the authority take into account economic efficiencies in the review process?
The CMA may consider economic efficiencies both in Phase I and in Phase II, although it has only rarely accepted that they would outweigh any SLC created by a merger.
When considering in Phase I whether the merger may be expected to lead to an SLC, the CMA may consider what efficiency gains are directly created by the merger and whether such efficiency gains would have a positive effect on rivalry in the market so that no SLC would result. In addition, the CMA may take efficiencies into account where they do not avert an SLC, but will nonetheless be passed on after the merger in the form of customer benefits. In this case, the exception to the duty to refer may apply. The CMA cleared the University Hospitals Birmingham NHS FT/Heart of England NHS FT merger in August 2017 at Phase I, despite finding SLCs in various elective specialties. The CMA placed significant weight on advice on probable benefits from the sector regulator, which considered that substantial improvements to patient care were expected. In Digital Property Group/Zoopla in 2012, the OFT concluded that the merger would have pro-competitive effects (an increased ability to compete with the largest player in the market), which it analysed within an efficiencies framework; however, it also concluded that the loss of competition would be limited, so it is unclear whether the OFT would have been able to clear the merger anyway, even in the absence of those pro-competitive effects.
At Phase II the CMA may also, when considering whether there is or will be an SLC, consider whether efficiency gains that are directly created by the merger would increase rivalry among the remaining firms in the market. In addition, if the CMA decides that the merger has resulted or will result in an SLC, it can consider relevant customer benefits when deciding on the question of remedies. The CMA cleared the Central Manchester University Hospitals/University Hospital of South Manchester merger in Phase II in August 2017 despite finding various SLCs, again drawing on views of the sector regulator relating to the expected benefits.
Remedies and ancillary restraintsRegulatory powers
What powers do the authorities have to prohibit or otherwise interfere with a transaction?
If, following a Phase II review, the CMA concludes by a two-thirds majority of the investigating panel that the merger will have an anticompetitive outcome, it will take steps to remedy, mitigate or prevent the SLC and adverse effects resulting therefrom to the extent that such steps are reasonable and practicable. It may take remedial action itself to preserve or restore the status quo, to increase the competition for the merged firms or to prevent possible exploitative or anticompetitive behaviour on the part of the merged firm. Given that mergers are able to complete prior to investigation by the CMA, in some cases the remedy imposed may involve unwinding the transaction (such as in ICE/Trayport, in October 2016). In February 2019, for the first time the CMA issued an unwinding order during an ongoing investigation (in relation to certain integration by the parties) even prior to having reached a decision in the Tobii AB/Smartbox Assistive Technology Limited and Sensory Software International Ltd merger inquiry. The CMA may also recommend the taking of action by others.Remedies and conditions
Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?
Undertakings may be offered to remedy any identified adverse competition concerns at both Phase I (to prevent a reference) and Phase II (to remedy any adverse findings the CMA identifies following a reference).
The CMA may only accept undertakings in lieu of reference for a Phase II review in cases where it has concluded that the merger should otherwise be referred for a Phase II review. It has published guidance on the criteria it applies when considering whether to accept undertakings in lieu. Broadly, it will only do so where it is confident that all potential competition concerns it identified would be resolved without need for further investigation. Consequently, they are only likely to be appropriate where the competition concerns raised are remedied in a clear-cut way and the remedies proposed are capable of ready implementation. The CMA has stated in its guidance that it is unlikely to accept behavioural remedies at Phase I. Recent practice indicates that it is becoming more likely that the CMA will require an up-front buyer, for instance, where the package does not relate to a stand-alone business or where there is only a small number of candidate purchasers. In the calendar year to the end of March 2019, the CMA accepted undertakings in lieu of a reference to Phase II in two cases.
Where a reference is made for a Phase II review, and the CMA finds an anticompetitive outcome, it must determine the appropriateness of taking remedial action and the action to take. In doing so, the CMA must have regard to the need to achieve as comprehensive a solution as is reasonable and practicable to the SLC and any resulting adverse effects. In respect of its own actions, the CMA itself has the choice of seeking undertakings or imposing orders. The CMA’s order-making power is broad but limited to the factors set out in the EA. The undertakings that can be agreed are not so limited and therefore provide greater flexibility. In each case the CMA must consider the appropriateness of remedies, their cost and proportionality and effectiveness. In the calendar year to the end of March 2019, the CMA accepted remedies in four cases, out of a total of 11 closed Phase II cases.
What are the basic conditions and timing issues applicable to a divestment or other remedy?
Under the ERRA, parties have five working days to offer UILs after receiving the CMA’s Phase I reference decision. However, parties may propose UILs at any stage during Phase I. The CMA has 10 working days from the SLC decision to accept any UILs in principle, and a total of 50 working days from its SLC decision formally to accept UILs (subject to one extension of up to 40 working days for special reasons).
At Phase II, there is a statutory deadline of 12 weeks, extendible once by up to six weeks for special reasons, following the CMA’s final report, to implement remedies. Within this period, the CMA consults with the main parties and then publishes a draft set of undertakings or order for third-party comment. Once the undertakings or order are finalised, the CMA publishes a ‘notice of acceptance of undertakings’ or ‘notice of making an order’. After this point, any further implementation of remedies passes to a special committee or inquiry group.
What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?
The CMA can require the same type of remedies in foreign-to-foreign mergers as in domestic mergers, if the merger falls within the CMA’s jurisdiction. See question 34.Ancillary restrictions
In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?
Both an agreement that results (or would result) in enterprises ceasing to be distinct (ie, a merger situation), and any provision of the agreement that is directly related and necessary to the implementation of the merger are exempt from the Competition Act 1998 (see Schedule 1). The CMA’s substantive and procedural approach to ancillary restraints generally follows that of the European Commission (it will only give guidance on ancillary status where the case gives rise to novel or unresolved questions).
Involvement of other parties or authoritiesThird-party involvement and rights
Are customers and competitors involved in the review process and what rights do complainants have?
The CMA generally gives third parties the opportunity to intervene and frequently relies on the views of such parties for the verification of information. At Phase I, the CMA will actively seek the views of relevant third parties (eg, competitors, major customers or suppliers) and will request third-party views in all public merger situations by means of an invitation to comment notice published through the Regulatory News Service and on the CMA’s website. Third parties also have the opportunity to comment on the purpose and effect of any proposed undertakings in lieu of a reference.
Similarly, where a merger has been referred for a Phase II review, the CMA requires information about the markets involved and invites evidence both from main parties and third parties likely to be affected by the merger. Particular third parties may be invited to attend an individual hearing with the case team or, if the CMA considers it appropriate, it may hold a public or joint hearing for third parties.
Third parties may also be able to bring judicial review proceedings to challenge any decision by which they are aggrieved (see question 32).Publicity and confidentiality
What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?
The CMA has stated its commitment to transparency while maintaining appropriate confidentiality. Its approach is set out in its statement on Transparency and Disclosure. The fact of a merger notification is published, and third parties are given opportunities to comment. Although meetings and hearings in front of the CMA are generally conducted in private, the CMA may decide to convene at least one public hearing in mergers considered to be of particular public interest, at which third parties are invited to make their views known.
Further, the EA provides for all decisions to be published (although it is the CMA’s policy to give an opportunity to request the excision of confidential information from those decisions) and for details of all undertakings and orders that have been agreed and accepted or imposed under the EA to be recorded in a public register of undertakings and orders that can be found on the CMA’s website.
As regards protecting commercial information from disclosure, the CMA has confidentiality obligations under part 9 of the EA. Account must also be taken of the Freedom of Information Act 2000 (FOIA), which confers a right for an applicant to be informed in writing of whether the public authority (which includes the CMA and sectoral regulators) holds information of the description specified in the request and, if so, to have that information disclosed. Some important exceptions to the duty on the authority to disclose information under the FOIA exist that may protect information provided under the EA (eg, where disclosure would constitute an actionable breach of confidence or is otherwise prohibited under another piece of legislation). Personal data is also subject to the Data Protection Act 1998 (legislation) such as Part 9 of the Enterprise Act (Data Protection) and the General Data Protection Regulation, which sets out rules for processing data relating to living individuals.Cross-border regulatory cooperation
Do the authorities cooperate with antitrust authorities in other jurisdictions?
The EUMR (see the European Union chapter) provides for cooperation between the European Commission and the national competition authorities (NCAs) and the allocation of cases between the European Commission and the NCAs respectively.
As a competent authority in the UK, the CMA receives details of all mergers notified in Brussels. It examines each case, consults other government departments as necessary, and provides the UK’s view to DG Competition in Brussels where appropriate. The CMA also represents the UK at hearings convened by the European Commission and attends Advisory Committee meetings.
Further, the EUMR provides for the transfer of cases between the European Commission and the NCAs. The CMA will, if notified of a merger that has been notified to another NCA, send notice to officials in that authority. The case-handlers will then exchange views on the case without exchanging confidential information (the parties can, by waiver, make exchange of confidential information possible). In Orange/T-Mobile, the OFT made an application under article 9 of the EUMR for UK aspects of the case to be remitted from the European Commission to the OFT for consideration. Following discussions with the European Commission and Ofcom, however, it was able to satisfy itself that its concerns were fully met by the remedies offered to the European Commission by the parties and withdrew its request. The CMA also has a right to reject an application to the European Commission for a case to be referred to it under article 4(5) of the EUMR where it would otherwise be subject to UK merger review. In London Stock Exchange/LCHClearnet, the OFT vetoed the parties’ request for review by the European Commission and instead the case was reviewed by the OFT and the NCAs in Spain and Portugal respectively. The CMA may also, in certain circumstances, refer a case to the European Commission under article 22 of the EUMR (either relating solely to the UK part of a transaction, or jointly with other NCAs) (see, for example, Amadeus/Navitaire, referral request by the CMA in September 2015, subsequently joined by Austria, Germany and Spain) where it considers that it would be more appropriately investigated by the European Commission (see European Union chapter).
Waivers may also be provided by the parties for the CMA to discuss a case with competition authorities in other jurisdictions (outside the EEA), if relevant.
In its Annual Plan 2019/2020, the CMA has stated that, post-Brexit, international cooperation with other agencies will be crucial and that while it is possible the CMA will not in future be a member of the European Competition Network, the CMA would expect to maintain strong and effective relationships with European competition authorities through new bilateral or multilateral arrangements with the European Commission and EU member states.
Judicial reviewAvailable avenues
What are the opportunities for appeal or judicial review?
The EA provides the Competition Appeal Tribunal (CAT) with power to review decisions adopted in merger cases. Any person aggrieved by a decision of the CMA, or a decision of the Secretary of State, in connection with a reference or possible reference can apply to the CAT. The EA provides that the CAT is to apply ‘the same principles as [those] applied by a court on an application for judicial review’.
In a number of cases, a third-party competitor has challenged a decision not to make a merger reference; see, for example, IBA Health Ltd v OFT (successful challenge to the decision of the OFT in the CAT not to refer a merger between iSoft and Torex to the CC, upheld on appeal to Court of Appeal), Unichem v OFT (the CAT again quashed, at the request of a third-party competitor, a decision by the OFT not to refer a merger to the CC on the grounds that the OFT had failed to test and verify key evidence sufficiently) and in Celesio v OFT (application dismissed).
In Somerfield/Morrisons, a challenge was made to the CC’s decisions that the merger between the parties would result in an SLC and that Somerfield should divest itself of certain stores to approved buyers. The CAT held that, in deciding what was reasonable action appropriate for remedying, mitigating or preventing an SLC, the CC had a clear margin of appreciation. In Stericycle, the CAT held that the CC had acted reasonably and within its margin of discretion in ordering the parties to the transaction to unwind parts of their integration and in appointing a hold-separate manager. In January 2010, however, the CAT quashed the decision of the CC in relation to Ticketmaster/Live Nation; this followed the concession by the CC that the appellant (CTS Eventim) had an arguable case that the CC’s procedure had not been fair. In May 2010, the CC cleared the transaction for a second time. In November 2016, ICE appealed the CMA’s finding of an SLC in ICE/Trayport and its direction to divest Trayport, arguing that the CMA erred in various ways in its assessment and that its direction was ultra vires, irrational and disproportionate. The CAT rejected most of ICE’s grounds, upholding only one aspect, that a subsidiary part of the decision was not sufficiently reasoned, and remitting that point to the CMA for reconsideration. The CMA subsequently confirmed its decision on that aspect of the case.
The CC’s prohibition of the Akzo Nobel/Metlac merger in 2012 was unsuccessfully appealed to the CAT on grounds including that Akzo Nobel was not ‘carrying on business in the UK’ and then the Court of Appeal, which also upheld the prohibition. Permission to appeal to the Supreme Court was rejected in December 2014. In Groupe Eurotunnel/Sea France, the parties appealed to the CAT, which quashed the CC’s decision imposing remedies and remitted the case to the CC for reconsideration of whether two enterprises had ceased to be distinct. The CMA (succeeding the CC) confirmed the original findings in June 2014 and the Supreme Court ultimately upheld the CC’s original remedies.Time frame
What is the usual time frame for appeal or judicial review?
An application to the CAT for judicial review must be made within four weeks of the date on which the applicant was notified of the disputed decision, or the date of publication of the reasons for the decision, whichever is the earlier. The cases that have been heard by the CAT under the EA regime have generally been dealt with quickly, within two to five months, and in some cases within a month of the case being registered with the CAT (for example, IBA Health Ltd v OFT and Ticketmaster/Live Nation (following the CC’s concession - see question 32)).
Enforcement practice and future developmentsEnforcement record
What is the recent enforcement record and what are the current enforcement concerns of the authorities?
Between 1 April 2018 and 31 March 2019, the CMA gave unconditional clearances at Phase I to 41 mergers, accepted UILs in two cases and referred 11 cases to Phase II. Of the 11 Phase II reviews that were completed in the same period, three were unconditionally cleared and four were cleared subject to remedies.
Merger references considered by the CMA over the past few years have related to a broad range of sectors, including supermarkets, hospitals, platforms and consumer products.Reform proposals
Are there current proposals to change the legislation?
In October 2017, BEIS published a green paper on possible changes to the current public interest intervention regime. The changes are intended to be implemented in two phases. The short-term reforms came into force in June 2018. These reforms are intended to expand the merger control regime to capture small transactions relating to military and dual-use sectors, computing hardware and quantum technologies (see question 8 for details). The consultation on the long-term reforms closed in January 2018. These reforms are intended to introduce a new notification regime for mergers relevant to national security and critical infrastructure. In July 2018, BEIS published a White Paper on the proposed new regime, which would also give the government the right to call in for review transactions that could give rise to national security risks. The White Paper closed in October 2018 and at the time of writing, no conclusions have been published.
On 25 February 2019, the CMA published preliminary proposals for legislative reforms that include merger control reforms (see question 36).
At this stage, it is not clear what the changes occasioned by Brexit will be in relation to the UK competition regime.
Update and trendsKey developments of the past year
What were the key cases, decisions, judgments and policy and legislative developments of the past year?Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?
On 25 February 2019, the CMA’s recently appointed chair, Lord Tyrie, made a number of proposals to BEIS. The proposed reforms include proposals to shift to mandatory notification of mergers above a certain threshold, and introduce a standstill obligation designed to prevent parties from proceeding with the transaction prior to the CMA’s approval. The CMA is also proposing that higher or full-cost recovery from merging parties be reconsidered (the CMA states that it currently recovers around half the cost of its mergers work from fees paid by merging parties).
In its Annual Plan 2019/2020, the CMA lists as one of its priorities the promotion of better competition in online markets. The CMA has recently investigated several tech-related mergers (such as its review of PayPal’s acquisition of iZettle, cleared in June 2019 after a Phase II review). It has remarked that a key challenge of merger control in this regard is predicting whether there will be harm to future competition, and stated its intention to increase its understanding of these issues and develop its framework in this regard.
Planning for Brexit also continues. The nature of any changes resulting from Brexit remains uncertain at present. Cases that previously would have fallen within the remit of the EU merger control regime - often the biggest cases - may in future also require review from the CMA if the national jurisdictional thresholds are met. It is expected that significantly more transactions (approximately 30 to 50 more Phase I cases per year) would be notified to the CMA post-Brexit.