Following the Sept. 18, 2008 announcement by Lloyds of its intention to merge with HBOS, the Secretary of State issued an intervention Notice to the UK Office of Fair Trading (“OFT”) (the body responsible for first phase review of mergers in the UK), stating that he believed the stability of the UK financial system ought to be specified as a public interest consideration under the Enterprise Act, and that this may be relevant to the consideration of the Lloyds/HBOS merger situation. An order was subsequently laid before Parliament introducing this new public interest consideration into the Act. As with the State-aid measures described above, the intention was to ensure that the regulatory process did not prevent rapid action from being taken to address issues arising from the global financial crisis.
The UK merger regime provides limited powers for the Secretary of State to intervene in mergers in order to protect legitimate public interest considerations. Previously, the only specified public interest considerations had been national security and plurality of media ownership. However, it was felt that the new public interest consideration was necessary as the financial services sector was vital to the economy, and the failure of a bank would leave individuals and businesses unable to access savings, raise finance or meet day-to-day financial obligations, with potential knock-on effects in other parts of the financial system.
Following its review of the transaction, the OFT concluded that there was a realistic prospect that the anticipated merger would result in a substantial lessening of competition in relation to personal current accounts, banking services for small and medium-sized enterprises in Scotland, and mortgages. It was felt that it would not be appropriate to deal with the competition concerns by way of undertakings in lieu of reference to the Competition Commission (“CC”). The Secretary of State (with whom the final decision rested), however, considered that the stability of the UK financial system outweighed the competition concerns identified by the OFT and therefore decided not to refer the merger to the CC for a more in-depth investigation.
This is an exceptional case and is the first time a public interest consideration has been created in order specifically to facilitate a particular merger. As many commentators have noted, the merged entity will, of course, be subject to the ordinary competition rules in its daily operations.