UK competition authority starts to enforce the new UK merger control regime

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The UK's competition authority, the Competition and Markets Authority (CMA), has begun to step up its enforcement of new UK merger control procedures by issuing two decisions finding anticompetitive effects in little over a month. However, the new regime's effectiveness in improving the speed and efficiency of merger investigations remains unproven.

The new UK merger control regime

The CMA took over the responsibilities of the Office of Fair Trading (OFT) and Competition Commission in April 2014. At the same time, new procedures came into effect. In particular, the CMA is subject to a new mandatory legal deadline to issue its initial "Phase 1" decision within 40 working days. It must also operate a new process for dealing with problematic mergers under which it first issues an adverse decision and then determines whether to accept undertakings from the merging parties to avoid a detailed "Phase 2" investigation (equivalent to a Competition Commission inquiry under the old regime).

Since the new rules came into force, the CMA appears to have struggled with the concept of a legally binding deadline, even one that is some 15 working days longer than the European Commission's standard waiting period in merger cases. The CMA's "pre-notification" discussions have extended for weeks or even months before it is willing to accept a notification as "complete" and so start the 40 working days period. Parties trying to notify before the CMA has approved the filing face the risk of the CMA declaring the declaration incomplete, so sending the parties back to day 1 until a complete notification is filed.

In addition, the CMA took over 6 months to issue its first adverse decision under the new regime (an earlier Phase 2 referral was in a case inherited from the OFT, and was in any event abandoned by the parties).

The CMA's first adverse decision

This case concerns the acquisition by magazine publisher Immediate Media of a number of magazine titles from Future Publishing.

Under UK merger control law, there is no legal obligation to pre-notify mergers and await competition clearance before closing, in contrast to the position under nearly all other EU Member State merger control regimes and indeed the European Commission procedure which applies to transactions between businesses with high levels of worldwide and EU turnover. As a result, by the time the CMA investigated this transaction it had already completed a month previously and Immediate Media owned the Future Publishing magazines. However, as is now routine for completed transactions, the CMA issued an order to halt integration between the merged businesses.

The CMA's decision on 23 October 2014 found that the merger could result in a substantial lessening of competition in relation to the somewhat specialist sectors of needlecraft and genealogy magazines.

The new procedure for Phase 1 undertaking

Under the old OFT regime, the decision would also have included a ruling on whether the OFT was willing to accept undertakings that had to be offered by the parties on a hypothetical basis without sight of the final findings on competition problems. However, Immediate Media/Future Publishing shows the CMA's new procedure in action.

Having received the CMA's adverse decision, Immediate Media had just 5 working days to propose undertakings to remedy the CMA's concerns. This it duly did, offering to divest certain assets. The CMA then had a further 5 working days to consider Immediate Media's offer, following which it announced that it was willing to consider in detail whether to accept the undertakings .

Yet another legal timetable now applies, with a period of 50 working days from the original decision until the CMA is required to decide if it will accept the undertakings. With a short break for Christmas, the CMA now has until 6 January 2015 to conclude the case, though even this deadline could be extended to March 2015.

The CMA's second adverse decision

The CMA's second case challenging a deal was announced on 2 December 2014. Again, it concerns a completed transaction, the acquisition by Xchanging of Agencyport Software Group. Both parties supply specialist software to the insurance market. The problem area is in relation to the supply of policy administration software for Lloyd's registered managing agents.

As with Immediate Media, Xchanging now has 5 working days in which to propose undertakings to the CMA. If it does not do so, or the CMA views the undertakings as clearly inadequate, the transaction will be subject to a detailed Phase 2 inquiry, normally lasting up to 24 weeks.

Merger control and the CMA: the verdict so far

Whilst the CMA mostly inherited the same merger control regime as had been applied by the OFT and Competition Commission, two changes in particular offered the prospect of a more efficient process.

The first change, the mandatory Phase 1 deadline, has yet to prove significant, as the long delays in reaching an acceptable notification mean that more and more cases are "front-loaded". Mindful of avoiding the risk of running out of time in the formal investigation, CMA officials demand every type of information they think could be useful before they are under any time pressure. This results in added burden to merging parties and delays in starting the 40 working day timetable, so that in practice the process takes longer, even for straightforward cases.

The second change, issuing an adverse decision and then allowing parties a (brief) period in which to offer undertakings, is very welcome, as it gives merging parties clarity on exactly what is required to secure clearance without a lengthy Phase 2 investigation. However, the long time period for concluding undertakings remains a concern, given that integration is at a standstill pending the final decision. In the case of Immediate Media, a transaction that completed on 21 July 2014 will not be allowed to be fully consummated until early January 2015 - nearly 6 months' delay for a case that was cleared at Phase 1, albeit subject to undertakings.

The CMA continues to find its feet in applying the new regime and no doubt with experience the regime will become more efficient. For the present, dealing with the CMA in merger cases remains a significantly more time and labour intensive experience for businesses than is the case for other merger control regimes.