Mergers qualify for review under the UK rules if they meet a test relating to the turnover of the target or, alternatively, a 'share of supply' test. Where the UK turnover of the target exceeds £70 million, the turnover test will be satisfied. The share of supply test will be satisfied where the merger creates an enlarged business supplying 25 per cent or more of goods or services of any reasonable description or enhances a pre-existing share of supply of 25 per cent or more. In June 2018, the UK government introduced alternative turnover and share of supply tests for certain sectors on national security grounds (see Section II.v).
The Competition and Markets Authority (CMA) has the power to carry out an initial Phase I investigation, and has a duty to refer any qualifying transaction for a detailed Phase II investigation where it believes that the merger could give rise to a substantial lessening of competition. Phase I decision-making is undertaken by the senior director of mergers or another senior CMA official, while Phase II decision-making is undertaken by an independent panel drawn from a pool of senior experts in a variety of fields.
Remedy undertakings in lieu of a Phase II reference may be accepted by the CMA. The CMA's in-depth Phase II investigation may lead to a prohibition decision, a decision that the transaction should be allowed to proceed subject to undertakings, or an unconditional clearance.
Notification under the UK system of merger control is 'voluntary' in the sense that there is no obligation under the Enterprise Act 2002 (EA) to apply for CMA clearance before completing a transaction. The CMA may, however, become aware of the transaction through its market intelligence functions (including through the receipt of complaints) and impose interim orders preventing or unwinding integration of the two enterprises pending its review. There is a risk that it may then refer the transaction for a Phase II investigation, which could ultimately result in an order for divestment.
In certain limited circumstances (where the merger raises a defined public interest consideration), the UK system allows the relevant Secretary of State to intervene in relation to mergers. Currently, public interest considerations are limited to national security, quality and plurality in the media, accurate presentation of news and free expression in newspaper mergers, and the maintenance of stability in the UK financial system.2
The CMA has published detailed non-binding guidelines on jurisdictional issues and its procedures for the review of mergers.3
The Competition Appeal Tribunal (CAT) may review decisions made by the CMA or the Secretary of State in connection with a reference, or possible reference, of a merger. An appeal lies, on a point of law only, from a decision of the CAT to the Court of Appeal and requires the leave of either the CAT or the Court of Appeal.
ii YEAR IN REVIEW
The number of Phase I merger decisions made by the CMA in the 2018–2019 financial year (56) was slightly down from the 62 decisions taken in the preceding financial year, and significantly down from the peak of 210 merger decisions made by the Office of Fair Trading (OFT) in the 2005–2006 financial year.4
Of the 56 cases decided during the year, 41 were cleared unconditionally, representing around 73 per cent of cases, up from 66 per cent in the preceding year (including cases cleared under the de minimis exception – see Section III.vii). Eleven cases were referred for Phase II review, which is around 20 per cent of cases, up from 15 per cent in the preceding year. Undertakings in lieu of a reference were accepted in two cases, down significantly from 12 in the preceding year.
In the 2018–2019 financial year, one of the 11 transactions referred to Phase II was prohibited, three were cleared unconditionally, four were cleared with remedies and three were cancelled or abandoned.
A total of eight Phase II decisions were published by the CMA in the 2018–2019 financial year, down from six published by the CMA in the previous year. Three were unconditional clearances and four were granted clearance subject to divestiture remedies. The CMA prohibited one merger during the 2018–2019 financial year, whereas it prohibited none in the preceding year.5
Overall, the CMA intervened (i.e., prohibited or accepted remedies) in around 13 per cent of cases in the 2018–2019 financial year, which is around two times the rate of intervention from the European Commission over a similar period. The higher intervention rate can be explained by the voluntary nature of the UK merger control regime, which means that parties may elect not to notify transactions that do not give rise to significant competition issues.
ii Interim measures
The CMA has powers to impose interim measures to freeze or unwind integration and prevent pre-emptive action, including in relation to anticipated mergers at Phase I (see Section III.vi). This ensures that, while notification is voluntary in the United Kingdom, the CMA is able to prevent action being taken that would result in irreversible damage to competition. The CMA imposed initial enforcement orders or accepted initial undertakings in 29 Phase I cases in the 2018–2019 financial year. Interim orders were imposed in two Phase II cases in the financial year.6 The CMA granted a total of 67 derogations from initial enforcement orders in the financial year, a slight increase from the 51 derogations granted in the previous year.7
In a year of firsts, the CMA imposed its first fine for breach of an interim order against Electro Rent Corporation in June 2018 (and this decision was subsequently upheld by the CAT) before imposing another fine on the same entity in February 2019. Both of these fines were levied following the breach of an interim order issued during Phase II of the CMA's investigation. On 28 February 2019, the CMA issued an unwinding order for the first time in its history in relation to the completed acquisition by Tobii AB of Smartbox Assistive Technology Limited and Sensory Software International Ltd. This step followed the breach of an interim order issued by the CMA to prevent pre-emptive integration during in the course of the Phase II investigation. The investigation is ongoing at the time of writing.
iii Information requirements and timetables
The CMA merger notice requires a large amount of information. The CMA therefore strongly encourages parties to make contact in advance of notification to seek advice on their submission, not only to ensure that the notification is complete, but also to lessen the risk of burdensome information requests post-notification.
One of the key features of the UK regime is the existence of a statutory 40-working-day timetable at Phase I. The CMA recognises that this presents its own challenges, in particular balancing the need to obtain as much information as possible upfront (before the clock starts running) against the burden such information requests may place on businesses. The CMA has also acknowledged the need to take care that pre-notification discussions do not extend for longer than is appropriate. The CMA aims to start the statutory clock within 20 working days (on average across all cases) of submission of a substantially complete draft merger notice. The average length of the total pre-notification period was 33 working days in the 2018–2019 financial year, up from 28 working days in the previous year.8 Some cases, however, still require longer pre-notification periods. The CMA has emphasised that pre-notification will be quicker the more complete the draft notification is, including draft annexes containing internal documents, contact details, etc.
While the CMA has indicated its willingness to adopt a reasonable approach to assessing what type of information will be required for a complete notification, it also retains thepower to 'stop the clock' where the parties have failed to comply with the requirements of a post-notification formal information request (see Section III.iv). The CMA suspended the statutory timetable in two Phase I cases during the 2018–2019 financial year.9
During the 2018–2019 financial year, the average length of Phase I was 36 working days, compared to 34 working days in the preceding year.10
iv Local market analysis
When examining retail mergers, the CMA tends to assess the impact on competition at both a national level and a local level. This approach often results in the merging parties offering to divest a number of businesses in local areas to secure clearance for the overall transaction. This trend has continued during the past year. In CD&R Fund IX/MRH (GB) Limited, where both parties operated petrol stations across the United Kingdom, the CMA identified 29 localised areas in which the parties were close competitors and consumers could face price increases. The CMA accepted CD&R's divestment offers in relation to the sites identified. The CMA accepted these offers as undertakings in lieu of a Phase II investigation. In this case, the CMA did not raise competition concerns at the national level.
In Sainsbury's/Asda, Sainsbury's was proposing to buy Asda from Walmart, thereby creating the UK's largest supermarket business by market share. The CMA's final report prohibiting the deal in April 2019 detailed its reasoning at both the national and the local level. For instance, the CMA found 537 local areas in which the merger may have been expected to result in a substantial lessening of competition in the retail supply of groceries in supermarkets. The CMA also concluded that there would be a substantial lessening of competition in the same market on a national basis.
The CMA has published a commentary on the assessment of retail mergers,11 which explains the principles applied in past retail mergers and the issues frequently involved. In addition to covering catchment areas, effects on local and national competition and upward price pressure indices, the commentary also provides a detailed explanation of the use of filters, diversion ratios and econometric evidence, and includes an assessment of the competitive interaction between bricks-and-mortar and online retail businesses.
v First case under the new thresholds
On 11 June 2018, new jurisdictional thresholds came into force on national security grounds for certain defined sectors involving the development of military and dual-use (i.e., civilian and military) equipment and systems, as well as parts of the advanced technology sector.12 For these sectors, the turnover threshold is lowered from £70 million to £1 million and the share-of-supply test is met if the pre-merger share of supply of the target is 25 per cent or more (irrespective of whether that share is increased).
The first case to establish jurisdiction under the new thresholds was Gardner Aerospace/Northern Aerospace, a merger between two manufacturers of structural assemblies and parts for aerospace industry, The Secretary of State for Business, Energy and Industrial Strategy issued a public interest intervention notice on national security grounds, which obliged the CMA to prepare a report on whether the merger would lead to a substantial lessening of competition. Having considered the report and the representations of the Ministry of Defence, the Secretary of State gave notice to the CMA to deal with the matter as normal under the Enterprise Act. The CMA subsequently cleared the merger at Phase I.
iii THE MERGER CONTROL REGIME
i Threshold issues
Under the UK system, a 'relevant merger situation' (i.e., a transaction potentially qualifying for review) occurs when two or more enterprises have ceased to be distinct. This can occur either through common ownership or common control. Common ownership involves the acquisition of an enterprise so that two previously distinct enterprises become one. Common control involves the acquisition of at least one of the following: de jure or legal control (a controlling interest); de facto control (control of commercial policy); or material influence (the ability to make or influence commercial policy).
The concept of material influence has been drawn widely by the UK competition authorities. For example, the breadth of the concept can be seen in JCDecaux/Concourse where the OFT found that, even in the absence of an equity stake, material influence had been acquired by virtue of an option to appoint two out of three board members and the ability to restrict the target's capability for expansion.13
A merger situation will qualify for review if it meets the turnover test or the share of supply test (see Sections I and II). If the CMA believes that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition in a UK market, then it will refer the merger for a Phase II investigation.
In general, a completed merger will no longer qualify for a Phase II reference four months after the date of implementation of the merger. Time will not begin to run, however, until the 'material facts' of the merger (i.e., the names of the parties, nature of the transaction and completion date) have been made public or are given to the CMA (if neither occurs prior to completion). Time will not run where undertakings in lieu of reference are under negotiation, where the parties are yet to comply with an information request from the CMA, or where a request has been made by the United Kingdom for review of the transaction by the European Commission in accordance with Article 22(3) of the EU Merger Regulation (EUMR) (see the European Union chapter for details of this procedure). The four-month period may also be extended by agreement between the CMA and the merging enterprises, but for no more than 20 days.
ii Substantive test
In its assessment of mergers, the CMA considers whether the transaction may be expected to give rise to a substantial lessening of competition. At Phase I, a reference must be made if it is or may be the case that a merger may give rise to a substantial lessening of competition (known as the 'realistic prospect' threshold), while at Phase II a 'balance of probabilities' threshold applies.14 As a result, it is relatively common for mergers to be referred to Phase II and subsequently cleared unconditionally.
The CMA has adopted substantive assessment guidelines15 that illustrate, in particular, the shift away from traditional merger control analysis, which proceeds from the definition of the relevant product and geographical markets to measure post-merger levels of concentration, towards a more direct assessment of competitive effects, taking into account factors such as differentiated products, closeness of competition and price sensitivity of customers. For example, the CMA will often use margin and switching data (commonly based on customer surveys) to estimate the upward pricing pressure arising from a merger. For these purposes, the CMA published revised guidance in May 2018 on the design and presentation of customer survey evidence in merger cases.16 The CMA has also published commentary on the assessment of retail mergers (see Section II.iv).
The CMA applies different approaches at Phase I and Phase II to assessing the merger counterfactual. At Phase I, the transaction is generally measured against the prevailing conditions of competition (unless it is unrealistic to do so or there is a realistic counterfactual that is more competitive than the pre-merger conditions of competition). At Phase II, the CMA will measure the transaction against the 'most likely scenario'.
The most notable situation where the CMA may use a counterfactual different to the prevailing conditions of competition is in a failing firm scenario. However, in practice, it is often difficult to argue for its application, especially at Phase I. The CMA has pointed out in recent guidance that internal documents may be required to substantiate a failing firm scenario. The CMA does not, however, go as far to suggest that internal documents are the only source of compelling evidence for these purposes.17 The CMA considered the failing firm test in seven cases in the 2018–2019 financial year. In five of these cases the failing firm defence was rejected.18 In Aer Lingus/Cityjet the failing firm defence was accepted as the CMA was satisfied that: (1) CityJet had taken the decision to exit the market; (2) there was no alternative counterparty to Aer Lingus that would have led to a less anticompetitive outcome; and (3) following CityJet's exit from the market there would have been no competitive constraint exerted on the remaining player in the relevant market. In Baxter/Hospira, the CMA chose on a cautious basis not to assess the merger on a failing firm counterfactual, though noted that it was not necessary to conclude on the point given that the transaction did not raise competition concerns.
iv The notification procedure
An application for clearance is made using the formal merger notice.19 The initial period within which the CMA must make a decision whether to make a reference is 40 working days from the first working day after the CMA confirms to the parties that the merger notice is complete. This initial period may be extended where the parties have failed to comply with the requirements of a formal information request under Section 109 of the EA, where the Secretary of State has served a public interest intervention notice, or where the European Commission is considering whether to accept a request from the United Kingdom for the merger to be referred to Brussels under Article 22(3) of the EUMR.
As noted in Section II.iii, the CMA encourages parties to enter into pre-notification discussions at an early stage both to ensure that the notification is complete and to avoid as far as possible the need for extensions to the statutory timetable. Pre-notification discussions will also help the CMA to determine any jurisdictional issues (e.g., whether the CMA is best placed to review the case or whether a reference to the European Commission should be sought under the EUMR – see Section IV.ii, below) and whether a case is likely to give rise to any substantive issues that might trigger its duty to refer.
It is possible for the parties to request that the CMA 'fast-tracks' a merger reference where there is evidence that an in-depth review is likely to be required. This option may be attractive to parties in cases where a reference appears inevitable, as it allows for Phase I of the review process to be truncated.
The CMA levies substantial filing fees in respect of the mergers it reviews, with fees of between £40,000 and £160,000 depending on the turnover of the target business.
v Informal advice
Where there is evidence of a good-faith intention to proceed and there is a genuine competition issue, prior to submitting a merger notice or initiating pre-notification discussions, it may be possible to obtain informal advice from the CMA as to whether it is likely to refer the merger for a Phase II investigation. There is no standard timetable for the provision of informal advice, but where it is intended that the advice will be given following the conclusion of a meeting, the CMA will endeavour to schedule that meeting within 10 working days of receipt of the original application. The resulting advice is confidential and does not bind the CMA.
vi Interim measures
As outlined above, the CMA has powers to impose interim measures to freeze or unwind integration and prevent pre-emptive action. Financial penalties may be imposed for breaches of such measures (capped at 5 per cent of the aggregate group worldwide turnover). If there are relatively high risks of pre-emptive action or concerns about compliance with the interim order, the CMA also has the power to require a monitoring trustee to be appointed in order to ensure compliance with the interim orders.
The CMA issued guidance on the use of initial enforcement orders in September 2017, providing further clarification on: the circumstances in which an initial enforcement order will typically be imposed; the form that an initial enforcement order will typically take; the type of derogations that the CMA is likely to grant; and the timing for imposing and revoking initial enforcement orders and granting derogation.20The CMA will normally make an interim order where it has reasonable grounds to suspect that two or more enterprises have ceased to be distinct (i.e., in respect of completed mergers) and will normally do so almost immediately.
Given that the risk of pre-emptive action is generally much lower in relation to anticipated mergers, the CMA has noted that it would typically engage with parties before making an order in those circumstances. Of the 25 interim enforcement orders imposed in the 2018–2019 financial year, only five were imposed in the context of anticipated mergers.21
The CMA has stated that it would generally not expect to impose an order limiting the parties' ability to complete an anticipated merger unless it had strong reasons to believe that completion will occur prior to the end of Phase I and the act of completion itself might amount to pre-emptive action that would be difficult or costly to reverse (e.g., where the act of completion would automatically lead to the loss of key staff or management capability for the acquired business). The CMA may also consider creating a tailored interim order in cases where this is likely to optimise procedural efficiency and avoid unnecessary disruption to the merging parties' businesses. Therefore, absent exceptional circumstances, it is expected that parties will still be able to complete transactions prior to CMA clearance.
The CMA is willing to grant derogations from interim orders. The CMA advises parties to raise derogation requests as early in the process as possible, preferably in a single comprehensive request. The CMA will often grant the following types of derogation requests where sufficiently specified, reasoned and evidenced: (1) the provision of back-office support services by the acquirer to the target; (2) the exclusion from the scope of the interim order of parts of one party's business that are not engaged in activities that are related to the other party's business; (3) the exclusion from the scope of the interim order of parts of either parties' business that have no relevance to the merging parties' relevant activities in the United Kingdom; (4) the replacement of specified key staff at the target or substantive changes to the merging parties' organisational or management structures; and (5) continued access to key staff members where integration is staggered.
The CMA will seek to release merging parties from some or all of the obligations incumbent in an interim order as early as is appropriate in the circumstances of the case, including during Phase II for parts of the business about which the CMA is no longer concerned. The CMA may also release interim orders following a state of play meeting if it is decided that the case will be cleared.
The CMA has published for consultation draft new guidance on the use of interim measures in merger investigations. The new guidance is intended to replace the September 2017 guidance on initial enforcement orders (CMA60) and update the relevant parts of the CMA's existing guidance on jurisdiction and procedure (CMA2) that deal with interim measures. According to the CMA, the draft guidance aims to give further clarification on the circumstances in which interim measures will typically be required, the form interim measures will typically take, the types of derogations the CMA is likely (or unlikely) to grant and the timing for imposing and revoking interim measures and granting derogations.
vii Exceptions to the duty to refer
As explained above, the CMA has a statutory duty to refer a relevant merger situation for a Phase II investigation where it believes that it is or may be the case that a merger has resulted or may be expected to result in a substantial lessening of competition in a UK market. The CMA has published revised guidance on the statutory exceptions that apply to the duty to refer potentially problematic mergers to a Phase II investigation. The CMA has also recently published updated guidance on remedies.22
The remedies guidance sets out the criteria for accepting undertakings that may be offered by the merging parties in lieu of a reference. The objective of these undertakings is to ensure that competition following implementation of the remedy is as effective as pre-merger competition. To discharge the CMA's duty to refer, any undertakings offered by the parties should be clear cut and capable of ready implementation. 'Clear cut' is stated in the remedies guidance to mean that there are no material doubts about the overall effectiveness of the remedy and that it achievable in the constraints of the Phase I timetable. It is most common for undertakings to relate to the sale of a part of the merged assets; the CMA has stated a preference for structural remedies and is generally reluctant to accept behavioural remedies. The CMA has nonetheless in the past accepted a number of 'quasi-structural' remedies with behavioural features.23 It is becoming increasingly common for the CMA to require an 'upfront buyer', in other words, for a buyer of the divestment assets to be identified and approved by the CMA before clearance is granted.
The merging parties have five working days from the issuance of a substantial lessening of competition decision (SLC decision) to offer undertakings to the CMA, although they may offer them in advance should they wish to do so. The CMA then has until the 10th working day after the SLC decision to decide whether the offered undertakings might, in principle, be acceptable as a suitable remedy to the substantial lessening of competition. If the CMA decides the offer might, in principle, be acceptable, a period of negotiation and third-party consultation follows. The CMA is required to decide formally whether to accept the offered undertakings, or a modified form of them, within 50 working days of providing the parties with the SLC decision, subject to an extension of up to 40 working days if there are special reasons for doing so.
The CMA's duty to refer may also be discharged in other circumstances, namely in respect of small markets (de minimis mergers), mergers where there are sufficient efficiencies to offset any competition concerns and merger arrangements that are insufficiently advanced. In relation to de minimis mergers, the guidance states that, for markets with an aggregate turnover exceeding £15 million, the benefits of an in-depth Phase II investigation may be expected to outweigh the costs. However, for markets with an aggregate turnover of less than £5 million, the CMA will generally not consider a reference to be cost-effective or justified provided that there is, in principle, no clear-cut undertaking in lieu of reference available (though this is not to be considered a 'safe harbour'). For markets with an aggregate turnover of between £5 million and £15 million, the CMA will consider whether the expected customer harm resulting from the merger is materially greater than the average public cost of a Phase II reference. The CMA's general policy is also not to apply the de minimis exception where clear-cut undertakings in lieu are available. The CMA did not apply the de minimis exception in any cases during the 2018–2019 financial year.
viii Phase II investigations
Upon the making of a Phase II reference, there are a number of consequences for the transaction – some arising automatically, some relevant only if invoked by the CMA. When a reference is made in relation to a merger that has not yet been completed, the EA automatically prohibits the parties from acquiring interests in each other's shares until such time as the Phase II inquiry is finally determined. This restriction can be lifted only with the CMA's consent.
In relation to completed mergers, from the point of reference, the EA prohibits any further integration of the businesses or any transfer of ownership or control of businesses to which the reference relates (although in practice, the CMA is likely to have imposed an interim order at Phase I in any event).
Unless the CMA releases or replaces an interim order made during Phase I, it will continue in force for the duration of the Phase II inquiry. If an interim order was not made at Phase I or if it is necessary to supplement the measures previously put in place at Phase I, the CMA may impose a new order or accept interim undertakings from the parties.
The CMA is obliged to publish a report, setting out its reasoned decisions, within a statutory maximum of 24 weeks (extendible in special cases for a period of up to eight weeks). The CMA has a statutory period of 12 weeks (which may be extended by up to six weeks) following the Phase II review within which to implement any remedies offered by the parties.
Any party aggrieved by a decision of the CMA (including a decision not to refer a merger for a Phase II investigation) or the Secretary of State may apply to the CAT for a review of that decision. Appeals against merger decisions must be lodged within four weeks of the date the applicant was notified of the disputed decision or the date of publication, if earlier. Lodging an appeal does not have a suspensory effect on the decision to which the appeal relates. In determining an application for review, the CAT is statutorily bound to apply the same principles as would be applied by the High Court on an application for judicial review.
Appeals against merger decisions have been relatively rare since the establishment of the CAT. In January 2019, the CAT ruled against the CMA in relation to the dates and times by which Sainsbury's and Asda were required to respond to CMA working papers and the timing of the 'main party hearing' during the Phase II review of their transaction. The deal was subsequently blocked by the CMA in April 2019.24 In February 2019, the CAT dismissed an appeal by Electro Rent Corporation against a £100,000 fine imposed by the CMA for the breach of an interim order in a merger investigation. Electro Rent breached the terms of the interim order by exercising a break option to terminate a lease for Electro Rent's premises in the United Kingdom. The CAT affirmed the CMA's view that Electro Rent had no reasonable excuse for failing to comply with the terms of the interim order and also confirmed that the level of the fine imposed by the CMA was not excessive.25
iv OTHER STRATEGIC CONSIDERATIONS
i Whether to notify
Given that notification under the UK system is voluntary, the question of whether clearance should be sought from the CMA in a particular case is one for the parties – and, in particular, the purchaser – to consider. This is essentially a question of what level of commercial risk is acceptable.
Where the parties elect not to notify a transaction, the CMA may still become aware of it as a result of its own market intelligence functions, including through the receipt of complaints. The CMA has a dedicated Mergers Intelligence Committee responsible for monitoring non-notified merger activity and liaising with other competition authorities, and is increasingly focusing on this. The CMA updated its guidance on its mergers intelligence function in September 2017. This guidance explains when merging companies who do not propose to notify their transaction to the CMA should submit a briefing note.26 When deciding whether to call in a non-notified merger, the CMA has powers to request information from the parties and will also accept submissions from the parties on jurisdictional, de minimis and substantive issues. The CMA is willing to give an informal indication that it does not at that point in time intend to call in a merger
As of 1 March 2019, the Committee has reviewed over 600 transactions during the 2018–2019 financial year, showing a broadly similar rate of review since 2015. Fourteen Phase I investigations were launched during the financial year as a result of the Committee's review of those transactions. Three of these cases resulted in a Phase II.
As noted above, the fact that a merger has been completed does not prevent the CMA from investigating and referring it for a Phase II investigation or accepting undertakings in lieu of a reference. While the substantive assessment of anticipated and completed mergers ought to be identical, the CMA can be expected to impose interim orders while it considers a completed merger. In addition to ordering the parties to stop any integration that might constitute pre-emptive action, the CMA may also require the parties to unwind any integration steps that have already taken place.
An additional risk to bear in mind is that the initial period for a Phase I investigation may be reduced to less than 40 working days if the parties elect not to notify a completed merger. The CMA must comply with the four-month statutory deadline for a reference under the EA, which will start to run when the 'material facts' of the merger have been made public or are given to the CMA. If the CMA's timetable is compressed in this manner, it may mean that it has insufficient time to obtain evidence that would support a Phase I clearance, without the need for a Phase II investigation.
ii United Kingdom or European Union?
If a merger has an 'EU dimension', as defined in the EUMR, it falls under the exclusive jurisdiction of the European Commission and cannot be completed until it has been notified and cleared. Conversely, the CMA is in principle competent to investigate mergers that do not have an EU dimension but qualify for review under the UK rules. This is often referred to as the 'one-stop-shop' principle. This simple allocation of jurisdiction is, however, subject to the EUMR processes relating to the reallocation of jurisdiction (see the European Union chapter for details of these procedures).
The decision whether to make a pre-notification referral request is a strategic issue for the parties, and will depend on where the competition issues lie and the degree of risk that the Member States may request a post-notification referral. The European Commission granted Article 4(4) requests by parties to transactions with an EU dimension for the case to be referred to the CMA on one occasion in the 2018–2019 financial year.
As regards post-notification referrals, in the 2018–2019 financial year, the CMA did not make any Article 9 requests for cases to be referred from the European Commission, but did in February 2019 make one Article 22 request for a case to be referred to the European Commission.27
The CMA's mergers guidance recommends that, in all cases in which a referral back might be considered appropriate, parties contact the CMA prior to notification to the European Commission to discuss any UK issues raised by the transaction.
iii Cross-border cooperation
Parties should be aware that the CMA is part of the European Competition Network, and as such is informed of mergers notified to the competition authorities of the other 27 EU Member States and the European Commission. It also participates in the International Competition Network, an informal network that seeks to develop best practice among competition agencies around the world.
v OUTLOOK and CONCLUSIONS
As a result of the Brexit vote, it is expected that the United Kingdom will withdraw from both the European Union and European Economic Area (EEA) in the near future, which could cause significant changes to merger control regulation. It is likely that businesses may need to submit parallel notifications in the United Kingdom and European Union in order to obtain clearance for a deal, as the one-stop-shop principle may no longer apply. This could lead to a number of challenges for merging businesses, including increased regulatory burden. The CMA has emphasised once again in its Annual Plan 2019/20 that, from its perspective, the removal of the one-stop-shop principle would lead to an increased workload and consequently have an effect on resources. Even though the CMA expects to have completed three-quarters of the recruitment necessary to handle this extra work and has robust plans in place, it expects that increased time diverted to mergers may in some cases come at the cost of other priority (but discretionary) areas such as market studies and investigations. In addition, this will affect the CMA's role in global mergers and its relationships with foreign regulators.28 Transitional arrangements would also need to be put in place as soon as possible to clarify how cases currently in train would be handled. The CMA's plan does, however, note the opportunity to have oversight of all mergers affecting UK markets, including the biggest and most important transactions that would typically have come under the European Commission's jurisdiction in a pre-Brexit world.
Such considerations have, in part, added to the current reformist mood among policymakers and the CMA. Lord Tyrie, the Chair of the CMA, outlined proposals for significant reform of UK competition policy in February 2019. With regard to merger control, Lord Tyrie's proposals include mandatory notification in the case of larger mergers that are likely to be the subject of review by multiple competition agencies globally while maintaining the voluntary system for smaller mergers.
This was followed in March 2019 by further recommendations published by the Digital Competition Expert Panel, which also proposed the introduction of a 'balance of harms' approach to the UK regime, thereby broadening the substantive test for assessing mergers in the UK. This approach would involve an assessment of both the likelihood and magnitude of the positive or negative impact of a merger before considering whether the harmful effects outweighed the benefits (or vice versa). The CMA has since stated that it would not support such an approach, citing in particular the risk of unintended consequences if such a test were adopted. Such a shift in the burden of proof to merging parties would undoubtedly contradict long-established economic theories regarding the market efficiency of mergers.
The Department for Business, Energy and Industrial Strategy is set to finish its statutory five-year review of aspects of the UK competition regime is the coming months. The review will include, among other things, a review of the CMA's proposals as outlined above. Balancing a desire for fundamental reform with increased workload as a result of Brexit will likely be the key theme of the year ahead.
The CMA also aims to continue the 'tidy up' of its existing guidance in the year ahead, with a focus on ongoing consolidation and refreshing its guidance to reflect current practice (a consultation on interim measures has at the time of writing just been reissued as discussed in Section III.vi). The CMA has stated its intention to consider further revision of its jurisdictional and procedural guidance and merger assessment guidelines depending on the status of the United Kingdom's exit from the European Union following the vote to leave on 23 June 2016.
1 Jordan Ellison is a partner and Paul Walter is a special adviser at Slaughter and May. The authors would also like to thank Henry Llewellyn, associate at Slaughter and May, for his help in preparing this chapter.
2 Intervention notices have been served in two recent transactions: (1) in May 2018, a public interest intervention notice in Trinity Mirror plc's acquisition of the publishing assets of Northern & Shell Media Group Limited on media plurality grounds (the Secretary of State decided not to refer the merger to a Phase II Investigation and the CMA cleared the deal in June 2018; and (2) in June 2018, a public interest intervention notice in Gardner Aerospace Holdings Limited's acquisition of Northern Aerospace Limited on national security grounds (the Secretary of State decided not to refer the merger to a Phase II investigation and the CMA cleared the deal in July 2018. This case was the first to make use of the lower national security jurisdictional thresholds that came into force in June 2018.
3 See, for example Mergers: Guidance on the CMA's jurisdiction and procedure (January 2014) CMA2.
4 For the CMA case directory, see www.gov.uk/cma-cases.
5 JLA/Washstation. Note also that at the time of writing (but beyond the 2018–2019 financial year) the CMA has just prohibited the Sainsbury's/ASDA merger.
6 Rentokil Initial/Cannon Hygiene, Tobii AB/Smartbox.
7 Mergers updates, Law Society Competition Section seminar, 12 March 2019. FY 2018-2019 figures taken from this seminar do not include data for March 2019.
11 Retail mergers commentary: CMA62 (April 2017).
12 The changes were brought into effect by the Enterprise Act 2002 (Share of Supply Test) Amendment Order 2018 and the Enterprise Act 2002 (Turnover Test) (Amendment) Order 2018. See also 'Guidance on changes to the jurisdictional thresholds for UK merger control' (June 2018) CMA90.
13 Material influence also formed the jurisdictional basis for the investigations by the OFT and the Competition Commission (CC) in relation to the 29.82 per cent shareholding acquired by Ryanair in Aer Lingus in the context of a takeover bid. The CC ultimately found that the existence of Ryanair's minority shareholding led or may have been expected to lead to a substantial lessening of competition in the markets concerned and decided that the most effective and proportionate remedy was to compel the airline to reduce its stake in Aer Lingus to 5 per cent.
14 See OFT v. IBA Health Ltd  EWCA Civ 142.
15 Merger Assessment Guidelines (September 2010) OFT 1254, CC 2.
16 Good practice in the design and presentation of customer survey evidence in merger case (May 2018) CMA78.
17 Guidance on requests for internal documents in merger investigations (January 2019) CMA100.
18 Post Office/Payzone, Gardner Aerospace/Northern Aerospace, Sibanye Gold/Lonmin, Medtronic/Animas Corporation and Mole Valley Farmers/Countrywide Farmers.
19 The CMA has made a number of changes to the merger notice form, reflecting comments received in a consultation in 2017, which are intended to reduce the overall amount of information that businesses need to provide.
20 Guidance on initial enforcement orders and derogations in merger investigations (September 2017), CMA60.
21 Mergers updates, Law Society Competition Section seminar, 12 March 2019.
22 Mergers: Exceptions to the duty to refer (December 2018) CMA64, Merger remedies (December 2018) CMA87.
23 For example, in Mastercard/VocaLink the CMA accepted a network access remedy under which VocaLink agreed to make its connectivity infrastructure available to a new supplier of infrastructure services to the LINK ATM network. In addition, VocaLink agreed to transfer to LINK the intellectual property rights relating to a particular messaging standard and MasterCard agreed to contribute to LINK members' switching costs.
24 J Sainsbury PLC/ASDA Group Limited v. CMA  CAT 1.
25 Electro Rent Corporation v. CMA  CAT 4.
26 CMA's mergers intelligence function: CMA56 (September 2017).
27 This request in relation to Iconex/Hansol was, however, withdrawn in March 2019.
28 Mergers updates, Law Society Competition Section seminar, 13 March 2018.