UK Merger Control in 2018 - A guide prepared by Pinsent Masons' Competition, EU & Trade Group with RBB Economics
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UK Merger Control in 2018
A guide prepared by Pinsent Masons’ Competition, EU & Trade Group
with RBB Economics
Pinsent Masons | Merger Control 2018
Contents
04 Overview of merger control activity: April 2017 to March 2018
07
New developments in jurisdictional assessment or procedure
10 Key industry sectors reviewed and approach to market definition,
barriers to entry, and remedies
13
Key economic appraisal techniques applied
16
Key policy developments
19 About Pinsent Masons
20 Report Authors
21 Key contacts
21 Acknowledgement
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3
Overview of merger control activity:
April 2017 to March 2018
2017/18 marked the fourth full year of merger control enforcement by the Competition and Markets Authority (“CMA”) in the UK,
following its assumption of responsibility for phase 1 and phase 2 merger control investigations in April 2014.
The CMA publishes statistics regarding merger control enforcement activity each year for a 12-month period up to 31 March:
Table 1: Statistics on Phase 1 outcomes
Last five
2013/2014 2014/2015 2015/2016 2016/2017 2017/2018
financial years
No % No % No % No % No % No %
Found not to qualify 12 18 10 12 2 3 1 2 0 0 25 8
Cleared unconditionally 42 65 56 68 36 58 39 68 37 60 210 64
De minimis exception 3 5 7 9 4 6 3 5 4 6 21 6
applied
Phase 1 remedies accepted 0 0 3 4 9 15 9 16 12 19 33 10
Referred to Phase 2 8 12 6 7 11 18 5 9 9 15 39 12
Total decisions 65 - 82 - 62 - 57 - 62 - 328 -
Initial undertakings / initial 30 46 33 40 21 34 30 53 20 32 134 41
enforcement order imposed
Case review meeting held 19 29 24 29 24 39 28 49 30 48 125 38
Table 2: Statistics on Phase 2 outcomes
Last five
2013/2014 2014/2015 2015/2016 2016/2017 2017/2018
financial years
No % No % No % No % No % No %
Abandoned 0 0 1 25 3 25 1 13 0 0 5 12
Cleared unconditionally 6 50 2 50 8 67 1 13 4 67 21 50
Cleared subject to 1 8 0 0 1 8 1 13 0 0 3 7
behavioural conditions
Cleared subject to 3 25 1 25 0 0 4 50 2 33 10 22
divestment conditions
Prohibited 2 17 0 0 0 0 1 13 0 0 3 7
Total decisions 12 - 4 - 12 - 8 - 6 - 42 -
4
Pinsent Masons | Merger Control 2018
The statistics highlight several trends from the -- (c) A further four cases (Capita / Vodafone,
past year: WAP GLO Dutch / Mallinckrodt, Integra
LifeSciences / Codman, and Wilhelmsen
• The total number of cases reviewed by the Maritime / Drew Marine) were cleared
CMA is broadly consistent over the past couple under the de minimis exception rather than
of years (62 in 2015/16, 57 in 2016/17, and 62 being referred to phase 2. This exception 48% of cases in 2017/18
in 2017/18). allows the CMA to exercise its discretion not gave rise to material
• In parallel, the trend for around half of all cases to refer a transaction where the total value of competition concerns
reviewed by the CMA to raise material the market affected by the merger is
competition concerns continues. 48% of cases sufficiently low for it not to be in the public
in 2017/18 gave rise to material competition interest for the CMA to open a phase 2
concerns and therefore required a case review inquiry. This represents a small rise in the
meeting at phase 1 (in line with 49% of cases in number of cases from 2016/17.
2016/17 and 39% of cases in 2015/16). • These statistics suggest that the CMA, under its
• These trends continue to reflect that the voluntary notification system, is continuing to
CMA is focusing on cases which raise focus on cases which raise substantive 48%
substantive concerns, and that the Mergers competition concerns, and seeking to remedy
Intelligence Committee is effective at those concerns at phase 1 where possible. No
filtering out those cases which do not merit cases were found ‘not to qualify’ for review
a formal investigation. based on not meeting the tests for the CMA to
• Of those cases which raise potential concerns, have jurisdiction, compared to one case (2%) in
the trend for CMA intervention continued 2015/16 and as many as 12 cases (18%) in
in 2017/18: 2013/14, before the creation of the CMA. This
suggests that the CMA is successfully filtering
-- (a) In total, nine cases (15% of the total) were
out transactions which ‘do not qualify’ for
referred to a full phase 2 investigation. This
review by dealing with jurisdictional issues
represents an increase compared to 2016/17
during the pre-notification period, as well as
when five cases were referred to phase 2, and
through the use of its ‘briefing paper’ process
is more in line with the five-year average of
and information requests from the Mergers
12% of cases being referred to phase 2.
Intelligence Committee.
-- (b) In 12 cases (an increase from nine in
• The number of cases where the CMA imposes
2016/17, and above the five-year average),
‘hold separate orders’, under which the merging
the parties offered undertakings in lieu of a
businesses are required to be managed and run
reference to a phase 2 investigation. A large
separately during the CMA’s investigation, was
number of these cases raised competition
lower in 2017/18 (32%) than in the previous
concerns in local markets, with divestments
year (53% in 2016/17), and more in line with
of local sites being required for clearance – for
the five-year average of 41%. Nonetheless, this
example, the divestment of 33 out of 1,800
shows that a large number of parties are still
pubs in Heineken / Punch Taverns, and an
taking the view that they are prepared to
agreement in David Lloyd / Virgin for the
complete deals without notifying them, a
buyer not to purchase gyms for a period of
decision in line with the UK’s voluntary merger
10 years in the two local areas which raised
control regime, and take the risk of managing
competition concerns. One case required
the hold-separate requirements in the event of
remedies to address national security
a subsequent investigation by the CMA (up to
concerns (Sepura plc / Hytera).
four months after completion).
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In 2015/16, 67% In terms of phase 2 outcomes, of the six Two mergers were abandoned following
cases reviewed in 2017/18, there were a reference but before the start of the
were cleared
four unconditional clearances at phase phase 2 review process, with the CMA
unconditionally... 2 (Cardtronics / DirectCash, Just Eat investigation subsequently being cancelled.
/ Hungryhouse, Tesco / Booker, and In Capita / Vodafone WAP, the transaction
Manchester Hospitals), two mergers involved a potential reduction in the
requiring remedies (Euro Car Parts / Andrew number of competitors from ‘2 to 1’ in
Page and Cygnet Health / Cambian the relevant market for wide-area paging
67% adult services), and no prohibitions. This services to customers, including emergency
marks a substantial change to the trend services and hospitals. Another merger,
over the preceding few years: in 2014/15, Mole Valley Farmers / Countrywide
50% of phase 2 cases were cleared Farmers, was also abandoned by the
unconditionally; in 2015/16, 67% were parties following a reference to phase 2.
cleared unconditionally; but in 2016/17 In that case, the CMA highlighted to the
this figure had fallen to just 13%. This parties at an early stage of pre-notification
could, of course, simply be that the cases discussions that the merger raised
before the CMA happened to raise more substantive concerns in the market for
...but in 2016/17 substantive concerns, but could also reflect the supply of bulk agricultural products.
this figure had fallen the fact that in 2017/18, the CMA remedied Unusually, it involved the CMA opening a
to just 13%. a number of cases at phase 1 (even those phase 1 merger investigation even where
requiring a large number of divestments, a complete merger notice had not yet
such as Heineken / Punch Taverns), been provided, as the period for the CMA’s
avoiding the need for jurisdiction to review the transaction was
a phase 2 investigation. ending. The CMA’s decision was based
on the draft merger notices provided by
13% the parties, pre-notification discussions,
responses to information requests, and
third party views.
6Pinsent Masons | Merger Control 2018
New developments in jurisdictional
assessment or procedure
Procedural timelines a referral to phase 2. Once the notification
has been formally submitted, the CMA can
In its 2017/18 Annual Plan, the CMA ‘stop the clock’ during the phase 1 statutory
stated that it is continuing to target the period only in exceptional circumstances, and
improvement of the process and procedure the CMA has noted that this has occurred
The CMA stated that it
for its merger control investigations, with a recently only in cases referred back from the is continuing to target
focus on embedding an “efficient, effective European Commission, rather than in cases the improvement of the
and targeted merger control end-to-end originally notified to the CMA.
process across both phase 1 and phase 2”.1
process and procedure
for its merger control
Extended periods for pre-notification Mergers intelligence function investigations, with a
discussions continue to be a feature of the focus on embedding an
UK merger control process. The CMA expects In 2017, the CMA also updated its guidance
parties to make contact at least a couple of on the CMA’s mergers intelligence function “efficient, effective and
weeks before the intended formal notification (see further below). This guidance confirms targeted merger control
date, but this period tends to be far longer the process followed by the CMA when a end-to-end process
(in some cases, six weeks or more), especially non-notified merger comes to its attention. across both phase 1 and
for more complex and/or data-heavy A number of cases reviewed by the CMA in
transactions. The CMA currently notes that the past year have been identified by the
phase 2”.
pre-notification discussions generally last an Mergers Intelligence Unit as qualifying for
average of around 30-35 working days, with review, including Stanley Black / Decker,
a phase 1 investigation lasting on average, a JD Sports / Go Outdoors, GLO Dutch /
further 35 working days (five days faster than Mallinckrodt (which was cleared under the
the 40-working-day statutory maximum). de minimis exception, see below) and
LN-Gaiety / Isle of Wight Festival Ltd.
Although a longer pre-notification period
can be a burden on merging parties, by
presenting a case in detail upfront, this
tends to lessen the risk of a ‘stop-the-clock’
process during the formal phase 1 statutory
period. It can also lead to better preparation
for a case review meeting during the phase
1 process, thereby increasing the chances of
a clearance decision at phase 1 rather than
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De minimis regime, the CMA did not use its discretion
to apply the exception given that the
Use of the de minimis exception under magnitude of competition lost would be
The CMA changed UK merger control law remains rare. large. This involved a ‘2 to 1’ merger, and
The CMA changed the thresholds for the the CMA found that customers would face
the thresholds for the application of the de minimis exception potentially significant price rises and quality
application of the de in 2017, increasing the lower threshold degradation.
minimis exception in from £3m to £5m (with total aggregated
2017, increasing the turnover in those markets lower than this The de minimis exception was successfully
lower threshold from figure, being presumed to be a market of applied in GLO Dutch / Mallinckrodt,
insufficient importance to justify a reference however, in a market with an aggregate
£3m to £5m and the to phase 2) and its upper threshold from value of £5m, even though the merger led
upper threshold from £10m to £15m, with total aggregated to a reduction in the number of competitors
£10m to £15m turnover in those markets between this from 3 to 2 in one market segment (single
higher threshold and the lower threshold photon emission computed tomography
requiring a consideration of whether the radiopharmaceuticals) and customers
expected customer harm resulting from the considered that prices could rise as a result
merger is greater than the cost of a phase 2 of the transaction. The CMA found that the
investigation. exception should be applied on the basis
that the remaining competitor in the market
Given these increased thresholds, and the was expected to be more competitive in
CMA’s continuing policy that parties should the future, and that new technology may
raise de minimis arguments during pre- provide alternative competition. Similarly,
notification discussions, it may be surprising in Wilhelmsen Maritime Services / Drew
that an increased number of cases in 2017/18 Marine, the CMA found that the competitive
went through a full investigation before being impact of the transaction was likely to
cleared on this basis. However, the use of the be lessened in the longer term as other
de minimis exception involves an exercise of competitors were entering the market
discretion by the CMA who must first assess, within this timeframe; it was therefore
in the case of the first threshold, whether a appropriate for the exception to be applied.
clear-cut undertaking in lieu of reference is in
principle available. In the case of the second The exception was also granted in Integra
threshold, the CMA will base its assessment LifeSciences / Codman, where competition
of expected customer harm on a number concerns were identified in relation to
of factors including the size of the market certain categories of medical equipment.
concerned, the likelihood that a substantial The aggregate turnover in the market
lessening of competition will occur, the segments affected by the merger were
magnitude of any competition that would each below £5m, and the CMA found that
be lost, and the expected duration of that there was some buyer power in the market,
substantial lessening of competition. as well as evidence from customers that
they considered that the market would
The Capita / Vodafone WAP case provided remain competitive. As a result, the
an example of an unsuccessful attempt to CMA exercised its discretion to apply the
apply the de minimis exception. While the exception in this case.
relevant market in that case fell within the
market size threshold for the de minimis
8Pinsent Masons | Merger Control 2018
Fast-track investigations
In Tesco / Booker, the parties requested
the CMA to make a fast-track reference
of the merger to a phase 2 review on
the basis that the case raised a realistic
prospect of competition concerns in one
or more local areas. Such requests remain
quite rare under the CMA regime, and
are only normally requested in cases,
such as this, where competition concerns
are clearly likely to arise. This case was
ultimately cleared unconditionally at
phase 2 (see below).
9
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Key industry sectors reviewed and
approach to market definition,
barriers to entry, and remedies
The CMA’s substantive analysis of mergers National security
continues to focus on its assessment of
economic and factual evidence based on The CMA has the power to review certain
theories of harm, which provide the CMA transactions which have an impact on
In common with with a framework for assessing the effects national security in the UK. In Sepura plc /
previous years, the CMA’s of a merger, and in particular whether or Hytera the Secretary of State accepted draft
caseload continues not it could lead to a substantial lessening undertakings offered by the merging parties
to address the concerns, rather than referring
to have a focus on of competition. The CMA will assess the
closeness of competition between the the transaction to a more detailed phase
competition 2 investigation. The undertakings required
parties, possible changes arising from the
in local markets. merger, the nature and extent of competitive the merging parties to implement enhanced
constraints, and any impact on rivalry and controls to protect sensitive information and
expected harm to customers, as compared technology from unauthorised access, and
with the situation likely to arise absent the to provide rights of access to premises and
merger (referred to as the counterfactual). information so that relevant UK agencies
could audit compliance.
Sectors
Local markets
The CMA examined cases in a wide range
In common with previous years, the CMA’s
of different sectors and business models in
caseload continues to have a focus on
2017/18, including: telecoms (BT Group / IP
competition in local markets. These cases
Trade, Capita / Vodafone WAP), deep sea
require a detailed degree of analysis from
containers (GWI UK / Pentalver Transport),
the CMA on very specific local areas, and the
food (Hain Frozen Foods / The Yorkshire
CMA has developed precedent ‘filter’ tests for
Provender), outdoor clothing (JD Sports /
many industries to identify local areas which
Go Outdoors), road construction (Fayat /
potentially raise competition concerns.
Dynapac Compacting Equipment), gyms
(David Lloyd / Virgin), education products The CMA’s approach is framed in its
(RM plc / Hedgelane), radiopharmaceuticals updated ‘Retail Mergers Commentary’
(GLO Dutch / Mallinkrodt), asset which formalises the CMA’s shift to a ‘case
management (Standard Life / Aberdeen by case’ assessment of mergers which
Asset Management), CRM property raise concerns in particular local areas,
software (ZPG / Expert Agent), insurance rather than using a fixed methodology. Key
software (Open International / Transactor themes from the guidance include defining
Global Solutions), car dealerships (Steven local catchment areas based on 80% of
Eagell / Lancaster Motor), motor racing sales or customers, using filters to remove
circuits (MSV / Donnington Park), oil and unproblematic areas, and using weighting
gas testing services (Element / Exova), ATM on certain competitors depending on the
services (Cardtronics / DirectCash), vehicle competitive constraint these offer in a
repair and maintenance platforms (Solera / given area.
Emperor), fundraising platforms (Blackbaud
/ Giving), beef and lamb production (Dawn Certain cases in 2017/18 were considered
Meats, Dunbia), chicken production (Cargill under this framework. These included JD
/ Faccenda) capital and support services Sports / Go Outdoors, with a filtering
to companies spun out of higher education exercise identifying certain local areas. The
institutions (IP Group / Touchstone), CMA concluded in this case that there was
outsourced VAT refund services (Fintrax / GB sufficient local competition, and showed
TaxFree), sofas (DFS / Sofology), grocery a willingness to consider restraints from
retail (Tesco / Booker), and care homes (FC online retailers within each local area.
Oval / Bupa Care Homes).
10Pinsent Masons | Merger Control 2018
Divestment remains a common remedy to In Manchester Hospitals, the CMA
address phase 1 merger control concerns emphasised that the role of competition
in local markets. In addition to the cases in delivering quality of care had
discussed above (e.g. Heineken / Punch declined. There was an increased role of
Taverns), in Vision Express / Tesco collaboration in the provision of such
Opticians, competition law concerns arose services within local health economies. In 2017/18, there were
in three local areas, requiring a divestment Despite this, the CMA found competition three cases where the
of stores in these areas. A different remedy concerns in 18 elective/maternity services
was used in David Lloyd / Virgin, where and in specialised services. The CMA found
merger of hospital
the buyer agreed not to purchase gyms for that recent policy developments, which trusts were cleared on
a period of 10 years in the two local areas make the provision of funding conditional the basis of efficiency
which raised competition concerns. on financial and quality targets, would and consumer benefits.
“significantly constrain” the merged entity.
Exiting / Failing firm The CMA concluded that the adverse
effects were “substantially lower” than the
The use of the ‘failing firm defence’
patient benefits, but required a phase 2
continues to arise from time to time but
process to come to this conclusion.
is rarely successful. It was unsuccessfully
argued in Capita / Vodafone WAP, with In Birmingham Hospitals, the CMA
the result that this transaction was applied the test from the Manchester
abandoned following reference to a Hospitals case and found competition
phase 2 investigation (on the basis that concerns in 25 elective specialties, but
the merger would have reduced the that the patient benefits of the merger
competitors in the market from 2 to 1). In outweighed these concerns. The CMA also
this case, the CMA placed importance on focused on the fact that Heart of England
internal documents which stated that the had been underperforming and the merger
closure of the Vodafone WAP business was would provide it with long-term access to
the least viable alternative, that financial highly respected and skilled management
results showed the business was profitable at University Birmingham Hospital. This
and had strategic importance, and that was the first case of this type to be cleared
Vodafone considered closing the business on a ‘patient benefit’ basis at phase 1.
only after the approach from Capita. This
case once more shows the importance of
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internal documents to CMA reviews (see
further below).
Hospital mergers
NHS hospital mergers are subject to
the UK merger control rules where the
jurisdictional tests are met. In 2017/18,
there were three cases (Manchester
Hospitals, Derby Hospitals and
Birmingham Hospitals) where the
merger of hospital trusts, despite raising
competition concerns, were cleared on the
basis of efficiency and consumer benefits.
Two of these cases were cleared on this
basis in phase 1.
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Similarly, in Derby Hospitals, the CMA The CMA provisionally concluded that
once more found that the merger would the Fox / Sky transaction is not in the
lead to a reduction in choice for patients public interest due to medial plurality
for certain services, which potentially concerns. The CMA is concerned that the
would have the result of reducing the Murdoch Family Trust would have too
Information-gathering hospital trusts’ incentives to maintain or much control over news providers in the
exercises by the CMA improve quality in the services. As with UK across all media platforms (TV, radio,
also provide a route the Birmingham Hospitals case, the CMA online and newspapers), such that it would
for third parties, found, however, that these concerns have too much influence over public opinion
were outweighed by the patient benefits and the political agenda. The CMA has rarely
such as competitors or
expected, and that it was comfortable to investigated transactions on the basis of
customers of the parties reach this conclusion at phase 1. media plurality and this is the first time it has
under investigation, These cases are likely to be limited to issued a negative decision on these grounds.
to participate in an their market sector. It appears unlikely
that private merging parties will receive a The CMA is consulting on possible
investigation. remedies that could allay these concerns
similarly sympathetic ear from the CMA
regarding efficiencies or consumer benefits, such as: that the deal is blocked; that
especially during a phase 1 process. Sky News is spun off or sold; or that Sky
The factors and evidence considered by News is insulated from the influence of
the CMA were highly specific to the UK the Murdoch Family Trust. In April 2018,
National Health Service, so these decisions Fox stated that it would offer to sell Sky
are unlikely to have a wider application. News to Disney (with Disney proposing to
purchase Fox in a separate transaction),
Media plurality with funding guaranteed for 15 years, as
well as proposing that Sky News would
The CMA has the role of reviewing mergers have an independent board. A parallel
which have an impact on media plurality bid for Sky by Comcast could complicate
in the UK, following a referral by the UK the CMA’s assessment of the transaction.
Secretary of State. Fox’s proposed purchase The outcome of the case, which was still
of full control of Sky was referred to awaited at the time of writing, will set an
the CMA in this way in 2017/18. In May important precedent for the CMA’s practice
2018, the CMA was also examining the in this area.
completed purchase by Trinity Mirror of
Northern & Shell Media Group Limited on
media plurality grounds following a referral
by the UK Secretary of State.
12Pinsent Masons | Merger Control 2018
Key economic appraisal
techniques applied
In 2017/18, the CMA continued to develop the
economic appraisal techniques it applies to the
assessment of mergers. Table 2 summarises
the phase 2 investigations conducted in
2017/2018. As in previous years, the key In 2017/18, the
focus of the CMA phase 2 investigations was CMA continued to
on unilateral effects in horizontal mergers.
develop the economic
In this regard, Just Eat / Hungry House
provides an insight into the CMA’s approach appraisal techniques
to the assessment of mergers in online it applies to the
markets. The year was also notable for the assessment of mergers.
Phase 2 investigation by the CMA of Tesco /
Booker, in which a new analytical framework
was employed to assess both vertical and
horizontal theories of harm at the local level
in the grocery sector.
Table 2: UK phase 2 decisions – 2017/18 Summary
Cardtronics / DirectCash Payments Horizontal unilateral effects Clearance
CMUH / UHSM Horizontal unilateral effects Clearance
Cygnet Health Care / Cambian Horizontal unilateral effects Remedies
Adult Services
Euro Car Parts / Andrew Page Horizontal unilateral effects Remedies
Just Eat / Hungry House Horizontal unilateral effects Clearance
Tesco / Booker Vertical and horizontal effects Clearance
Horizontal effects: local markets
The CMA’s approach to the assessment of
horizontal unilateral effects in local markets
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continued to evolve in 2017/18 with notable
cases including: Cardtronics / DirectCash
Payments, Euro Car Parts / Andrew Page and
Tesco / Booker.
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First, when considering whether a local were assigned a lower weight because of
analysis is necessary, the CMA has sought the somewhat more limited overlap
to assess empirically the arguments of the between their product offering and the
merging parties that their retail offering merging parties’.
is set at a national level, and does not
Since the proportion respond to local competitive conditions. In • Filtering rule: Identifying the number
of areas in which local Cardtronics / DirectCash Payments, the of rival fascia within a local area is one of
CMA assessed quantitatively whether the the CMA’s traditional approaches to
competition would be filtering, which was used as a first stage
merging parties would have the incentive
lost that were covered to alter their pricing to customers whose in Cardtronics / DirectCash Payments
by these national agreements covered multiple local areas to filter out areas where at least three
contracts was very across the country. Since the proportion of competing fascia would remain post-merger.
However, the CMA also applied a
small (Pinsent Masons | Merger Control 2018
In assessing the merger of two online food In Tesco / Booker, one of the CMA’s principal The CMA calculated a
ordering platforms in Just Eat / Hungry concerns was that the merging parties would vGUPPI for all 12,000
House, the CMA analysed the competition have an incentive to increase upstream
that takes place between platforms to attract prices in order to foreclose downstream
local areas in which the
restaurants to list on the platform, on the retailers that compete with Tesco. To parties had a vertical
one hand, and to attract consumers to order assess this, the CMA adopted an analogous relationship, but did not
from those businesses, on the other. The CMA approach that it took to assessing the find a vGUPPI of 10% or
accepted that new entrants would provide a horizontal concerns, namely to estimate a greater in any.
strong constraint, based on an econometric vertical GUPPI. This measure, based on the
analysis that showed that the merging parties downstream (weighted) share of supply,
derived less revenue from one side of the and the upstream level of margins, provides
market (consumers) as new entrants grew an estimate of upstream pricing pressure
their own platforms on the other side post-merger, i.e. the risk of partial input
of the market (restaurants). This led the
CMA to unconditionally clear the merger,
foreclosure. The CMA calculated a vGUPPI
for all 12,000 local areas in which the parties 10%
despite the parties’ combined 90% share had a vertical relationship, but did not find a
of the narrowest relevant market. vGUPPI of 10% or greater in any. In view of
the efficiencies that can be expected from
Vertical effects a vertical merger, it therefore concluded
that the merging parties would not have the
Vertical mergers involve the combination of
incentive to foreclose rivals by increasing
non-competing (and indeed complementary)
upstream prices.
products, and as a result there is a general
presumption that vertical mergers are
significantly less likely to give rise to
competition concerns than horizontal
mergers. However, in 2017/18, Tesco /
Booker gave the CMA the opportunity to
consider vertical concerns in detail at Phase 2,
and in doing so modified its framework for the
assessment of vertical foreclosure concerns.
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Key policy developments
Internal documents during a The CMA found that Hungryhouse should
merger review have appreciated that its process for
identifying documents (including the
In March 2018, the CMA announced that search terms used) created a substantial
it is consulting on guidance regarding the risk of missing responsive documents. In
In March 2018, the CMA provision of internal documents in merger addition, the assessment and production
announced that it is reviews, indicating that it is considering of emails involving senior individuals at
consulting on guidance taking a stricter approach in the future. The the company should have been prioritised.
CMA has outlined circumstances in which Moreover, Hungryhouse did not discuss
regarding the provision it is likely to formally request internal with the CMA its process, or any issues
of internal documents documents, including where: parties’ with responding to the information
in merger reviews, responses in the merger notice do not request, despite being sent a draft of the
indicating that it is appear to fully capture the merger parties’ information request in advance.
analysis of the merger or their assessments
considering taking This case therefore emphasises the
of competitive conditions within the importance of understanding the scope
a stricter approach in the markets at issue; where documents of an information request from the
future. provided in the merger notice refer to other CMA as soon as it is received, putting
documents that the CMA considers may in place proper procedures to respond
be material to its investigation; or where to information requests (including
there is an evidence gap in relation an issue understanding that any searches
or set of issues. The documents likely to be conducted must be sufficiently broad to
requested include emails, internal analyses capture all responsive documents) and
and even handwritten notes and messaging ensuring there is adequate staffing within
chats, dating back up to three years. the organisation to manage the request.
This approach follows the CMA’s fine The final guidance on the CMA’s approach
of £20,000 imposed on Hungryhouse to internal documents is awaited (the
in November 2017 in Just Eat / consultation closed in April 2018).
Hungryhouse. This is the first case This approach reflects a trend amongst
where the CMA has issued a procedural European competition authorities taking
fine (in this case, issuing a fine below action when they consider that misleading
the statutory maximum of £30,000) as information has been provided, or that
Hungryhouse failed to adequately respond information has been withheld from a
to a formal information request (including merger investigation. Most recently, this
the non-disclosure of documents and was seen when the European Commission
emails regarding Hungryhouse’s internal took subsequent enforcement action
evaluation of the merger), during the phase against Facebook for providing misleading
2 review of the acquisition of Hungryhouse information to the Commission during
by its competitor, Just Eat. its investigation of the acquisition by
Facebook of Whatsapp.
16Pinsent Masons | Merger Control 2018
Updated CMA guidance documentation The CMA has also updated its Merger Notice
in 2017, changing the level of information
In 2017/18, the CMA concluded required. As a result of this, the CMA has
consultations on the use of Initial clarified that ‘bespoke’ submissions, not
Enforcement Orders and Derogations in following the format of the Merger Notice,
Merger Investigations, as well as updating its As an immediate
are accepted by the CMA; that there are
Merger Notice and updating its guidance in circumstances where merger parties are not
step, the Government
relation to its mergers intelligence function. required to provide information to all the proposes to lower the
The CMA’s guidance on Initial Enforcement
questions in the merger notice; clarification turnover threshold to
on when particular types of data are required £1 million and to remove
Orders and derogations provides a template
(e.g. switching data, capacity data, margin
derogation request to give clarity to merging the requirement for any
data). The CMA also updated its ‘Case Team
parties on the process of requesting standard
Allocation Form’ and provided updated competitive overlap
derogations from a ‘hold separate’ order, between the merging
templates for how information (e.g. contact
as well as clarifying that its enforcement
powers in this area will only be used rarely,
details) should be provided. firms in respect of deals
and that certain instances (such as the National Security Reviews in the military and dual
provision of back office support services by use sector, and
the acquirer to the target, continued access The UK government has consulted on a deals relating to
to key staff members where integration is proposed mandatory notification regime for
staggered, and the replacement of key staff foreign investment in “essential functions”
multi-purpose
at the target) are areas where derogations such as the civil nuclear and defence sectors. computing hardware
are commonly given. As an immediate step, the Government and quantum
proposes to lower the turnover threshold to technology.
The guidance regarding the CMA’s mergers £1 million and to remove the requirement for
intelligence function clarifies the use of any competitive overlap between the merging
confidential ‘briefing papers’: these are often firms in respect of deals in the military and
used to seek guidance where a merger is dual use sector (businesses who manufacture
close to the UK thresholds, results in only a or design items that are on the Strategic
minor overlap, or concerns only a very small Export Control List), and deals relating to
market. The guidance clarifies that the CMA multi-purpose computing hardware and
will consider a briefing paper only once there quantum technology. This would apply to both
is a signed merger agreement or a legally foreign and domestic transactions. As shown
binding heads of terms. If the CMA does not by the Septura plc / Hytera merger review
wish to investigate a merger, it will indicate by the CMA, these types of cases can already
after receiving the briefing paper that it has be subject to CMA intervention, and these
no further questions at that stage. However, proposals would widen the CMA’s powers in
that response does not preclude the CMA this area. The proposals are currently subject
opening an investigation should additional to parliamentary scrutiny in Spring / Summer
information come to light at a later stage 2018.
that may change the CMA’s views.
These proposals are being considered in
parallel with a proposal from the European
Commission regarding the review of foreign
direct investment in the EU, which proposes
that Member States be permitted to
implement mechanisms to review foreign
investments on the basis of public order or
national security.
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> continued on next page 17> continued from previous page
Brexit
The UK government is still yet to provide
clarity on how the UK competition regime
will change as a result of the UK’s vote to
CMA has estimated leave the EU. At the current time, it appears
that the change will lead that the UK’s aim of seeking a ‘transitional
to up to 70 additional agreement’ until the end of 2020 will result
merger cases a year, in the current merger control system not
changing until the end of that period (with
which would be a more
transactions falling under the jurisdiction
than 100% increase on of the European Union Merger Regulation
its current workload. (EUMR) continuing to be reviewed by the
European Commission). In any event, it does
not appear that Brexit will lead to a change
to the substantive UK merger control rules.
The CMA received an increase in its budget
of £2.8m, and then a further £23.6m for the
2018/19 financial year and for subsequent
years, both to enable it to take on more
cases and in anticipation of a likely larger
workload following Brexit (the CMA has
estimated that the change will lead to up
to 70 additional merger cases a year, which
would be a more than 100% increase on its
current workload). Any move to take the UK
outside of the scope of the EUMR is likely
to lead to increased burdens on business, as
some transactions would require separate
merger filings in the UK in addition to
Brussels under the EU regime. The CMA
itself (in its 2017/18 report) has recognised
that it ‘may need to alter the priorities
it sets’ as a result of the evolving Brexit
environment, and that the exact bearing it
has on the CMA’s work is dependent on ‘the
exit negotiations and the terms of the future
relationship with the EU’.2
18Pinsent Masons | Merger Control 2018
About Pinsent Masons’
Competition, EU & Trade Group
General Mergers & Acquisitions
Our team of competition law specialists We recognise the importance of mergers,
deliver pragmatic commercial advice acquisitions and joint ventures to our clients
designed to minimise clients’ exposure to and deliver expert advice in relation to all
competition law risks. competition aspects of such transactions. The ‘excellent’ practice
Many of our clients are leaders in their
at Pinsent Masons LLP
We regularly advise and act for clients on
market sectors and we have extensive all facets of a transaction, from advising on is praised for its ‘huge
experience and knowledge of the strategy and whether a merger notification diversity of competition
businessimplications and legal complexities is required or prudent, to drafting the law expertise’,
this brings. We also have experience of substantive arguments in favour of ‘understanding of what
cocoordinating multi-jurisdictional merger competition clearance for submission
clearances and antitrust investigations, to the relevant regulator, whether in
the client is looking
using specialist competition lawyers from the European Commission or national for’, and ‘impressive
our offices in the UK and Germany together competition authorities, especially in the strength in depth’.
with our network of independent local UK and Germany. We are also experienced Legal 500 2018
counsel we regularly work with on in negotiating divestitures and undertakings
competition matters. with the authorities when they are required
to avoid in-depth merger investigations,
In addition to transaction or investigation and coordinating and supervising
related matters we support clients on an multijurisdictional mergers.
operational basis on advisory matters and
in devising and implementing competition
law compliance programmes, including
Examples of our experience
include advising:
1st
conducting competition audits and mock
dawn raids across the EU. We have prepared
Groupe Eurotunnel S.A during an
an online competition compliance learning
in-depth merger investigation in the UK
tool, which can be used on its own or as part
into its acquisition of certain assets from
of a package including learning modules
the liquidator of SeaFrance S.A;
on other topics, such as anticorruption
and bribery. We also provide face-to-face Advised Teva Pharmaceuticals on its
training to companies on how to ensure £603million sale of Activis’ UK and
compliance with competition law. Ireland generics business to Accord
Healthcare Ltd, following the EC
For many of our clients we are also a approval of its $40bn acquisition of
constant advisor and interlocutor for all their Allergan Generics;
compliance questions in their dayto-day
work. We are known for providing practical Advised AMC Entertainment on the
and robust advice promptly and efficiently. £921m acquisition of Odeon & UCI
Cinema Group;
Advised Motor Fuel Group in relation
to various acquisitions (including
its acquisition of Murco) including
notifications to the CMA and negotiating
divestment undertakings to avoid phase 2;
Hanson Quarry Products Europe
Limited in relation to an in-depth merger
investigation in the UK into a proposed
joint venture between Anglo American
PLC and Lafarge SA;
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16 19Report Authors
Alan Davis Angelique Bret Bojana Ignjatovic
Partner, Pinsent Masons Partner, Pinsent Masons Partner, RBB Economics
T: +44 (0)20 7054 2718 T: +44 (0)20 7418 8218 T: +44 20 7421 2444
E: alan.davis@pinsentmasons.com E: angelique.bret@pinsentmasons.com E: bojana.ignjatovic@rbbecon.com
Alan Davis is a Partner and Head of Angelique Bret is a partner in the Bojana Ignjatovic is a Partner at RBB
the Competition, EU & Trade Group at Competition, EU & Trade Group at Pinsent Economics. Bojana has 15 years’ experience
Pinsent Masons LLP. He advises on UK Masons LLP. Angelique advises across as an expert in competition economics,
and EU competition matters in a variety all industry sectors, including sport, covering a wide range of competition
of sectors including financial services, telecommunications, healthcare, energy, issues including mergers, abuse of
air transport, construction, energy, and financial services, retail and manufacturing. dominance cases, cartels and market
manufacturing. He advises on UK, EU, She advises on the rules relating to the investigations. She has advised on a large
and multijurisdictional merger filings and abuse of market power, anti-competitive number of high-profile cases before the
has recently advised on the successful agreements and State aid in the context European Commission and many national
clearance of mergers by the Competition of contentious matters before the courts domestic authorities, in particular in the
and Markets Authority and European and investigations by the competition UK. Prior to joining RBB in 2007, Bojana
Commission in a range of industries. Alan authorities, notifying and obtaining worked as the Deputy Head of Merger
also advises clients on investigations clearance for UK, EU and multi-jurisdictional Economics at the Office of Fair Trading.
into anticompetitive agreements mergers, strategic advice on joint venture Bojana has extensive experience advising
and practices. He has substantial structures, notifying and obtaining EU on competition law investigations, in
experience advising on UK and EU cartel State aid approval, competition law both private and public practice. She has
investigations, including two criminal audits, compliance programmes and particular expertise in the application of
cartel investigations in the UK, as well as advice on other EU and regulatory quantitative techniques in the assessment
on abuse of dominance cases. He has also matters. Angelique regularly assists clients of horizontal mergers: notable recent
advised extensively on UK market studies with merger notifications to the CMA, merger cases include Heineken / Punch
and market investigations, especially in European Commission and manages multi- Taverns, Teva / Allergan, Muller Wiseman
the financial services sector. jurisdictional merger notifications. / Dairy Crest, Eurotunnel / SeaFrance, and
Random House / Penguin. Bojana has also
represented clients on a range of antitrust
matters, in relation to horizontal and
vertical agreements, abuse of dominance
and market investigations.
20Other key contacts
Guy Lougher Giles Warrington
Partner Partner
T: +44 (0)20 7490 6102 T: +44 (0)121 260 4037
E: guy.lougher@pinsentmasons.com E: giles.warrington@pinsentmasons.com
Acknowledgements
The authors acknowledge with thanks the
contribution to this chapter of Paul Williams (Associate),
Pinsent Masons LLP and Paul Hutchinson (Partner),
RBB Economics.
Endnotes
1. CMA Annual Plan 2017/18, paragraph 4.9.
2. CMA Annual Plan 2017/18, paragraphs 5.13-5.14.
21Pinsent Masons LLP is a limited liability partnership, registered in England and Wales (registered number: OC333653) authorised and regulated by the Solicitors Regulation Authority and the
appropriate jurisdictions in which it operates. The word “partner”, used in relation to the LLP, refers to a member or an employee or consultant of the LLP, or any firm or equivalent standing.
A list of the members of the LLP, and of those non-members who are designated as partners, is available for inspection at our registered office: 30 Crown Place, London, EC2A 4ES, United
Kingdom. © Pinsent Masons 2018.
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