On the 15 November the OFT published revised merger guidance in relation to the ”markets of insufficient importance” (de minimis exception) exception to its duty to refer mergers under the Enterprise Act 2002 to the Competition Commission (CC). Use of the exception will have the same effect as an exemption that clears the merger unconditionally1.
The new guidelines are a very welcome relaxation. However, the de minimis threshold (£10 million) is still too low and the level of discretion retained by the OFT introduces an unwelcome level of uncertainty into what should arguably be a bright-line test.
The new approach
The revised guidance introduces a significant increase in the threshold for markets affected by a merger to be considered of insufficient importance: from £400,000 to £10 million. This is a welcome change, in particular given the cost of a CC reference (which the OFT estimates at being between £300,000 to £750,000, but which can be far more).
The ”affected” market(s) for the purpose of calculating whether the £10 million threshold is met will be limited to the market(s) where the OFT concludes there is a realistic prospect of a substantial lessening of competition.
To establish whether the £10 million market size threshold is met, the OFT will sum the annual turnover of all suppliers in the UK in the affected market. Where a merger results in several affected markets, the relevant figure will be the aggregate size of all such markets. Helpfully, if the geographic scope of any affected market is wider than the UK, turnover generated outside the UK will not be taken into account.
Below the £10 million threshold, the OFT states that it will “generally” consider the markets to be of insufficient importance to justify a reference. This is subject to the caveat that the de minimis exception may not apply if in the OFT’s view “the total impact of the merger in terms of consumer harm is likely to be particularly significant.”
The OFT goes on to refer specifically to the existence of very high market concentration and low entry prospects, and/or evidence of coordination as grounds to decline using the de minimis exception.
Finally, even where a merger falls under the de minimis threshold and the criteria for a “particularly significant” impact are not satisfied, the OFT still retains a discretion to make a reference where a reference would have “important precedent value” (eg raising novel issues) and/or where a substantial proportion of the likely detriment arising from the merger is suffered by vulnerable consumers.
The theoretical availability of informal advice from the OFT (as regards the de minimis exception) is unlikely to remedy the resulting uncertainty for merging parties, given the deficiencies of the informal advice systems (in particular, it is itself discretionary and crucially requires the applicant to elaborate why the merger is a “candidate case for reference”).
Nevertheless, for all its short comings, the revised de minimis guidance is a welcome step in the right direction compared with the old guidance and hopefully will result in a more realistic appraisal by the OFT of very small mergers, avoiding costly and lengthy references out of all proportion to the market impact of the deal