UK Competition and Markets Authority updates its merger review guidance to streamline the processPrint publication
On 5 September 2017, following a public consultation, the UK Competition and Markets Authority (CMA) outlined certain updates to its merger review process. The changes are designed to provide additional guidance to companies, streamline the CMA merger process and reduce requirements on businesses.
The main changes include:
- additional guidance on the CMA’s use of initial enforcement orders (IEOs) which may be imposed during merger investigations to prevent companies from integrating during the CMA’s review;
- updates to the CMA’s merger notice form and accompanying guidance notes designed to help to reduce the burden on businesses; and
- revised guidance on the CMA’s mergers intelligence function to clarify when briefing papers may be submitted to the CMA.
Initial enforcement orders
The first change is the publication of additional guidance on the CMA’s use of IEO’s. These are orders that the CMA may put into place during a Phase 1 investigation in order to prevent or unwind “pre-emptive” action, such as merging companies integrating in a way that could affect the outcome of the investigations or interfere with the CMA’s ability to introduce any necessary remedial action.
The additional guidance reflects experience gained by the CMA since the current regime was introduced in April 2014, describing the circumstances in which an IEO will typically be imposed, the form that it will take and expected timings. It also clarifies the process by which the CMA will grant derogations, allowing the parties to take actions that would otherwise be prohibited by the IEO, including the types of derogations that it is likely and unlikely to grant.
In summary, the CMA will normally expect to impose IEOs in completed merger cases but will not normally impose IEOs where the parties notify a merger pre-completion. However, merging parties should keep the CMA appraised of their plans for completion. In most cases, the CMA would expect to impose an IEO when the merger completes before CMA clearance. The form of IEO will typically take the form of the standard template available on the CMA’s website.
Changes to the merger notice form
The merger notice sets out the information required to notify a merger to the CMA. The changes are intended to make the merger notice clearer to understand and reduce the overall amount of information that businesses must provide, by eliminating some questions and providing additional guidance on what information the CMA is and is not likely to require in any particular case.
In its revised guidance notes accompanying the merger notice template, the CMA has amended materiality thresholds in relation to when certain information will be required. For example, the CMA has increased the market share thresholds from 25% to 30% for when the CMA will typically require detailed information on vertical or conglomerate effects, particularly helpful for companies operating at different levels of the supply chain who are looking to merger or mergers between companies that are active in closely related markets (e.g. mergers involving suppliers of complementary products or products that belong to the same product range). The CMA has reduced the scope of documents which must be submitted relating to commercial strategy, dropped the requirement to send documents looking at potential alternative acquisitions, and clarified what documentation is required in relation to shareholder communications. The CMA has also reduced to five the number of competitors for which details should be provided, and removed the requirement to provide monthly management accounts. However, the CMA has maintained the requirement to provide the contact details for 10 customers when notifying mergers.
Revised guidance on the CMA’s mergers intelligence function
Finally, the CMA has made some amendments to the guidance on its merger intelligence function, which refers to the way in which the CMA collects information about a merger that has not been notified to it by the parties concerned before deciding whether to fully investigate. In particular, the updated guidance clarifies the status of the CMA’s “briefing paper” process for merging and merged companies that do not propose to submit a formal notification. Briefing papers have become popular recently after the CMA reintroduced the process, which it had previously ended because of resource constraints. The CMA has clarified that it will only consider a briefing paper after there is a signed merger agreement, to ensure its intelligence function does not commit resources to transactions that may not ultimately be agreed.
All of these changes and clarifications to the CMA’s merger process are welcome. In relation to the merger notice template, the CMA has gone some way to make this clearer and simpler to complete. The UK merger control regime is a voluntary system where filing is not mandatory. However, there are many cases where the UK merger control thresholds are only technically met and no substantive competition issues are likely, yet the level of detail required by the merger notice (and associated legal and economic advisor costs) remains burdensome for businesses. The UK merger control system may benefit from a UK equivalent of the Short Form CO under the EU Merger Regulation. Transactions that need to be notified to the European Commission and qualifying for the so-called “simplified procedure” can be notified using the Short Form notification template rather than the long Form CO. One of the benefits of using the Short Form CO is the disclosure obligations are less burdensome on the parties (i.e. less market data and fewer internal documents are required).
We also wish to flag the need to engage early with the CMA and to devote early efforts to amassing all the internal documentation which is still required as part of the merger notice. In 2016/2017, the average length of pre-notification discussion with the CMA was 33 working days and the average length of a Phase 1 investigation was 35 working days.