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Mergers under UK Law

Dierences between EU & UK regimes on merger control:

In the UK, voluntary notification (after debates, because the government wants a
business friendly approach) > no obligation on merging parties to notify the CMA,
although they may choose to do so; unlike the EU where there is mandatory notification
////Is a voluntary notification regime preferable? Arguments for and against - key
advantages of mandatory notification: certainty in terms of outcome, not having to re-do
or undo; disadvantages of MN: burden on companies, issues on delay in terms of waiting
for the authoritys decision - which are significant factors for companies. Advantages of
voluntary - flexibility in terms of deciding whether or not to notify, statistics do support
case for voluntary because majority of mergers have unconditional clearance; Mandatory
notification is an ex ante approach, voluntary is an ex post approach - in terms of
assessment before and after implementation of merger
// Voice note from 1st revision lecture 15 March
UK Regime
Relevant legislation: EA 2002
Issues of practice and procedure Q> What kind of mergers are caught by the rules?
Same in the UK; rules are the same in terms of amalgamations, acquisition, and FFJVs
But dierence in terminology between regimes In the UK, in the case of relevant merger situations (s.23 EA 2002) //as opposed to
For there to be a relevant merger situation, there must be the following fulfilled:
enterprises must cease to be distinct, and
the turnover of the enterprise which is being acquired (i.e. the target enterprise)
must exceed 70 million
Dierence between enterprise and undertaking > similar, yet wider; because any kind
of business/business activity (anything that generates turnover) is an enterprise, including
assets, IP rights, etc.
Enterprises must cease to be distinct
s.23 doesnt tell you when this happens; s.26 however says that they cease to be
distinct when they come under common ownership/common control (thus all 3 kinds of
mergers fulfil this condition although terminology is dierent, in practice appears to be
the same)
s.23 provides an alternative scenario for showing that there is a relevant merger situation;
two requirements:
enterprises must cease to be distinct (i.e. when brought under common ownership
and control), and

the market share/supply threshold of a quarter of goods/services (share of supply


Establishing the existence of a merger situation in the UK, like in the EU, is about the
question of quality of control What kind of control is sucient?
3 situations of control recognised:
1. Legal control (like in the EU), i.e if you acquire shareholding of 51% and over
2. De facto control - the acquirer will be considered to be controlling B even with
<51%; based on circumstances of case
3. 'Material influence' (not in the EU - BSkyB) - where you do not acquire control over
a business, but you have material influence over such a business and its strategic
business behaviour, i.e. 'acquisition of minority shareholding; situations where
acquire less than 25% but usually above 15% because it is recognised that even
with a minority stake, you can acquire some form of influence even if not control.
But not guaranteed, MAY be considered a merger situation, not automatic requires vetting of facts such as other shareholders stakes, behaviour of board,
etc. Below 15%, unlikely that there is going to be material influence, observed from
BSkyB v ITV - acquired 17.9% stake in ITV, did not notify the UK authority;
however when the authorities did look at the acquisition afterwards, found that it was
problematic and decided to conduct an investigation. When it came to the Q of whether
there was a relevant merger situation - yes, because although only 17.9% was acquired,
when it came to the assembly of the shareholders, the record of meetings showed that
not everyone showed up, which means that when BSkyB did attend with 17.9%, it
translated into quite a significant stake - so there was material influence. BSkyB was
forced to reduce its stake from 17.9% to 7.9% (check this %!!!!) in order to comply with
the rules; lost quite a lot of money ////good example for whether voluntary notification is
good or not; dierence between EU/UK regime (vn)
If there is a relevant merger situation - choice to notify or not. But normally if there is a
relevant merger situation, and the merger seems to give rise to competition concerns,
better to play safe and notify although you dont have to.
Because the EA 2002 provides two parallel systems for completed (s.22) and anticipated
mergers (s.33).
The same statutory procedure is applied to completed and anticipated in the Act
some sections appear to be repetitive;
If there is no relevant merger situation/ or a relevant merger situation and no competition
concern no need to notify.
What happens when a merger is notified in the UK?
Although no obligation to do so, notification is not for free payment scale is from
40,000 to 160,000: what determines which rate you pay is the turnover of the enterprise
you are acquiring.
Turnover <20 million fee of 40,000

70 million > Turnover > 20 million fee of 80, 000

120 mill > T > 70 mill fee of 120,000
Turnover > 120 mill fee of 160,000
s.96 Notice in the UK is similar to Form CO in the EU;
Once notified, and fee is paid, merger appraisal begins.
Change under ERRA 2013 > previously, notification of mergers in the UK was to the
OFT and in some cases the OFT would refer the merger to the Competition Commission;
because of the change under the ERRA 2013, mergers in the UK must now be notified to
the CMA, however within the CMA, a two-phase mechanism is used. - so the referral
mechanism still exists, but instead of being from the OFT to the CC, it is now within the
CMA i.e. from phase I(undertaken by a panel) to phase II(new enquiry group of people not
involved in phase I) (like in the European Commission)
Why did they make this change? - voice note of last tutorial
When a merger notification is received, according to the s. 22(1)/s. 33(1) EA 2002 there is
a duty to refer certain mergers from Phase I to Phase II
If there is a relevant merger situation, (jurisdictional criteria) and
If the merger has given rise to/is likely to 'substantial lessening of competition'
(based on whether the merger is completed or anticipated) in Phase I, a
determination of SLC doesnt need to be made (no exhaustive examination), there
only has to be reasonable belief i.e. more likely than not
Thus in the UK the substantive test is dierent - in the EU it is SIEC with a dominance
element, in the UK it is the SLC test
Whilst there is a duty to refer, the EA 2002 also gives the CMA discretion not to refer in
certain cases s. 22(2) EA 2002/s. 33(2) de minimis discretion concerning the size
(when explaining importance of the market)
If the CMA sees that the merger will give rise to customer benefits/sometimes the CMA
may look at the size of the market in question, it may decide not to refer to Phase II.
Spectris/Lochard Ltd - concerned noise management systems at airports; OFT found
the total market value to be around 120m, so it decided to use its discretion
REFERENCE TEST - Look at CC2, paragraph 22-27
OFT v IBA Health - merger between two companies that ended up being litigated in the
CA. The CA in its judgment had to decide what kind of duty was on the OFT at the time
for referring mergers:
It confirmed that the threshold for the duty to refer is the more likely than not test, i.e.
only a reasonable belief that there is a relevant merger situation and that it will give
rise/has given rise to SLC
Now also included in merger assessment guidelines s. 22(3)/ s. 33(3) EA situations where the CMA may not refer the merger where it does
not even have the choice to refer
If the CMA decides to accept undertakings in lieu of the reference i.e. commitments

by the parties which will satisfy the CMA that no reference is needed in the case > so if
the CMA accepts the undertaking, it cannot refer (it would otherwise result in situation of
double jeopardy)
Length of Phase I > Until the ERRA 2013 and changes it introduced, there was no fixed
time limit for Phase I, rather one of guidance. Nowadays, following the change, fixed time
limit of 40 working days for Phase I within which it must decide whether to refer or not.
This may be extended by 10 working days in situations for e.g. where the parties oer
commitments which the CMA needs to consider
Phase I is not a determination phase - but Phase II is a determination stage.
Thus at Phase II, the CMA must decide whether there is or isnt a relevant merger
situation, and whether this RMS has given rise to/is likely to give rise to SLC.
Determination happens under s.35/s.36
Phase II is 24 weeks in duration (s.39), which is possible is to extend by 8 weeks in some
Focus in Phase II is more on the second question (even though there may be grey cases
wrt the first question of a relevant merger situation e.g. in BSkyB)
Substantial Lessening of Competition guidance is there;
A merger in the UK is considered to give rise to SLC if it is likely to weaken rivalry
between firms to an extent that competition in the relevant market will not deliver the
important customer benefits mentioned in the EA.
SLC = weakened competition > consumer harm/no consumer benefits
Thus wrt SLC, it is also about the counterfactual(present) situation like in the EU - you
compare competition with and without the merger. Essentially, although the test is
dierent from the one in the EU, in terms of the analysis itself, there are similarities:
STEPS for Horizontal mergers >
Starting point remains with market definition - relevant product and geographic
Then look at market concentration (square market shares of each and then add)UK also uses the HHI and it is divided like in the EU: (for guidance purposes)
0-1000 - no delta used because market not seen as concentrated
1000-2000 - delta of 250 points
2000-10,000 - delta of 150 points
Using theories of harm - unilateral and coordinated eects (found all over the world,
not just harmonisation between UK and EU)
Unilateral eects - focus on As position after the merger - UK guidance says
the following factors need to be looked at: (if they dont exist, unilateral
eects unlikely)
Market share of the merged entity
Absence or more importantly, existence of competitive pressures from
others on the merged entity
Whether the merger is going to lead to the elimination of an important
competitive force
Possible significant increase in market share
Possibilities open to customers e.g. option to shift in the market

Nature of the market - is it homogenous, highly concentrated, etc

Existence of barriers to entry
Existence of countervailing buyer power, i.e. bargaining power among
Coordinated eects - look at eects on market - similar to EU regime; UK
guidance lists 3 conditions to determine existence of coordinated eects:
Is the market suciently concentrated? i.e. are the firms on the market
aware of each others behaviour i.e. is there transparency?
Is there a retaliatory mechanism? i.e. is it costly to deviate from the
common policy (should be), and
Reaction of outsiders
For vertical/conglomerate > //no use of HHI
Define market
Unilateral and coordinated eects
Foreclosure, particularly input mergers
Market entry
Defences in the UK
1. Eciencies defence: similar to the EU, 3 conditions eciencies must be possible to demonstrate/prove,
eciencies must be merger specific, and
must be likely to be passed on to consumers who will benefit (better quality,
more choice, or lower prices)
2. Failing firm defence: similar 3 conditions there must be a failing business i.e. one in financial diculty,
there must be no serious prospect of reorganising the business, and
there must be no less anti-competitive alternative, (proportionality
What happens once the CMA goes through Phase II and reaches the end of its
Under EA 2002, CMA must decide the following:
whether there is or isnt SLC - if there isnt, merger must be cleared.
If there is/will be SLC, CMA will have to decide 3 things:
whether it should take action,
whether it should recommend that someone else take action for e.g. the
in either case, what action should be taken?
When deciding this, factors to be taken into account:
Need to achieve a comprehensive, reasonable and practicable solution
Whether the action is disproportionate in relation to the size of the market
Cost of the remedy and its implementation

Time scale - how long will it take for the remedy to be adopted and
implemented? is there an element of uncertainty?
Kind of action/Merger remedies is as follows:
Structural remedy - Divestiture, e.g. sale of subsidiaries
Behavioural remedy - e.g. CMA may impose a price cap wrt relevant market, or
prohibit tying and bundling, or prohibit exclusivity deals with customers
Recommend to the government to change a rule/regulation/law, e.g. removing
barriers to entry, etc
Unlike in the EU, in the UK there is a special category of Public Interest Cases: s.42-58
EA 2002
In the past, the UK used to use a public interest test, which was repealed with the
introduction of the EA. However, there still are public interest grounds recognised in
merger cases. Thus merger cases in the UK may be appraised on competition based
grounds as above, or on public interest grounds, i.e. whether the merger operates/has
operated against the public interest
When it comes to PICs, the Act gives the Secretary of State for Business the leading
role and decision making powers, so the CMA acts following his/her directions.
3 recognised grounds recognised as public interest: s.58
National security; e.g. merger between two arms production companies/aviation
Media mergers; e.g. between two newspapers - issue of media plurality e.g. BSkyB
Financial and economic stability (since the 2008 crisis), e.g. merger between banks
in trouble or between financial institutions
When a merger touches upon one of these grounds, it has a public interest element i.e.
while competition based considerations have to be looked at, but also need to look at
whether it operates/will operate against the public interest. Thus there will be analysis and
recommendation to SoS who will make the decision in this case.
Lloyds/HBOS - approved during financial crisis without a role given to the OFT at the
time, because the government was concerned - HBOS was failing, Lloyds wanted to
merge, which would have been problematic but because of the financial crisis at the time,
the government intervened and added this further ground to the EA and then enabled the
government to become the decision maker - and it approved it on public interest grounds,
despite being problematic on competition grounds; thus public interest considerations
can take importance over competition. Is it appropriate to let public interest trump
competition concerns? Here you can say it was a bad decision, as Lloyds was pulled
down by HBOS - thus sometimes, it is better to let companies fail?
Is it a good system to let SoS intervene? - last tutorial recording - yes
CMA decisions can be appealed to Competition Appeal Tribunal, and further to the CA
and the UKSC. (so far only IBA Health reached the CA, nothing so far reached the UKSC)