The proposed Sainsbury’s/Asda merger would have combined the second- and third-largest UK supermarkets. The merger would also have created the largest retailer of fuel by volume in the UK. In the face of this, the UK Competition and Markets Authority (CMA) concluded that the prohibition of the merger was the only way to go.
Perhaps of greater note, however, is the 10-year ban imposed by the CMA on the parties’ attempting a similar deal in the future. In this alert we will review the CMA’s decision and its powers, and consider the future for UK competition law.
On 9 July 2019, the CMA imposed a 10-year ban on both Sainsbury’s and Asda obtaining a controlling interest in the other, or any entity holding an interest in the other, without the CMA’s prior written consent. The prohibition also includes the acquisition of a small number of assets (for example, theoretically even a single store) where such acquisition would result in a relevant merger situation (i.e., the businesses ceasing to be distinct and the merger meeting the jurisdictional threshold tests) even if it did not raise competition concerns.
In addition, under the order imposed on Sainsbury’s and Asda, the CMA has additional powers to monitor the parties and give directions in order to ensure compliance. It is also possible for the CMA to vary or revoke the Sainsbury’s/Asda order as a result of a change in circumstances.
The CMA had not previously imposed a prohibition of such duration. While merger prohibitions of 10 years have been implemented in the UK, these were applied as a result of the parties’ voluntary undertakings. On the other hand, the previous strictest prohibition imposed directly by the CMA was for two years, in relation to agreements for ferry services between the merged entities in the already completed Eurotunnel/SeaFrance merger. This is in line with the current trend to move from voluntary undertakings to the exercise of compulsory powers.
The CMA’s powers
The CMA has power under the Enterprise Act 2002 to take such action “as it considers reasonable and practicable” to “remedy, mitigate or prevent the substantial lessening of competition”. This power is extremely broad. In particular, neither the Act nor the CMA’s guidance discusses the appropriate length of a merger prohibition remedy, other than stating that remedies must have “appropriate duration and timing”.The guidance does, however, suggest that a prohibition on purchasing divested assets for 10 years is a standard remedy where divestiture has been imposed as a remedy in a merger investigation. The Sainsbury’s/Asda case was, however, a case where a proposed merger was blocked entirely, rather than a case where partial divestiture remedied competition concerns so as to allow the merger to proceed.
Comment: the future for Sainsbury’s and Asda?
This tough decision comes on the heels of the CMA’s “wide-ranging and radical” proposals published in February 2019 to enhance competition enforcement, including the introduction of a mandatory notification regime in preparation for Brexit.
In other European jurisdictions such as Germany, such long-term prohibitions are unheard of or are not permitted under domestic laws. However, long-term and even indefinite bans are not unusual in the United States.
Sainsbury’s or Asda can request a review of the CMA’s 10-year ban at the Competition Appeal Tribunal. It will be interesting to see if the parties decide to take any further action, and indeed to watch the future position of the CMA in merger and competition decisions.