Digital markets mergers are a hot topic for global antitrust regulators. The UK’s Competition and Markets Authority (“CMA”) has published an expert report on whether the UK has struck the right balance between over and under regulation of such transactions. The CMA is confident that the overarching competition law framework can cope with mergers in digital markets. However, the also seeking comments on proposals for incremental improvements in its merger assessment tools and guidance for digital markets deals. In this article, we outline what the CMA has said, and what this means for businesses active in the digital sector.
CMA’s views on merger control in digital markets
In a speech delivered on June 3, 2019, to the OECD/G7 Conference on Competition and the Digital Economy Andrea Coscelli, Chief Executive of the CMA, emphasized that while there have been a large number of acquisitions by major digital companies in the last decade, only a handful have been scrutinized by competition authorities. Accordingly, Coscelli posed the question of whether regulators have correctly “balanced the risks of under-and over-enforcement.”
Despite Coscelli stressing there are “no neat fixes” to the challenges such transactions pose, he also declared that reinventing the entire approach to mergers would “do more harm than good.” Discussing the findings of the May 2019 final report prepared by Lear commissioned by the CMA on merger control decisions in digital markets, Coscelli considers that overall, the CMA’s merger control tools are fit-for-purpose.
In particular, Coscelli views that the CMA’s current jurisdiction allows the regulator sufficient oversight over transactions in digital markets. However, he recognizes the need to keep an eye on transactions by particularly powerful companies: “the elimination of even a very small or nascent competitor could remove an important source of competition. In such markets, it could be that any entrant with a credible strategy and route to funding is worth protecting.”
Coscelli notes that the merger assessment tools require “evolution, not revolution.” This includes:
- Making more use of “dynamic counterfactuals” in the assessment of mergers. The post-merger market should be assessed not only against the status quo but against the likely future trajectory of the firms in the absence of the merger. The CMA have already utilized this approach in a recent case.
- Enriching the information available in the merger review process. The Lear report suggests using dawn raids to uncover essential information, such as future plans of the target company. According to Coscelli, this finding underlines “the ever-increasing importance of the merging businesses’ internal documents to our assessments, and the importance of taking strong enforcement action where merging parties provide incomplete or misleading information in response to our requests.”
- Additionally, Coscelli suggests that the regulator should be in a position to better understand the company valuation and investor rationales.
Coscelli’s comments reflect the need for gradual rather than dramatic change in terms of the CMA’s merger assessment tools. The CMA is calling for views and information until July 12 from interested parties regarding the aspects of the Merger Assessment Guidelines.
The suggestion of the Lear report that the CMA should consider using dawn raids as part of its standard information gathering process in order to assess fully what would happen to the target business absent the merger is striking. It coincides with an uptick in CMA enforcement against merging parties for failure to provide information and other procedural infringements. Companies should continue to be mindful of the likelihood that internal assessments of a merger will have to be provided to the CMA as part of its merger review.
The comments from the CEO of the CMA reflect an accelerating focus on competition enforcement in digital markets. For example, Bruno Le Maire, France’s economic minister, also delivered a speech on June 3rd in which he declared that the EU should look further into the future with competition analysis and that the rules need to become more effective in dealing with the tech sector.
Meanwhile, Daniel Haar, acting chief of competition policy and advocacy for the Department of Justice Antitrust Division spoke about the US position on digital antitrust at a conference hosted by the Canadian Competition Bureau. Haar stressed that threats posed by the digital economy “are not so unique” and the DOJ needs to keep an eye on non-price effects in mergers dealing with zero-price products. It has since been announced that the US Department of Justice and Federal Trade Commission will begin antitrust reviews of the conduct of several major digital players.