The Enterprise and Regulatory Reform Act 2013 (the Act), enacted on 25 April 2013, will make changes to the process of assessing mergers, acquisitions and corporate joint ventures (“mergers”) when it comes into force in April 2014. It will not alter the turnover and share of supply thresholds that establish whether a deal qualifies for review; nor will it affect the test used to decide whether to block or clear a deal – this will continue to depend on whether the deal concerned will result in a substantial lessening of competition in any market.
In summary, the key process changes are: the creation of a new merger authority with greater overall investigatory powers, clearer timetables for decisions on mergers and remedies, enhanced powers to prevent integration of purchaser and target and greater transparency for parties considering the provision of undertakings to avoid a phase 2 investigation.
So what do these process changes involve?
- A new UK competition authority
Currently, mergers that affect the UK and fall below EU thresholds are investigated by the UK Office of Fair Trading (OFT). Mergers that appear to raise serious issues are referred by the OFT for an in-depth investigation by the Competition Commission – unless the parties can provide the OFT with undertakings that resolve its concerns.
From April 2014, the OFT and the CC will be replaced by a single authority, the Competition and Markets Authority (CMA), bringing the UK regime into line with most other merger regimes worldwide. The CMA will have a Chair and Chief Executive appointed by the Secretary of State – the first appointees are Lord David Currie, who was Chair of OFCOM and Alex Chisholm, who was Commissioner and Chair at the Irish Commission for Communications Regulation (ComReg). The Secretary of State will also appoint the CMA Board, the CMA’s overarching governing body, with the ability to delegate operational matters to committees and sub-committees, and the CMA Panel, which will comprise a pool of appropriately qualified individuals from which a smaller group of at least three individuals will be formed by the Chair to examine each merger. Panel membership will include individuals with expertise in certain specialist areas, such as newspapers, communications and utilities.
- More structured decision making
Decision making will be more structured under the new regime. The CMA will operate a divided, two stage approach to merger review. The CMA Board will be responsible for first phase investigations and has the power to delegate decision making to executives and senior employees. The Panel will be responsible for second phase investigations, and will have an obligation to act independently of the Board, continuing the current approach of having a fresh pair of eyes at phase 2.
All decisions by the group appointed to review a merger must be taken by a qualified majority decision, namely two-thirds of the votes. Where voting is tied, the chair of the group has a casting vote. How this will operate in practice remains to be seen.
- Greater powers to adopt interim measures
The CMA will have the power to order a purchaser to suspend integration of the target pending the outcome of its investigation of both completed and anticipated mergers. It can also require integration to be reversed and impose penalties of up to 5% of aggregate global turnover for breach of its orders. These heightened powers are designed to protect the ability of the CMA to impose appropriate remedies at the end of its investigation and pose substantial risks for parties to completed mergers in particular.
- Greater investigatory powers
The CMA will have powers that currently only the CC has, to require the attendance of witnesses and the production of documents during both Phase 1 and Phase 2 investigations, including when considering undertakings and breaches of any undertakings.
- Statutory timetables will apply
The informal timetable that currently applies in first phase investigations of mergers not notified under the statutory merger notice procedure will disappear and statutory deadlines will apply: 40 working days for decisions after phase 1 investigations (10 working days longer than the maximum merger notice deadline) and 24 weeks for decisions after phase 2 investigations, with a further 8 weeks in exceptional circumstances (no change from the current timetable). Where information is not provided to the CMA on time, the timetable will be extended correspondingly.
The same "stop-the-clock" approach will apply to the statutory timetable for the CMA to impose remedies after a phase 2 investigation – an initial 12 weeks after publication of the CMA’s decision, with an extension of 6 weeks in special cases.
- Greater transparency surrounding undertakings to avoid a phase 2 investigation
The current regime requires the parties to offer undertakings before they have had access to the OFT’s phase 1 decision. This will be abandoned in favour of a process that applies after the parties have seen the phase 1 decision. Within 5 working days from the decision announcement date the parties may offer undertakings, which the CMA must decide to pursue with the parties or reject within 10 working days from the same date. If the CMA pursue undertakings, it must decide to accept or reject them within 50 working days from the same date (with a maximum 40 day extension, the reason for which the CMA must publish, in special cases).
- Phase 2 investigations can be suspended
The CMA may suspend the start of a phase 2 investigation if it considers it possible that the merger may be abandoned (a not uncommon occurrence under the current regime). It must publish the reasons for suspension and, if the merger is not abandoned, the new deadline for its decision.