The CMA carries out both Phase I and, if warranted, in-depth Phase II merger investigations in the UK. Save for a limited category of investigations (in which the government makes the final decision), decisions at Phase II are made by a panel independent from the case so as to avoid any 'confirmation bias'. The UK regime is also unusual in that merger notifications are voluntary, but the CMA has the ability to investigate non-notified transactions, and it has an active Merger Intelligence Committee that monitors merger and acquisition activity for transactions that may raise competition concerns.i Significant casesSainsbury/Asda
Arguably the most significant ongoing case is the anticipated J Sainsbury Plc/Asda Group Ltd merger. The merger was referred to Phase II under the fast-track procedure at the request of the parties. Sainsbury's and Asda are respectively the second and third largest grocery retailers and overlap in a number of other areas including procurement of groceries, retail supply of fuel, and supply of general merchandise. The merger would create the UK's largest supermarket group.
The parties are the first to successfully challenge the CMA in court over the timetable of a merger investigation: after being given limited time in which to respond to the CMA's numerous 'working papers' the CAT ruled that the timetable for responding to the material and attending a hearing was unfair.21st Century Fox/Sky
The final decision in the Fox/Sky investigation was published in June 2018, following an intervention by the Secretary of State over concerns in relation to media plurality and broadcasting standards. The Secretary of State accepted the CMA's recommendation that the acquisition was not in the public interest and that a proportionate remedy would be the divestment of Sky News to a third party. In the event Fox was ultimately outbid by Comcast.SSE Retail/Npower
In October 2018 the CMA cleared SSE Retail's merger with Npower after a Phase II investigation, although the deal was ultimately abandoned. The merger would have created the second largest energy supplier in the UK, but the CMA found that consumers would still have plenty of choice in relation to standard variable tariffs.Electro Rent Corporation/Test Equipment Asset Management and Microlease
In May 2018, the CMA ordered that Electro Rent sell its UK division after a Phase II investigation. The case gained extra significance because it involved the CMA's first ever fine for breach of an interim order. As the merger was already completed at the time the CMA began its investigation, an interim enforcement order (IEO) was put in place to prevent Electro Rent from taking any 'pre-emptive' steps (e.g., beginning to integrate the two businesses). At the beginning of the Phase II investigation the IEO was replaced by a similar interim order (IO).
In June 2018, the CMA fined Electro Rent £100,000 after it terminated the lease over its UK premises whilst the IO was in force. The monitoring trustee (appointed to ensure compliance with the IO) was informed of Electro Rent's intention to terminate the lease did not object (partly on the basis of incorrect information provided in good faith), but did not receive all the relevant information and in any event had no authority to consent on behalf of the CMA (who were not informed). Taking into account all the circumstances the CMA did not consider that acting following approval from the monitoring trustee constituted 'reasonable excuse'. The CMA considered the fine was appropriate, reasonable and proportionate, and that it would act as a specific and general deterrent. The decision was appealed by Electro Rent but was upheld by the CAT. The fine may be viewed as part of the wider trend towards increased enforcement by the CMA, which now also appears to be targeting breaches of IEOs and IOs.
Electro Rent was fined a further £200,000 in February 2019 for a separate failure to comply with the interim order, after it failed to obtain the consent of the CMA before appointing the CFO of Electro Rent as director of Test Equipment Asset Management Limited and its subsidiaries.ii Trends, developments and strategies
The most significant development in 2018 related to mergers that may raise national security concerns. Following a government consultation the intervention thresholds were lowered in three key sectors:
- the development or production of military or dual-use goods;
- the design and maintenance of computing hardware; and
- the development or production of quantum technology.
Following changes implemented in June 2018 the government can now intervene in these areas if the annual UK turnover of the target is over £1 million (the threshold in all other sectors is £70 million) or if the target alone accounts for 25 per cent or more of purchases or sales of any goods or services in the UK (in all other sectors the parties have to overlap such that there is an increment leading to a combined share of supply of 25 per cent or more). Long-term changes are also expected, with draft legislation due in 2019. Under the proposals set out in a June 2018 White Paper, the government will be able to call in transactions that are not notified if it believes the transaction raises national security concerns. The paper suggests a number of 'trigger events' that would allow the government to review the transaction regardless of market share or revenue.iii Outlook
As discussed in the introduction, the CMA expects a significant increase in the number of merger investigations carried out post-Brexit given its widened jurisdiction. In addition, the government anticipates that between five and 29 additional cases per year will be caught by the national security amendments introduced in June 2018 (see above). If the long-term changes are implemented as currently proposed this will materially increase the number of cases expected to be reviewed on national security grounds: the Department for Business, Energy & Industrial Strategy has estimated 100 cases will be subject to detailed review of which around half are likely to be subject to some form of remedy. It is therefore to be expected that the CMA will spend a greater proportion of its time on merger work in 2019 and beyond.