Notification and clearance timetableFiling 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 of 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 Competition and Markets Authority (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.
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 executed by providing a 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 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 being submitted. 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. 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. For further information, see CMA, Guidance on the CMA's 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 Enterprise Act 2002 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 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.
- 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.
A fast-track reference procedure may be used following a request by the merging parties if there is sufficient evidence that the Phase II reference test is met at an early stage in the investigation. The merging parties must agree to waive their right to challenge that position during Phase I. 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 seven 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 in 2017;
- Tesco PLC’s acquisition of Booker Group in 2017;
- the proposed merger between J Sainsbury Plc and Asda Group Ltd, which was blocked by the CMA in April 2019;
- the anticipated merger between Crowdcube Limited and Seedrs Limited, which was referred for a Phase II investigation under the fast track procedure in November 2020; and
- the proposed joint venture between Liberty Global plc and Telefonica SA to merge their UK operating businesses Virgin Media/Virgin Mobile and O2, which was referred for a Phase II investigation in December 2020.
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 a notification or on its own initiative. The CMA has powers to impose initial enforcement orders to prevent further integration and also to unwind any integration that has already taken place.
Initial enforcement orders 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 initial enforcement orders 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 initial enforcement orders 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 to decide to complete the transaction (eg, in Roche/Spark).
There are penalties for failing to comply with initial enforcement orders. Where the CMA considers that, without reasonable excuse, an initial enforcement order 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 initial enforcement order. The CMA has a template initial enforcement order to which additional restrictions may be added and has released updated guidance on the use of initial enforcement orders and derogations in merger investigations (see CMA, Interim measures in merger investigations, June 2019). The CMA has imposed a number of fines for breaches of an initial enforcement order 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;
- fines totalling £300,000 in the Ausurus Group/Metal & Waste Recycling merger; and
- a £250,000 fine in the PayPal/iZettle merger.
In August 2020, the CMA issued a £300,000 fine in JD Sports/Footasylum. This was the highest fine to date for a single breach of an initial enforcement order, although the CMA revoked the penalty in response to new information that came to light during JD Sport’s appeal against the fine.
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 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. 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 in the UK, so sanctions cannot be imposed simply for closing before clearance is granted, unless this has involved breach of a statutory obligation, an undertaking or 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 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 Office of Fair Trading or Competition Commission 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 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 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 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. 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 2019, the CMA imposed a fine of £15,000 on AL-KO for the late provision of certain responsive documents to two CMA document requests without reasonable excuse, and fines of £27,000 on Rentokil and £20,000 on Sabre Corporation for similar failures. 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 total, Amazon provided 189 documents late to the CMA, with delays ranging from a few days to more than two months. The CMA found that the documents included a significant amount of information relevant to the CMA’s merger investigation, and, although Amazon did ultimately provide all of the information required, Amazon’s behaviour caused ‘unnecessary delays’ to the CMA’s investigation. Under section 117 of the Enterprise Act 2021, 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?
The CMA follows a statutory, 40-working-day Phase I timetable.
The regulator has the power to ‘stop the clock’ (eg, in circumstances where the parties have not responded to an information request) and may use this power in relation to the four-month period that applies to completed mergers. This period may also be extended in certain circumstances.
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’.
To increase the speed of Phase I and II reviews, the CMA’s Annual Plan 2018/2019 set the targets of approving at least 70 per cent of less complex mergers within 35 working days and completing 80 per cent of Phase II cases without extending their 24-week statutory deadlines.
The CMA’s Annual Plan 2018/2019 also set the target of implementing Phase II merger remedies without extending the statutory deadline in at least 80 per cent of cases. This 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 (see CMA, Merger remedies).
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 (updated in December 2020) 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. 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.
What is the statutory timetable for clearance? Can it be speeded up?
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, 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 a substantial lessening of competition 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). 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 of 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.
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. Decisions are also announced through the Regulatory News Service.
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21 April 2020