Notification and clearance timetable

Filing formalities

What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?

As there is currently no obligation to notify a merger, there are no filing deadlines and no sanctions apply if notification is not made. Where parties do not notify, however, they take the risk that, whether or not third parties complain, the CMA may call in the merger for review and adopt a decision to refer for a Phase II review (within the prescribed period of four months following a completed transaction becoming public or the CMA being informed of it) and that divestment or other remedies could be ordered following an adverse report. In addition, the CMA has the power to take pre-emptive action to preclude conduct that might prejudice the appraisal of a merger (see question 11).

Which parties are responsible for filing and are filing fees required?

Despite the voluntary nature of the regime, certain procedural considerations must be taken into account if a decision is taken to notify the transaction.

Filing is by merger notice (or by a submission containing the same information). Any person carrying on an enterprise to which the notified arrangements relate may file a merger notice. It is not necessary for merger notices to be made jointly. A merger notice requires the CMA to decide within a statutory period (see question 11) whether to refer the merger for a Phase II review.

In certain limited circumstances, informal advice may be sought from the CMA prior to notification. The CMA stated in its 2018/19 Annual Plan that, to achieve a balanced and targeted approach to investigating non-notified mergers, it welcomes informal briefings from companies to advise on whether a potential merger is likely to come under CMA scrutiny. The CMA is willing to provide such guidance for good faith confidential transactions giving rise to genuine issues. The parties must be prepared to acknowledge to the CMA any theory of harm that could reasonably lead to a Phase II reference. The CMA will not offer informal advice where there is sufficient guidance already from case precedents, nor will it advise on structuring options for water mergers. As the CMA is unable to consult third parties, any advice given is qualified accordingly and based on the assumption that the information provided is accurate.

Subject to certain exceptions, any merger that is investigated by the CMA is subject to a fee, which is payable either on publication by the CMA of a reference decision or a decision not to make a reference. For further information, see CMA guidance on its merger intelligence function.

What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?

The main review periods in an EA process are as follows:

  • Phase I review: a binding 40-working-day period applies;
  • consideration of any undertakings in lieu (UILs) of reference for a Phase II review: the parties have up to five working days from receiving a decision that the test for reference for a Phase II review is met (an SLC decision) to offer UILs (although they can do so earlier). The CMA has up to 10 working days from the date of its SLC decision to decide provisionally whether to accept the UILs and a total of 50 working days from the date of its SLC decision formally to accept the UILs, which can be extended by 40 working days for ‘special reasons’, such as needing further consultation with third parties or if the case involves an up-front buyer;
  • Phase II review: 24 weeks from the date of reference, with the possibility for the CMA to extend this by eight weeks; and
  • implementation of Phase II remedies: the CMA has 12 weeks (extendable by six weeks for special reasons) to accept any final undertakings offered by the parties to obtain conditional clearance.

The possibility exists for a ‘fast-track’ reference procedure. This may be used upon the request of merging parties in circumstances where there is sufficient evidence that the Phase II reference test is met at an early stage in the investigation. The CMA takes into account its administrative resources and the efficient conduct of the case in deciding whether to agree to the use of the fast-track procedure, and has used this power in five cases so far (BT’s acquisition of EE in 2015, the Ladbrokes/Coral merger in 2016, the merger between Central Manchester University Hospitals NHS Foundation Trust and University Hospital of South Manchester NHS Foundation Trust, Tesco PLC’s acquisition of Booker Group in 2017 and the proposed merger between J Sainsbury Plc and Asda Group Ltd, which was blocked by the CMA).

Although the EA regime allows parties to close transactions without notifying the CMA, there are, in practice, significant constraints on merging parties’ freedom once the CMA starts to review a merger (whether following a notification or on its own initiative). The CMA has powers to impose initial enforcement orders (IEOs) both to prevent further integration and also to unwind any integration that has already taken place.

IEOs can be imposed as soon as the CMA has reasonable grounds for believing that it is or may be the case that arrangements are in progress or in contemplation. The CMA has indicated that it is likely to use such powers for anticipated mergers only in relatively rare circumstances. However, the CMA has stated that it will normally make initial enforcement orders in investigations of completed mergers, which will remain in force until clearance or remedial action is taken. There are penalties for failing to comply with an IEO. Where the CMA considers that, without reasonable excuse, an IEO has not been complied with, it may impose a penalty of up to 5 per cent of the worldwide turnover of the addressee of the IEO. The CMA has a template initial enforcement order to which additional restrictions may be added and has released updated guidance on the use of IEOs and derogations in merger investigations (June 2019). The CMA has imposed a number of fines for breaches of an IEO in 2018 and 2019, including two separate fines of £100,000 and £200,000 in the Electro Rent/Microlease merger, a £120,000 fine in the Vanilla/Washstation merger, a £146,000 fine in the Nicholls’ (Fuel Oils)/DCC merger and a £300,000 fine in the Ausurus Group/Metal & Waste Recycling merger.

If a Phase II reference is made, the EA prohibits, except with the consent of the CMA, any party to a completed merger from undertaking further integration or any party to an anticipated merger from acquiring an ‘interest in shares’ in another. The CMA will rarely grant its consent. The EA also provides the CMA with power to accept undertakings or to make an order preventing the parties to a merger from taking action that might prejudice the eventual outcome of the merger reference. Any Phase I initial enforcement orders will usually continue in force for the duration of the Phase II inquiry and may be supplemented where appropriate with additional restrictions.

Pre-clearance closing

What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?

Merger notification is not compulsory, although constraints on integration may be imposed by the CMA (see question 11). A person who has sustained loss as a consequence of a breach of a statutory restriction preventing the acquisition of interests in shares or further integration may bring an action for damages. Breach of such a provision is also enforceable by civil proceedings brought by the CMA for an injunction or for interdict or for any other appropriate relief or remedy. Similar provisions apply in relation to any breach of an undertaking or order.

Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?

Merger notification is not compulsory in the UK, so sanctions cannot be imposed simply for closing before clearance, unless this has involved breach of a statutory obligation, an undertaking or an order (see questions 11 and 12).

What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?

The EA regime does not prevent closing prior to clearance (see questions 11 and 12). There are some limited restrictions on the powers of the CMA to take enforcement action in relation to foreign companies, but these are narrow and do not appear to have been an impediment to the OFT or CC previously.

Public takeovers

Are there any special merger control rules applicable to public takeover bids?

If the merger involves the purchase of a public company that is subject to the Takeover Code, the Takeover Code requires that the bid should lapse if the merger is referred to a Phase II investigation prior to the bid becoming unconditional in other respects. Upon such a lapse, the bidder and the shareholders of the target company will no longer be bound by acceptances of the offer made prior to the reference. The bid may, however, be revived (within a certain time frame) if, subsequently, it is cleared unconditionally by the CMA or the CMA allows it to proceed subject to certain undertakings being given.

Documentation

What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?

The company must provide, to the extent relevant, the information set out in the template merger notice, which covers the basic information that the CMA requires about the transaction and the markets involved. The company can either use the prescribed merger notice form, or provide a bespoke submission containing the same information, along with a signed and annotated version of the merger notice, indicating where in the submission the relevant information can be found. Copies of the form and current procedures are available on the CMA’s website (https://www.gov.uk/government/organisations/competition-and-markets-authority). In addition to a full description of the transaction and proposed timetable, the merger notice requires information relating to the main products and services supplied by the merging enterprises and estimates of market shares in any UK market. Information on horizontal overlaps, vertical links, entry barriers, buyer power and customer benefits are also relevant. Financial information is also required. In 2017, the CMA published a revised merger notice template following a consultation process. This new template is intended to clarify the interpretation of certain questions and guidance notes and to ensure that information provided is adequate and proportionate in the circumstances of the case (in many cases this took the form of clarifying in what circumstances certain granular data may be required of the parties). In practice, the core requirements of the merger notice have not been affected and for the most part the proposed changes reflect the CMA’s existing practice.

The time required to complete a merger notice depends on the complexity of the case and the ability of the parties to collate the relevant information promptly. The CMA will not commence its 40-working-day review period until it is satisfied that the merger notice is complete and, in practice, a series of pre-notification discussions have been completed. The CMA states that it will endeavour to review submissions and revert to the parties within a reasonable time frame, generally within five to 10 working days of receipt (although this can be longer depending on the complexity of the case).

The CMA has the power to impose penalties on merging parties for breach of procedural requirements, including for failure to comply with document requests, or for provision of inaccurate information. For example, in 2017, the CMA imposed a fine of £20,000 on Hungryhouse, during the review of its acquisition by Just Eat, for failing to provide certain documents without reasonable excuse. The information gathering process employed by Hungryhouse had failed to identify responsive documents, and the CMA found that Hungryhouse should have been aware that this was a substantial risk. In 2019, the CMA imposed a fine of £15,000 on AL-KO for late provision of certain responsive documents to two CMA document requests without reasonable excuse. Under section 117 of the Enterprise Act, it is a criminal offence to supply false or misleading information to the CMA, knowingly or recklessly.

Investigation phases and timetable

What are the typical steps and different phases of the investigation?

See question 11 for details of the timetable. There is a statutory, 40-working-day Phase I timetable that the CMA must follow. The CMA has the power to ‘stop the clock’ (eg, in circumstances where the parties have not responded to an information request). The CMA can also use its ‘stop the clock’ powers in relation to the four-month period that applies to completed mergers (see question 9). This period may also be extended in certain circumstances. To increase the speed of Phase I review, the CMA’s Annual Plan 2018/2019 set a target of approving at least 70 per cent of less complex mergers within 35 working days and seeks to complete 70 per cent of Phase II cases without an extension to the 24-week statutory deadline. The basic Phase II period is 24 weeks from the date of the Phase I reference and can be extended by eight weeks for ‘special reasons’. The CMA’s Annual Plan 2018/2019 set out the target of implementing Phase II merger remedies without the need for an extension to the statutory deadline in at least 80 per cent of cases. The statutory deadline is 12 weeks and can be extended by six weeks for ‘special reasons’. The CMA concluded a review and consultation of its remedies guidance across Phase I and Phase II mergers, issuing a revised version of its guidance in December 2018.

However, additional time should be factored in outside the statutory periods for pre-notification discussions with the CMA case team, prior to formal submission of a merger notice. The CMA states in its Guidance on the CMA’s jurisdiction and procedure that it strongly encourages allowing a minimum of two weeks from submission of a draft merger notice to formal notification, even for straightforward cases, and this can be significantly longer for more complicated cases. Pre-notification discussions from submission of a substantially complete draft merger notice to the start of the statutory timeline take, on average, between four and six weeks.

What is the statutory timetable for clearance? Can it be speeded up?

The EA provides for two phases of investigation. First the CMA carries out a preliminary (Phase I) investigation to decide whether there is or may be a relevant merger situation and there is a realistic prospect that the merger will result in an SLC, in which case, it has a duty to refer the merger for a Phase II investigation. Where a reference is made, the CMA then launches a detailed investigation by an Inquiry Group to consider whether the merger has resulted, or may be expected to result, in an SLC and, if so, how to remedy, mitigate or prevent such effects.

In making its Phase I assessment, the CMA will gather supplementary information from the merging parties and will seek to verify that information with third parties (eg, competitors, major customers or suppliers; see question 29). The CMA will conduct a ‘state of play’ meeting and, where competition issues are raised, it will generally meet with the parties to discuss their submissions (an ‘issues meeting’). To help the parties prepare for this meeting, the CMA sends an ‘issues letter’ to the parties to the merger. This will set out the core arguments and evidence in favour of a reference in the case. Following the issues meeting, all of the evidence including the main parties’ and any third parties’ submissions will be considered within the CMA. Following an internal CMA case review meeting, there is a separate decision meeting at which the case is debated and scrutinised. The final decision is then communicated to the parties to the merger.

The major steps followed in a Phase II investigation are gathering information, issuing questionnaires, hearing witnesses, verifying information, providing a statement of issues, considering responses to the statement of issues, notifying provisional findings, notifying, considering and implementing possible remedies, considering exclusions from disclosure and publishing reports.

All decisions (ie, that a case is not a relevant merger situation or acceptances of undertakings in lieu of a reference), Phase II references and clearance or prohibition decisions are published on the CMA’s website, subject to excision of business secrets. The decision will also be announced through the Regulatory News Service.