On 5 July 2019 the Competition and Markets Authority (CMA) announced that it had opened an investigation under the UK merger control regime into the acquisition by Amazon.com NV Investment Holdings LLC of a minority shareholding and certain rights in Roofoods Limited (Deliveroo).
In the context of its investigation, the CMA has imposed a so-called initial enforcement order (IEO) on Amazon's parent company and Deliveroo,(1) which prevents action being taken by the parties that may prejudice the outcome of the investigation.
The CMA's announcement follows Deliveroo's own announcement on 17 May 2019 that Amazon would be acquiring shares in the company as a part of a wider funding round of $575 million (circa £450 million), which also saw existing investors acquiring further shares in Deliveroo.
Under the UK merger control regime, while parties can notify transactions and obtain clearance from the CMA before completion, there is no legal requirement to do so.
However, if parties do not obtain clearance before completion, the CMA can still to investigate. In this context, the CMA has a statutory period of four months from the material facts of the completed transaction being publicised (or otherwise being brought to its attention) within which to open a Phase 1 investigation and decide whether to refer the transaction for a Phase 2 investigation.(2)
Importantly, the CMA can exercise a wide ambit of discretion when deciding whether to investigate. For example, the CMA can open a Phase 1 investigation where it has reasonable grounds for suspecting that two or more 'enterprises'(3) have ceased to be distinct;(4) nor is the CMA required to reach a definitive conclusion that it has jurisdiction to investigate the transaction.(5)
Therefore, a completed transaction is potentially 'at risk' of investigation during the four-month statutory period, with the opening of an investigation giving rise to certain legal and commercial risks for the parties, as outlined below.
If the CMA decides to open a Phase 1 investigation into a completed transaction, it will generally impose an IEO.(6)
The imposition of an IEO may be expected to have a material impact on the parties' activities and gives rise to:
- commercial risks, including in relation to the extent to which the acquirer's business and the target are prevented from integrating while the IEO is in force; and
- legal risks, including in relation to ensuring compliance with the IEO.
An investigation under the UK merger control regime is time consuming and resource intensive, both in terms of the CMA's involvement, as well as the parties' involvement.
The duration of the CMA's investigation may have significant commercial implications for the parties (particularly where an IEO is imposed) and the investigation is also likely to result in unexpected costs (including with regard to any merger fee(7) that becomes payable to the CMA).
By way of example:
- in a Phase 1 investigation, the CMA will typically spend several weeks gathering information from the parties (as well as potentially third parties) before confirming the start of a statutory investigation period at Phase 1 of up to 40 working days (which may be extended in only limited circumstances);(8)
- at the conclusion of a Phase 1 investigation, subject to limited exceptions, the CMA is under a statutory duty to refer a completed transaction for a Phase 2 investigation where it believes that it "is or may be the case"(9) that the completed transaction:
- satisfies the relevant jurisdictional criteria under the UK merger control regime;(10) and
- has resulted or may be expected to result in a substantial lessening of competition in any market in the United Kingdom; and
- at Phase 2, the CMA has up to 24 weeks from the date of the reference to undertake its investigation (this period may be extended in limited circumstances).
At Phase 2, the CMA must determine whether on the "balance of probabilities"(11) the transaction:
- satisfies the relevant jurisdictional criteria under the UK merger control regime; and
- has resulted or may be expected to result in a substantial lessening of competition.
Where the CMA answers these questions affirmatively, it must then decide what (if any) remedial action should be taken in the circumstances to remedy, mitigate or prevent the substantial lessening of competition.(12)
The possibility of remedial action being required therefore represents a clear risk. For example, depending on the circumstances of the case, appropriate remedial action could include the CMA ordering that the completed transaction is undone.(13)
(5) It is therefore possible (although relatively unusual) for the CMA to open a Phase 1 investigation into a completed transaction (including imposing an IEO), before deciding that the transaction does not satisfy the relevant jurisdictional criteria. See, for example, ME/50693 Completed acquisition by Headlam Group Plc of Ashmount Flooring Supplies Ltd, CMA decision of 11 February 2019.
(7) Depending upon the UK turnover of the target business, a merger fee of up to £160,000 may be payable to the CMA following its Phase 1 decision in relation to whether to refer the transaction for a Phase 2 investigation.
(8) This 40-working-day period may be extended in limited circumstances, including where the parties fail to respond to a request for information made by the CMA under Section 109 of the Enterprise Act 2002.
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