What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?
The Competition and Markets Authority (CMA) thresholds for merger notification are as follows:
- The share of supply test: where, as a result of the merger, either (i) the combined enterprise will supply or acquire 25 per cent or more of any goods or services in the UK or a substantial part of the UK, or an existing share of supply of 25 per cent or more will be enlarged (section 23, EA02); or (ii) in relation to the critical national infrastructure sectors specified in response to question three above, a 25 per cent or more share in the supply of goods or services in the UK or a substantial part of the UK, with no increase necessary (section 23, EA02 as amended by the Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2018, SI 2018/578).
- The turnover test: where the value of the target entity’s turnover exceeds £70 million (section 23, EA02), or in relation to the Critical National Infrastructure sectors specified in question 3, the value of the target entity’s turnover exceeds £1 million (section 23, EA02 as amended by the Enterprise Act 2002 (Turnover Test) (Amendment) Order 2018, SI 2018/593).
Notification to the CMA is not compulsory, but practitioners should be aware that the CMA has wide powers to intervene after a transaction has closed.
The EU thresholds for turnover are crossed where either:
- the combined aggregate worldwide turnover of all undertakings concerned is more than €5 billion and the aggregate EU-wide turnover of at least two of the undertakings is more than €100 million; or
- the combined aggregate worldwide turnover of all undertakings concerned is more than €2.5 billion and the aggregate EU-wide turnover of at least two of the undertakings is more than €250 million, and the combined aggregate of all undertakings is at least €100 million in at least three member states and in at least three of these member states the aggregate turnover of each of at least two of the undertakings is more than €25 million.
Notification to the EC is compulsory where the relevant thresholds are met.
Following the publishing of the Panel Statement 2016/9 on 14 December 2016, those public companies to which the Takeover Code is relevant must submit a series of documents and forms, including a firm offer announcement, to the Takeover Panel.National interest clearance
What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?
For a transaction that meets the UK thresholds, filing with the CMA is not mandatory. For a transaction that meets the EU thresholds, filing is mandatory.
CMA investigations are conducted in phases. Phase 1 is a shorter, less in-depth investigation. Only where concerns are identified does the matter proceed to Phase 2. Fees are payable on filing.
In both public interest and special public interest cases, the CMA will undertake investigations at Phase 1. The secretary of state is able to issue a public interest intervention notice or special intervention notice at the stage at which he or she has reasonable grounds to suspect that the respective public interest tests are fulfilled. The CMA will then report to the secretary of state on jurisdiction and market definition issues and then take the decision on clearance, clearance with undertakings or referral to Phase 2. The Phase 2 review is, similarly, undertaken first by the CMA and then considered by the secretary of state. The standard CMA fees will apply to public interest mergers. There is no fee for special public interest mergers.
In mergers with the relevant EU dimension, the secretary of state may issue a European intervention notice at the stage at which he or she has reasonable grounds to suspect that the relevant jurisdictional thresholds are met. This has the effect of the UK authorities assuming control of the merger investigation. At that stage, the CMA will investigate and report to the secretary of state on jurisdiction, and give a summary of representations from parties of a public interest nature and its views on whether the transaction will or is likely to operate contrary to the public interest. Other government organisations or sectoral regulators may be consulted, such as Ofcom in media mergers. If the test is met a referral to Phase 2 will be made. The CMA will then investigate and report to the secretary of state who will take a decision on whether to make a finding that the transaction would be adverse to the public interest.
In article 346 TFEU mergers, the Ministry of Defence should be consulted prior to filing to the EC. The secretary of state will then provide instructions to the parties on whether it should be notified to the EC and, if so, what material should be withheld. If there are aspects of the transaction that are not notified to the EC, the CMA will investigate those aspects of the merger as a UK public interest investigation. There is no filing fee for article 346 TFEU mergers but CMA fees may apply for aspects of the investigation that require investigation by the CMA as a public interest matter.
Which party is responsible for securing approval?
There is no rule on who should secure approval in the UK but, in practice, the acquiring party tends to take the lead; this may be provided for in contractual agreement between the merging parties. The EU regime provides that certain parties to the transaction are responsible for notification of the transaction. In public bids, this is the bidder; in acquisitions, the acquirer; and in mergers, parties must file jointly on behalf of all parties.
Parties should also be aware that merger control in other jurisdictions where the acquirer or target have assets or do business might also apply.Review process
How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?
The usual CMA or EU timescales will or may apply to parts of the review. Both Phase 1 and Phase 2 reviews are subject to timetables (though extensions or suspensions are allowed in certain circumstances). The secretary of state’s involvement in a UK or EC review, however, can significantly extend the review process. The effect of the intervention on the timetable will depend on at which stage the secretary of state chooses to intervene (when he or she has reasonable grounds for doing so).
The secretary of state has the power (as does the CMA in standard merger reviews) to expedite a Phase 1 review and proceed straight to a Phase 2 referral, provided the transacting parties agree and provided that it is likely that the criteria for Phase 2 referral will be met. This fast-track procedure requires parties to waive some of their procedural rights under the Phase 1 process.
Various other factors affect the timeline of a review including the complexity, the flow of information between the authorities and the parties in question, the number of ‘interested’ parties and whether and at what stage undertakings or remedies are proposed.
In practice, it would be prudent for transacting parties to engage with the CMA, the EC and the relevant UK government departments at the earliest stage possible (and, in many cases, prior to notification). Early discussions, informal advice, and well-considered and drafted undertakings or remedies may help expedite clearance.
Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?
Subject to any contractual arrangements between the parties to the contrary, transactions under review at a national level do not need to receive clearance before the transaction can close. However, parties should proceed with caution if the thresholds will (or are likely to) be met as the regulatory authorities have the power to intervene following closure of the transaction, and can order the unwinding of a completed transaction, which may be costly for the parties.
Moreover, the CMA can issue an order that the parties ‘hold separate’ the entities pending competition review. In this scenario, the transaction cannot close until after the CMA inquiry.
If the secretary of state were to intervene in a merger on public interest grounds, this would not be a bar to the transaction completing. However, the secretary of state and the CMA can impose separate obligations on the transacting parties to prevent integration of the parties or impose obligations to undo integration that has already occurred. There is relatively wide scope for them to do this and there is detailed guidance on what considerations the CMA or secretary of state must take into account when following such a course of action.
At the EU level, for most acquisitions, clearance must be obtained before the transaction is put into effect (article 7(1) EUMR). Breach of this provision carries heavy penalties; fines can be up to 10 per cent of group worldwide turnover (article 14(2) EUMR). There is an exception to this in the case of public bids that have been duly notified to the EC - these can proceed, but only on the basis that the transaction is notified to the EC without delay (article 7(2) EUMR).Involvement of authorities
Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?
Both the CMA and the EC welcome pre-notification discussions, but these are not mandatory. The CMA is able to offer informal advice and encourages pre-notification discussions, provided there is a realistic prospect that the transaction can or will go ahead. There are strict confidentiality requirements on any pre-notification discussions and any positions taken in such pre-notifications are not binding on the ultimate position of the CMA. Early discussions can assist in identifying any potential competition concerns and could assist transacting parties in the notification process as they may be able to provide information at the notification stage that deals with competition concerns raised in initial discussions. Furthermore, if competition concerns are identified, and early and detailed proposals for remedies made (which have already been discussed with the regulator), this can help speed up clearance.
In article 346 TFEU mergers, the secretary of state should be notified prior to notification to the EC in any event.
When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?
The employment of lobbying specialists is not common. However, transacting parties may use external specialists to undertake reviews, reports or case studies that can be submitted to the reviewing authorities.
Early informal advice or discussions may expedite clearance and, in those cases where a Phase 2 referral is likely, early consideration of and discussions on undertakings are likely to be of value. Where undertakings may involve third parties (such as divestment undertakings), it can be valuable to include those in the discussions from an early stage. Both the EC and the CMA (and the secretary of state) can delay a decision if the transacting parties (or, in some cases, relevant third parties) do not provide full and correct information during the course of their investigations.
What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?
The secretary of state may refer a UK public interest merger or an article 21(4) EUMR merger to the Phase 2 investigation up to four months after the transaction completes or the material facts are made public, whichever is the later. The secretary of state may also accept undertakings in lieu of a reference in the same period.
At a national level, the CMA and the secretary of state are able to review, challenge or even unwind integration if, on a case-by-case basis, they consider it necessary to do so.
In article 346 TEFU merger cases, the UK government can only intervene before the EC makes its decision and there is therefore no retrospective intervention in such cases.
Furthermore, non-compliance with the Takeover Code may result in sanction by the Panel, the Financial Conduct Authority and any regulatory body to which the non-compliant organisation belongs.