UK: Office of Fair Trading Issues Interim Notice on Informal Advice and Confidential Guidance

Last Updated: 24 April 2006
Article by Guy Lougher, Angela Basu, Alan Davis and Giles Warrington

The OFT announced on 12 April 2006 that it has adopted a Notice on its interim practice on the provision of confidential guidance (CG) and informal advice (IA) in merger cases. Essentially, this re-introduces the IA procedure in a different form and in more limited circumstances. This interim practice will be in place until the OFT publishes new guidance on the long term provision of IA and CG, which the OFT is aiming to produce towards the end of 2006, and by March 2007 at the latest.

Previously, the CG and IA procedures allowed parties contemplating a merger to obtain a non-binding steer from the OFT on a confidential basis as to the prospects of a reference to the Competition Commission. The CG procedure was more detailed and lengthy than the IA procedure, but the opinion given by the OFT was generally thought to carry greater weight. By contrast, the IA process merely involved the submission of a short paper followed by a meeting (the ‘fireside chat’) at which the OFT expressed its preliminary views. The OFT withdrew both of these procedures in November last year.

Under the OFT's new Notice, companies will be able to seek IA, on an interim basis, but not CG. This is to be welcomed as it allows parties to potentially problematic mergers to obtain some form of steer from, or at least open a dialogue with, the OFT, prior to a merger being made public. However, the IA procedure will now be available in fewer cases and there are likely to be an increasing number of cases where the OFT expresses no firm opinion on the merger.

The following are the main features of the new IA procedure going forward:

  • As before, IA will be a pre-merger procedure, for confidential transactions only. It will therefore not be available for completed mergers or for proposed mergers that have been publicly announced.
  • IA will only be available where the OFT is satisfied that there is a ‘good faith intention’ to proceed evidenced by a likely ability to do so, having regard to (i) adequate financing; and either (ii) heads of terms for agreed transactions or (iii) evidence of consideration at acquirer board-level (where the target has not yet been approached by the acquirer). These factors are not exhaustive and so other evidence of a good faith intention to proceed may be acceptable. This is a change to the OFT's prior practice under which the OFT was prepared to give IA on more speculative transactions.
  • IA will only be given where there is a genuine issue, i.e. the merger is a credible case for a reference. In practice, this will require the company seeking advice to identify to the OFT what the issue is before the OFT will give advice (in effect, the OFT appears to be offering a ‘without prejudice’ view). In practice, this should not represent a barrier to parties as they do not have to admit a problem; rather they have to simply explain what the potential issue is (on the basis of previous merger decisions or economic theory). In some cases, this may make IA unattractive, particularly where the issue is not clearcut and there is a possibility that the OFT might not otherwise have identified it.
  • The OFT will be flexible as to whether it gives advice, what type of advice it gives and how it actually gives advice. The process will not necessarily involve a meeting with the OFT; the OFT has said that a meeting will only be held where a meeting with business people will improve the advice which the OFT is giving. In certain cases, the OFT will give ‘fast-track’ advice by conference call. Instead of giving one of its previous ‘likely to refer’ or ‘not likely to refer’ type responses, the OFT will be more flexible under its interim practice. In certain cases, it will not express a firm view (for example, where there are already existing merger decisions touching on the market concerned and the OFT is unable to add anything or any view would be so dependent on third party comments as to be too unreliable), but will rather seek to give general guidance (for example, as to the type of evidence which might be required).
  • Procedure. The application for IA should be an executive summary of no more than 5 pages in length. The OFT will endeavour to indicate within 5 working days of receipt of the application whether it will accept or reject the application. Where IA is only given at the end of a meeting, the OFT will endeavour to schedule that meeting within 10-15 working days of receipt.
  • As before, the fact of seeking IA and any IA given should remain confidential. Any views expressed by the OFT are non-binding.
  • The OFT wants to encourage the better use of pre-notification contacts generally. The OFT generally expects to review submissions on pre-notification contacts and provide its advice within 5-10 working days from receipt. In particular, the OFT wishes to encourage pre-notification contacts where markets are complex or unfamiliar, to clarify the type of evidence the OFT will need and to be a forum for informal dialogue on the OFT's likely approach to a novel issue or on competition concerns. The OFT has indicated that it would endeavour to review a draft merger submission and provide any comments on it to the parties within 5-10 working days from receipt.

Pinsent Masons' EU & Competition Group is one of the largest specialist competition teams in the UK, with considerable experience and expertise of advising clients on mergers and acquisitions, OFT investigations, dawn raids and making leniency applications.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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