The Competition and Markets Authority continues to punish procedural rule breaches in merger cases, regardless of whether they are deliberate or impact the substantive analysis. All cases to date seem to have involved (potentially negligent) human error, rather than deliberate attempts to hide or mislead. In the string of recent penalty notices, the CMA focusses on compliance with interim orders and formal information gathering.

Also, despite the toughening of the regime in the UK, the number of completed deals investigated by the CMA has not dipped greatly. This may increase the arguments from some corners in favour of a mandatory or hybrid mandatory/voluntary regime post-Brexit.

Companies should be aware that UK Phase I, especially for already completed deals, requires more in-house vigilance and external cost than ever.

Initial Enforcement Orders

The CMA’s powers

The UK merger regime is technically voluntary and non-suspensory. This works well for sellers, who can avoid UK conditions precedent. However, the CMA can decide to investigate a transaction on its own initiative, even if the transaction has completed. When it does, the CMA will impose a form of interim measure called an initial enforcement order (IEO). IEOs are imposed in 100% of completed deals, requiring the parties to hold the businesses separate. In the best-case scenario for the parties, the IEO will run from pre-notification through to unofficial Phase I clearance at the “state of play” call, after which it will be revoked.

The CMA has the power to impose a fine of up to 5% of the global groupwide turnover of a party that fails to comply with an IEO. It has also used its powers to issue formal directions requiring the appointment of a monitoring trustee or hold separate manager. The CMA can take even more invasive action and issue an unwinding order, obliging the merging firms to reverse any integration that has already taken place pre-IEO, or in breach of it.

Recent enforcement of IEOs

Last year, the CMA imposed a fine of £100,000 on Electro Rent for failing to comply with an interim order. This was the first time since it gained the power to impose interim measures at Phase I, in 2014. Electro Rent had failed to seek the CMA’s consent before issuing a notice to exercise a break option, terminating a lease over the only premises Electro Rent had in the UK. Electro Rent had discussed the exercise with the monitoring trustee appointed at the CMA’s direction.

Electro Rent was fined a second time (£200,000) in February 2019, for appointing the CFO of Electro Rent as a director of the target and its subsidiaries, without obtaining the CMA’s prior written consent. Electro Rent unsuccessfully appealed these fines (see here).

The CMA has continued its tough stance, issuing a succession of fines on Ausurus, JLA, Nicholls’ (Fuel Oils) and PayPal, for a range of different IEO breaches, including joint marketing to customers and integrating staff members. This brings the total fines imposed for IEO breaches since June 2018 to over £1 million.

While none of the fines have come close to the maximum the CMA can impose for breach of an IEO, the level of the fines has generally been increasing, and it appears likely that this trend will continue, in particular, if the CMA thinks they are not having a deterrent effect. It is also noteworthy that the CMA has not identified competition issues in all of these cases, for instance Nicholls’ (Fuel Oils). This shows that the CMA takes compliance with the regime seriously, even if a merger is ultimately viewed as benign.

Another first in the CMA’s merger enforcement came in May 2019, when it imposed a full unwinding order in the completed Tobii/Smartbox deal, during the early stages of Phase II. This was consistent with the CMA’s new guidance on interim measures, published in June 2019, which was under consultation at the time the unwinding order was imposed on Tobii. Then, in August 2019, the Bottomline/Experian deal was subject to the very interventionist step of having an unwinding order imposed before the CMA’s formal Phase I merger inquiry had even been launched. The parties were required to restore the position to what it would have been prior to the transaction, in particular, ensuring segregation of confidential information, and restricting solicitation of customers. The CMA is getting more comfortable with using all the tools in its armoury, where it considers they are necessary to preserve its ability to investigate and achieve an effective remedy.

Document request violations

The CMA has also increased enforcement of its rules in relation to information gathering. In November 2017, it imposed the first fine (£20,000) for failure to provide documents in response to a formal information request on Hungryhouse, following its investigation and clearance of the Just Eat/Hungryhouse merger. This was followed by fines of £15,000 on AL-KO, £27,000 on Rentokil and, most recently, £20,000 on Sabre, all for similar failures to provide responsive documents. The maximum fine the CMA can impose for such a breach is £30,000.

These fines are of course dwarfed by the fines imposed by the European Commission for similar infringements: €110 million on Facebook for providing incorrect information during the review of Facebook/WhatsApp, and €52 million on General Electric for providing incorrect or misleading information during a merger review. But there have been proposals to increase the level of fines that the CMA can impose, in order to increase the deterrent effect.