Companies and their advisers need to be even more vigilant about the contents of internal documents concerning proposed deals, because the Competition and Markets Authority (CMA) is tightening its procedure for requiring production of them in merger investigations.

The CMA has long expected merging parties to provide their internal documents to the CMA as part of its merger review process. The CMA is now consulting on draft guidance on its requests for internal documents in merger investigations. "Internal documents" means documents which the merging parties have generated internally in the ordinary course of business, including studies, reports and presentations, plus relevant emails sent or received by the merging parties.

The draft guidance follows the CMA's recent decision to fine Hungryhouse £20,000 for failing to comply with its formal information request in a merger investigation (Just Eat / Hungryhouse). This was the first time the CMA had imposed such a fine. The new guidance suggests a tougher approach by the CMA, to ensure it has all necessary information for its merger investigations.

The CMA's information gathering powers

The CMA has wide information gathering powers under the UK merger control regime. It may obtain information informally from the merging parties and/or third parties, but can also issue a statutory notice under the Enterprise Act 2002 to require the parties to provide information and/or documents (a Section 109 Notice). The CMA may also require the parties to give witness evidence.

The CMA's current practice is to issue Section 109 Notices only in certain circumstances, including where it believes that evidence may not be provided in time, or may be destroyed. If a party fails to comply with a Section 109 Notice, the CMA may extend the statutory timetable for merger clearance until the information is provided, or reject the merger notice submitted by the parties. Other penalties for failure to comply include fines, as well as up to two years' imprisonment for providing false or misleading information or destroying evidence.

The CMA may request information during the initial Phase 1 merger investigation (Phase 1) and during the more detailed Phase 2 merger investigation (Phase 2).

What is the scope of the new internal document requests?

The draft guidance sets out how the parties to a merger are expected to respond to an internal document request from the CMA. It highlights the care that must be taken by the parties to ensure that a complete set of documents is provided to the CMA. It also acts as a reminder to the parties to take care when creating internal documents, because it can be very difficult to disprove adverse views created by unhelpful phrasing.

No changes are being proposed regarding the type of documents the merging parties are required to provide, either with a merger notice submitted to the CMA or in response to an enquiry letter from the CMA (where the merger was not voluntarily notified). Such documents relate to the rationale and impact of the merger and the competitive analysis of the overlapping activities of the merging parties.

The draft guidance sets out the circumstances in which additional internal documents may be requested by the CMA. This may be the case, for example, where a business makes its commercial decisions or does its internal reporting by email. Additional documents are also likely to be requested where the parties submit that the target would have left the market; and where there is an evidence "gap" in relation to an issue (or narrow set of issues – if the evidence gap is wider than this, the guidance makes clear that it may be difficult for the CMA to request a material volume of documents in Phase 1).

Requests for internal documents are generally likely to be more extensive in Phase 2.

In future, the CMA is likely to issue a Section 109 Notice to request internal documents from the merging parties in both Phase 1 and Phase 2. This means the parties risk sanctions for non-compliance (see above). Informal requests will continue to be used (at least at first) for third parties.

The scope of future CMA internal document requests is potentially wide-ranging, depending on how a party conducts its business (for example, by email) and the number of individuals involved in commercial decision-making. In practice, requests are likely to relate to specific categories of emails and internal analyses, but the CMA may require handwritten notes, notebooks and chats on instant messaging services.

The CMA expects to limit most internal document requests to documents created up to three years before the date of the request.

The CMA will expect the merging parties to prepare their response to an internal document request in accordance with a number of IT principles. The principles are set out in the draft guidance and include ensuring, for example, that:

  • internal documents stored on different IT facilities are made available (such as instant messaging services and document storage systems);
  • appropriate measures are put in place to ensure documents remain available (for example, by suspending internal document deletion processes);
  • the documents have been identified using a robust search methodology (including search terms, predictive coding etc), which can be explained to the CMA; and
  • the metadata of digital material can be provided if required.

The merging parties will have to undertake certain tasks before submitting their internal documents to the CMA, including removing duplicate files and ensuring that all relevant attachments and emails are included. Depending on the volume of documents concerned, this could be onerous.

What format will document requests take?

Each document request will depend on the facts of each case, though the draft guidance envisages that some document requests may be complex or extensive and therefore impose a material burden on the merging parties. In these cases, the CMA may share the document request in draft with the parties to seek their input.

Each document request will include a standard methodology question asking the parties to explain in detail how they gathered the documents provided to the CMA and dealt with IT issues.

The CMA may request that the chief executive officer or general counsel of each of the merging parties signs a compliance statement confirming that the business has complied with the Section 109 Notice. Given the potential consequences of non-compliance, the importance of such statements should not be underestimated.

The deadline for responding to the draft CMA guidance is 25 April.

It is also expected that in the near future the European Commission will adopt similar measures in relation to the use of internal documents in its merger investigations.