UK: The Enterprise Act - Merger Control Provisions

Last Updated: 15 May 2003

On 20 June 2003 the merger control regime currently contained in the Fair Trading Act 1973 will be replaced by the new merger control regime in the Enterprise Act 2002. Changes to the current regime include the following:

  • an amended jurisdictional test for determining whether transactions are subject to the UK merger regime, which includes a turnover-based (rather than an assets-based) test;
  • a new substantive test against which transactions are judged;
  • the removal of ministers from merger decisions, subject to a reserve role in cases involving exceptional public interest issues;
  • new timetables both for the first stage consideration of mergers by the Office of Fair Trading ("OFT") and for any subsequent Competition Commission investigation;
  • the power, in certain circumstances, for the Competition Commission to impose monetary penalties; and
  • a new route for appeals, which can be made to the Competition Appeal Tribunal.

In addition, there are a number of subsidiary provisions that may affect the decisions companies make in respect of whether or not to notify proposed mergers for clearance.

These elements of the new regime are discussed further in the paragraphs below.

The new jurisdictional test

The Enterprise Act amends the current jurisdictional test so that a merger may be investigated by the OFT if two or more enterprises cease to be distinct and:-

  • the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million (the "turnover test"); or
  • as a result of the two enterprises ceasing to be distinct, there is an aggregation of shares of supply so that the merged entity will have a share of supply or purchases of at least one-quarter of a particular description of goods or services in the UK (the "share of supply" test).

(Section 23 Enterprise Act 2002)

The turnover test replaces the assets-based test set out in the Fair Trading Act 1973, although the share of supply test is unchanged.

Whilst it is thought that the turnover test provides a more accurate measurement of the real economic value of the transaction, It is understood that the OFT considers it unlikely that the change in the jurisdictional test will lead to any significant change in the number of transactions notified for clearance.

The new substantive test

The Enterprise Act replaces the public interest test against which transactions are currently judged with a new "substantial lessening of competition" test (the "SLC test"). Under the provisions of the new legislation the OFT is under a duty to refer a merger to the Competition Commission for investigation where it believes that the jurisdictional test is met and the merger " has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services".

The OFT has published a consultation document in respect of the new substantive test, and the Competition Commission has published its own guidelines in respect of the merger control provisions of the Enterprise Act, which include its views on how the new test will work.

The OFT’s consultation document on the merger provisions of the Enterprise Actindicates that under the SLC test the test for reference will be met if the OFT has a reasonably held belief that, on the basis of the evidence available to it, there is at least a significant prospect that a merger may be expected to lessen competition substantially (it considers this to be the same standard of proof as is currently adopted under the provisions of the Fair Trading Act 1973). It also notes a number of broad principles which it will use to assess whether a merger may be expected substantially to lessen competition, namely, the proper definition of the relevant market, the characteristics of pre- and post-merger competition (which may indicate concerns about possible loss of rivalry), the likelihood of new entry or expansion by existing competitors; other factors such as buyer-power, any "failing firm" situation, and efficiency gains that (notwithstanding the loss of a player) might increase rivalry within the market as a whole.

The Competition Commission’s Guidelines on merger references under the Enterprise Act note the Commission’s own approach, in the event of a reference. They make it clear that, for the Commission to reach an adverse decision in relation to a merger or a proposed merger, it must be satisfied that the merger has resulted in an SLC, or it must expect such a result. The Guidelines also state that the Commission will usually have such an expectation if it considers that it is more likely than not that the SLC will result. The Competition Commission will approach its analysis by looking at, first, market definition and, second, whether the merger would increase the market power of the merging firms (on a similar basis to the OFT although, obviously, it will make a more detailed investigation).

The introduction of the SLC test represents perhaps one of the most significant changes to the merger control regime, and a departure from the more general public interest test applied by the Competition Commission under the Fair Trading Act 1973. Whilst even under the public interest test competition concerns tended to be paramount, the SLC test makes it absolutely clear that the test to be applied is a competition test and that if the OFT has no belief that the merger situation in question has resulted or may be expected to result in a substantial lessening of competition, then it must be allowed to proceed (regardless of other issues that might have been taken into account under the Competition Commission’s duty to exercise its powers in the public interest, e.g. effects on employment .

The duty to refer

The Enterprise Act provides that the OFT shall make a reference to the Competition Commission if it believes that it is or may be the case that a relevant merger situation has been created (i.e. the jurisdictional test is met) and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition in any United Kingdom market for goods or services (i.e. the SLC test is met).

There are a number of exceptions to this duty to refer. For example, the OFT may decide not to refer a merger if it does not consider the market sufficiently important, or if there are customer benefits that outweigh any substantial lessening of competition. The OFT may also be prevented from making a reference if it receives a "public intervention notice" or a "special intervention notice" from the Secretary of State, in which case the decision will be made by the Secretary of State.

It is uncertain how the new duty to refer will, in practice, be applied and, in particular, how and in what circumstances the OFT will exercise its duty to refer. Nonetheless, it would seem that the duty is more stringent than the Secretary of State’s discretion to refer mergers which met the jurisdictional test set out in the Fair Trading Act 1973, which it replaces. The change in emphasis would appear to be consistent with the decision to depoliticise and remove some of the discretionary elements (and the resulting uncertainty) from decisions to refer mergers for investigation by the Competition Commission and, arguably, the OFT may be obliged to apply a more rigorous approach, which may have the effect of providing greater certainty of outcome for the parties. It is, however, debatable whether the change in emphasis will have any effect on the number of referrals made to the Competition Commission.

The "customer benefits" test

The OFT retains a discretion not to refer a merger when it believes that any substantial lessening of competition will be outweighed by benefits to consumers. Customer benefits may also be taken into account by the Competition Commission when deciding on remedies. As is clear from the explanatory notes issues in respect of the Enterprise Act, this could extend to clearing a merger without conditions in circumstances where the customer benefits are sufficiently important and nothing can be done about the competition problems without eliminating the relevant customer benefit.

Section 30 of the Enterprise Act defines relevant customer benefits in terms of lower prices, higher quality, greater choice or greater innovation (which may be on the market affected by any SLC, or another market). The relevant customer benefit identified must be expected to accrue as a result of the merger and within a reasonable time, and must be unlikely to occur without the merger. The benefits must accrue to "relevant customers", who are for these purposes customers of the merging enterprises, customers of such customers and any other customers downstream of the customers of the merging enterprises (including future customers, on the basis that in some circumstances a merger may lead to the development of new products or services and the creation of new markets).

It is thought that, in fact, customer benefits are so narrowly defined, and involve the fulfilment of fairly strict criteria, such that they will rarely justify a decision not to make a reference (or not to require remedies).

The removal of the Secretary of State

Under the Fair Trading Act 1973 the Secretary of State had a pivotal role in deciding whether transactions should be referred to the Competition Commission for investigation. In addition if the Competition Commission reached an adverse view in respect of a merger it had investigated, then the Secretary of State had the final say on remedies. Although the Secretary of State would, as a rule, follow the views and recommendations of the OFT and the Competition Commission, the possibility of political interference could not be excluded. Under the provisions of the new regime, the OFT alone will decide whether to make a reference to the Competition Commission and, in the event it reaches an adverse view, the Competition Commission will determine remedies. The possibility of political intervention is limited to cases that raise defined "public interest" issues.

Public intervention notices

The new legislation allows the Secretary of State to intervene in a merger situation under consideration on public interest grounds by means of giving a "public intervention notice" to the OFT if he believes that it is or may be the case that public interest considerations are relevant to the merger situation in question. In such circumstances, the OFT prepares a report to the Secretary of State, and the Secretary of State has the discretion to refer the matter to the Competition Commission for investigation (although in deciding whether to make a reference the Secretary of State is bound by the OFT’s views in respect of the effects of the transaction on competition). In respect of such matters the Competition Commission’s terms of reference will take into account any admissible public interest considerations and whether the merger situation operates or may be expected to operate against the public interest. Currently national security (including public security) is the only public interest consideration that has been identified for these purposes, but the legislation would allow the Secretary of State to add to this and to intervene in other circumstances.

The Secretary of State may also intervene in a merger case by giving a "special intervention notice" to the OFT if he believes that it is or may be the case that one or more public interest considerations is relevant to the consideration of the merger in question, and at least one of the enterprises concerned was a United Kingdom entity or under the control of a United Kingdom entity, and a person carrying on one or more of the enterprises concerned was a government contractor involved in defence work. The special intervention procedure applies in respect of mergers where the jurisdictional thresholds of the turnover and share of supply test (see above, under the jurisdictional test) are not met, giving the Secretary of State the possibility of intervening in circumstances where he might not otherwise be able to do so.

The current government is unlikely to make use of these reserve powers outside merger cases involving defence issues. However, the provisions of the Enterprise Act would permit a government, if it so chose, to adopt an aggressive intervention stance on wide public policy grounds.


Under the new legislation the OFT will have 20 working days (extendible by a further 10 working days) (i.e. 30 days instead of the current 35 days) to consider a merger notified on a statutory merger notice, or will work to a non-binding timetable of 40 working days where mergers are notified other than by means of a formal merger notice.

Where no notification is made the OFT may decide to investigate at any time within 4 months of completion or of material facts coming to its attention (if this is later).

If a reference to the Competition Commission is made, then the Competition Commission will have a maximum of 24 weeks to complete its investigation and make its decision on remedies. This may be extended by a maximum of 8 weeks in very exceptional circumstances, namely where parties have failed to provide or been late in providing information. In addition, the Competition Commission will be bound to publish the reasons for any such extension. Detailed negotiations on remedies may however take place after this period.

Integration of merging enterprises

The Enterprise Act includes various powers that allow the OFT and the Competition Commission to accept undertakings or impose orders preventing the further integration of merging businesses, where the merger is under consideration by the OFT, or the subject of an investigation by the Competition Commission.

Certain of these are in line with provisions in the Fair Trading Act 1973 or, even if they are confer a "new" power, reflect existing practices by providing, for example, for statutory undertakings in circumstances where, in the past, non-statutory undertakings might have been sought. These types of provisions may be seen as merely confirming, simplifying or sanctioning the pre-existing regime.

Nonetheless, it would seem that some of the provisions could act as a disincentive to parties who might otherwise have decided to take advantage of the fact that pre-notification of mergers is voluntary in the United Kingdom. They might be less inclined to "take the competition risk" and complete a qualifying merger without first obtaining clearance. For example, the new legislation automatically prohibits the parties to a completed merger that is referred to the Competition Commission for investigation from taking any further steps to integrate the businesses without the consent of the Competition Commission. Under the old regime the Competition Commission would have had to seek undertakings or make an interim order.

In addition, and perhaps more significantly, the OFT may accept legally binding undertakings or make an order (an "initial enforcement order") in respect of a completed merger where it is merely considering whether to make a reference to the Competition Commission, but has not yet reached a definite conclusion. Undertakings may be sought that parties will not carry out any action that might prejudice the merger reference or any merger inquiry; initial enforcement orders may only be made where it is believed that action is planned that could prejudice any investigation. These provisions could act as a very strong disincentive on undertakings to complete a merger without first obtaining merger clearance, given the prolonged period of uncertainty that could be involved.

Overall, it may be that these new powers to seek undertakings and make orders will discourage parties to mergers which qualify for investigation from entering into transactions without seeking clearance, and from completing transactions without ensuring that they have obtained the requisite clearance, such that there is a resulting increase in the number of notifications made and clearances issued.


For the first time, the Competition Commission will itself be able to impose fines for the late provision of information, and for failure to provide information requested. This applies in the context of both merger and market investigations. The power to impose fines is subject to appeal to the Competition Appeal Tribunal.

Section 109 of the new legislation contains the Competition Commission’s power to give notice (a "Section 109 Notice") requiring a person’s attendance to give evidence, or the provision of documents or information by a particular date. Notices have to comply with certain requirements and, in particular, must include the possible consequences of failure to comply.

The Competition Commission’s powers in respect of failure to comply with a Section 109 Notice include the direct imposition of fines, without the need to apply to court. (Where a person intentionally alters, suppresses or destroys evidence that will, as under the Fair Trading Act 1973, remain a criminal offence). This should help obtain prompt compliance, although it is nonetheless expected that reasonable requests for extensions will continue to be granted.

The Enterprise Act also imposes an obligation on the Competition Commission to publish its Statement of Policy in respect of fines. The Competition Commission has, under the legislation, a certain amount of discretion in respect of how it sets fines, and may impose daily or fixed rate penalties, or a combination of the two.

The Competition Commission’s Statement of Policy makes clear that, in deciding whether to impose a penalty, the Commission will take into account matters such as whether there is a reasonable excuse for failure to comply with a Section 109 Notice and/or whether any obstruction or delay in compliance was intentional. If so, factors the Commission will consider will include the extent to which the failure or non-compliance might have affected the Commission’s efficient carrying out of its functions, or adversely affected other persons in relation to the Commission’s functions, whether imposing a penalty would encourage compliance, any reasonable excuse and whether the person who has not complied with the notice obtained, or was trying to obtain, some advantage or benefit from his failure to comply. In any event, the amount of any penalty will be " reasonable, appropriate and thus proportionate in the circumstances. All the circumstances of the case, […], will be taken into account when deciding the amount of penalty and other factors such as the resources available to the person concerned both in terms of staff and advisory resources and financial resources". The Commission will also consider aggravating or mitigating factors and will impose a penalty that does not exceed the maximum allowed by order of the Secretary of State.


The Enterprise Act provides for the right to challenge decisions of the OFT, the Competition Commission or the Secretary of State in respect of references or possible references before the Competition Appeal Tribunal, so that they are heard by competition law specialists. In the past parties have had to rely on judicial review of merger decisions before the ordinary courts, which has to date generally proved difficult. It may be that appeals to the Competition Appeal Tribunal will have a greater chance of success.

Mergers in specialist sectors

The Enterprise Act retains specialist merger regimes for transactions in the water and newspaper industries.

By Victoria Ripley

© Herbert Smith 2003

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.