Q&A: merger notification and clearance in United Kingdom

Notification and clearance timetable

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

As there is no mandatory requirement to notify the Competition and Markets Authority (CMA) of a merger, there are no filing deadlines, and no sanctions apply if a notification is not made; however, where parties do not notify, they take the risk that, regardless of whether 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 four-month period 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.

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 a transaction.

Filing is executed by providing a merger notice (or by a submission containing the same information). Any person carrying out an enterprise to which the notified arrangements relate may file a merger notice. It is not necessary for merger notices to be made jointly.

In certain limited circumstances, merging parties may seek informal advice from the CMA prior to notification. The CMA has also stated that it is open to informal briefings from companies to advise on whether a potential merger is likely to come under CMA scrutiny for good faith confidential transactions giving rise to genuine issues. The parties must be prepared to acknowledge 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.

The CMA is not legally bound by its initial response to informal briefing notes submitted by merging parties. Exceptionally, in 2020, it launched an investigation into Takeaway.com’s acquisition of Just Eat after reconsidering its position regarding the transaction to consider, in particular, whether Takeaway.com would have re-entered the UK market were it not for the Just Eat acquisition.

Subject to certain exceptions, any merger that is investigated by the CMA is subject to a fee, which is payable either on the CMA’s publication of a reference decision or a decision not to make a reference. The submission of a briefing note does not attract a merger fee, although a fee may be payable if the CMA subsequently opens an investigation.

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

The main review periods in a UK merger review process are as follows.

• Phase I review: a binding 40-working-day period applies.
• Consideration of any undertakings in lieu 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 (a substantial lessening of competition decision) to offer undertakings in lieu (although they can do so earlier). The CMA has up to 10 working days from the date of its substantial lessening of competition decision to provisionally decide whether to accept the undertakings in lieu, and a total of 50 working days from the date of its substantial lessening of competition decision formally to accept the undertakings in lieu. This deadline can be extended by 40 working days for ‘special reasons’, such as needing further consultation with third parties or if the case involves an upfront buyer.
• Phase II review: the review period is 24 weeks from the date of reference, with the possibility for the CMA to extend this by eight weeks.
• 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.

Merging parties can request that their case be fast-tracked by the CMA to proceed more quickly to offering remedies (with the objective of achieving a Phase I clearance with remedies) or to an in-depth Phase II investigation.

To request a fast-track process, the merging parties must accept that the CMA has evidence that objectively justifies a belief that the test for a Phase II referral is met at an early stage in the investigation, and the merging parties must agree to waive their right to challenge that position during Phase I.

A request for a fast-track process may not always be granted, and such requests are made on a ‘without prejudice’ basis. The CMA takes into account its administrative resources and the efficient conduct of the case in deciding whether to agree to use the fast-track procedure. It has used this power in 10 cases so far, including:

• Cargotec Corporation/Konecranes Plc (blocked following a Phase II review in March 2022);
• Admiral Taverns/Hampden Pub Estate (remedies accepted in lieu of a Phase II referral in January 2022); and
• Huws Gray Ltd/Grafton Plc (remedies accepted in lieu of a Phase II referral in January 2022).

Although the Enterprise Act 2002 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 notification or on its own initiative. The CMA has powers to impose initial enforcement orders (IEOs) to prevent further integration and 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 previously indicated that it will rarely use such powers for anticipated mergers and that it will normally make IEOs in investigations of completed mergers, which will remain in force until clearance is granted or remedial action is taken.

However, recent CMA practice has seen it imposing IEOs prior to closing, although in some cases these are caveated to specifically allow closing to occur (eg, Google/Looker Data Sciences and viagogo/StubHub) or are designed to take effect upon closing, should the parties decide to complete the transaction (eg, Roche/Spark).

There are penalties for failing to comply with IEOs. 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 IEO to which additional restrictions may be added and has released updated guidance on the use of IEOs and derogations in merger investigations (see ‘Interim measures in merger investigations’).

If a Phase II reference is made, the Enterprise Act 2002 prohibits, except with the consent of the CMA, any party to a completed merger from undertaking further integrations or any party to an anticipated merger from acquiring an ‘interest in shares’ in another. The CMA will rarely grant its consent.

The Enterprise Act 2002 also provides the CMA with the 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 IEOs will usually be in force for the duration of the Phase II inquiry and may be supplemented where appropriate with additional restrictions.

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. 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.

The breach of such a provision is also enforceable by civil proceedings brought by the CMA for an injunction, interdiction or 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, so sanctions cannot be imposed simply for closing before clearance is granted unless this has involved breach of a statutory obligation, an undertaking or an order.

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

The Enterprise Act 2002 regime does not prevent closing prior to clearance. There are 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 CMA, or to the Office of Fair Trading or the Competition Commission previously.

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

The conduct of takeovers and mergers of public companies is regulated by the Takeover Code (the Code), issued and enforced by the Panel on Takeovers and Mergers (the Panel). In July 2021, the Panel updated the Code to make certain changes relating to offer conditions and, in particular, conditions relating to regulatory and merger control clearance.

Prior to these updates, the Code distinguished between offers with conditions relating to merger control clearance from the CMA or the European Commission, and offers with conditions falling within the jurisdiction of another regulator. This meant that if a takeover was subject to review under either the UK or EU merger control regimes, the offer was required to automatically lapse if either authority opened a Phase II review before the later of the first closing date or the date when the offer became or was declared unconditional in respect of acceptances.

However, under the updated Code, offers are no longer required to automatically lapse if a Phase II review is initiated by EU or UK competition authorities; instead, conditions relating to EU or UK merger control are subject to the same ‘material significance’ test as other offer conditions (Rule 13.5 of the Code). Bidders are now required to set a long-stop date for the offer, and the bidder or target may request an extension to the long-stop date if a ‘material’ official clearance or regulatory authorisation condition has not been satisfied or waived.

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.

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 the proposed changes mostly 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 the failure to comply with document requests or providing inaccurate information. For example, in September 2020, the CMA imposed two penalties of £25,000 and £30,000 against Amazon in respect of the Amazon/Deliveroo merger for late provision of information.

In addition to civil penalties for failing to provide information, under section 117 of the Enterprise Act 2002, it is a criminal offence to knowingly or recklessly supply false or misleading information to the CMA.

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

The Enterprise Act 2002 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 a substantial lessening of competition. If the affirmative is true, the CMA has a duty to refer the merger for a Phase II investigation.
• Where a reference to Phase II is made, the CMA launches a detailed investigation by an inquiry group to consider whether the merger has resulted, or may be expected to result, in a substantial lessening of competition and, if so, how to remedy, mitigate or prevent those 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). 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 referring the case.

Following the issues meeting, all the evidence, including the main parties’ and any third parties’ submissions, will be considered by 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; and
• considering exclusions from disclosure and publishing reports.

Although previously granted only in exceptional circumstances, the CMA’s latest ‘Merger Assessment Guidelines’ set out the situations in which the parties can request that their case be fast-tracked to proceed more quickly to offering remedies (with the objective of achieving a Phase I clearance with remedies) or to an in-depth Phase II investigation.

To request a fast-track process, the merging parties must accept that the CMA has evidence that objectively justifies a belief that the test for a Phase II referral is met at an early stage in the investigation, and they must agree to waive their right to challenge that position during Phase I.

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

The CMA states in its ‘Guidance on the CMA’s jurisdiction and procedure’ (updated in January 2021 and amended in January 2022) that there will typically be a minimum of two weeks from the initial contact between the parties and the CMA before submission of a draft merger notice. During this initial period, the parties submit a case team allocation request form, and the CMA allocates a case team of CMA staff to review the transaction and liaise with the parties.

Once the parties have submitted a draft merger notice, pre-notification discussions can begin. The duration of pre-notification will differ on a case-by-case basis: cases raising complex or prima facie competition concerns will typically entail longer pre-notification periods than straightforward cases.

During pre-notification, the CMA case team engages with the parties on the nature and scope of the information and internal documents that the case team considers will need to be provided in the merger notice. The CMA will also typically issue information requests to the merging parties to complete the notification and ensure it has sufficient information to commence its investigation. It may also engage with third parties and in some cases may issue a public invitation to comment, inviting third-party submissions about the potential competitive impact of the merger.

Once the CMA is satisfied that the merger notice is complete and contains the information required under the Enterprise Act 2002, it confirms this to the merging parties and confirms the statutory deadline for its Phase I decision.

Where a transaction is not voluntarily notified by the merging parties, the CMA may, where it considers it appropriate, send an enquiry letter to the merging parties requesting further information about the transaction.

As with voluntary notifications, the CMA will also likely engage with third parties and may issue a public invitation to comment. In addition, it will consider whether interim measures are necessary to prevent or unwind pre-emptive action.

When the CMA has sufficient information to begin its investigation, it confirms this to the merging parties and confirms the statutory deadline for its Phase I decision. In deciding whether to investigate any merger on its own initiative, the CMA will consider whether, on the information available to it, there is a reasonable chance that the test for a reference to Phase II will be met.

The CMA follows a statutory, 40-working-day Phase I timetable. The key milestones during the CMA’s Phase I review are as follows.

• Working day one: the 40-working-day initial period for the CMA’s Phase I investigation begins on the first working day after it confirms to the merger parties that it has received a complete merger notice or that it has sufficient information to begin its investigation (eg, in own-initiative investigations).
• Working days 15 to 20: the CMA holds a ‘state of play’ discussion with the merging parties (typically by telephone or video conference).
• Typically by working day 25: in cases raising more complex or material competition issues, the CMA holds an issues meeting with the parties (either in person or via video conference). To help the parties prepare for this meeting, the CMA sends an issues letter to the parties, setting out the core arguments and evidence in favour of referring the case to Phase II. The views expressed in the issues letter are not binding or final. Following the issues meeting, all the evidence, including the main parties’ and any third parties’ submissions, will be considered by the CMA. The merging parties may provide written responses to the issues letter (before or after the issues meeting).
• Working days 25 to 35: after the issues meeting (if one is held), the CMA holds an internal case review meeting to discuss the merger. This is followed by a separate internal decision meeting at which the case is debated and scrutinised. After those meetings, the appointed Phase I decision-maker for the case decides whether the duty to refer the merger to a Phase II investigation has been met.
• By end of working day 40: the CMA provides the merger parties with its reasoned decision.

At the end of its Phase I review, the CMA makes one of the following decisions:

• unconditional clearance;
• clearance subject to legally binding undertakings; or
• reference for a Phase II investigation.

Where the CMA considers that remedies may be required, the following timetable applies.

• Zero to five working days after Phase I decision: the merging parties decide whether to offer undertakings in lieu of a reference to remedy the CMA’s concerns. If so, the parties submit a completed remedies form and the draft undertakings in lieu to the CMA. If no undertakings are offered within this five-working-day period, the CMA will refer the transaction to Phase II.
• Up to 10 working days after Phase I decision: the CMA considers any undertakings in lieu that have been offered by the parties and decides whether to provisionally accept the proposed remedy (or a modified version). If the CMA rejects the proposed undertakings, the CMA will refer the transaction to Phase II.
• Within 50 working days of Phase I decision: this period covers agreement and acceptance of the proposed undertakings. During this period, the CMA publishes the draft undertakings for third-party comment and considers whether to formally accept (with a possible further, shorter consultation if required, following any material changes to the draft undertakings). If undertakings in lieu are not agreed, the CMA will refer the transaction to Phase II.
• Implementation of undertakings in lieu: if a remedy is agreed, the CMA publishes the final undertakings. It then assesses – and, as appropriate, approves – proposed purchasers of the businesses being divested (this occurs prior to acceptance of the undertakings in ‘upfront buyer’ cases).

The basic Phase II period is 24 weeks from the date of the Phase I reference and can be extended by eight weeks at the CMA’s discretion for ‘special reasons’. 

The key milestones during the CMA’s Phase II review are as follows.

• Weeks one to six – Phase II information gathering: to supplement its existing evidence base, the CMA issues information requests to the merging parties, develops any consumer surveys, attends site visits and conducts calls and meetings with third parties to the extent necessary. It then publishes the issues statement (reflecting the theories of harm on which it is focusing) and considers responses from the merging parties and third parties.
• Weeks seven to 15 – Phase II assessment: the CMA analyses the evidence it has received and conducts a ‘main party hearing’ with each merging party. An annotated issues statement is sent to the merging parties in advance of the main party hearing, setting out the inquiry group’s emerging thinking.
• Around week 15: the CMA publishes its provisional findings report and (if relevant) a notice of possible remedies.
• Weeks 16 to 24 – post-provisional findings: the CMA considers responses from the merging parties and third parties to the provisional findings. Where new evidence has been obtained after the provisional findings, the material is put back to the parties to check for factual accuracy and to identify any confidential information. Where relevant, the CMA will conduct subsequent response hearings to receive evidence on any remedies proposals and brief submissions on the provisional findings.
• By week 24: the CMA publishes its final report by the end of week 24 (subject to any extension of the statutory deadline).
• Week 36: the CMA has 12 weeks to accept final undertakings and make a final order (subject to a six-week extension if there are special reasons to do so).

The regulator has the power to ‘stop the clock’ and extend the relevant statutory deadline (eg, in circumstances where the parties have not responded to an information request) and may use this power in relation to the four-month statutory deadline for deciding whether to refer a completed merger. The clock restarts once the party has produced the documents or supplied the information requested, and the CMA has confirmed that the documents or information provided form a satisfactory response.