UK DEVELOPMENTS
Lloyds/HBOS Merger Cleared Despite Competition Concerns
The proposed acquisition of HBOS by Lloyds TSB has been given the green light by the Secretary of State (Lord Mandelson). The merger had been "called-in" by the Secretary of State using his newly acquired powers to intervene on financial stability grounds. The Secretary of State acknowledged that there were competition concerns as set out in a report from the Office of Fair Trading ("OFT"), but was satisfied that on balance the public interest was best served by allowing the merger to proceed without a reference to the Competition Commission. (For further information on the Secretary of State's intervention, please see Community Week Issue 394).
The OFT conducted a month long review of the proposed merger and published its report on 31 October, coinciding with the Secretary of State's decision. The OFT concluded that the proposed acquisition could potentially result in a substantial lessening of competition, meriting an in-depth investigation by the Competition Commission.
The OFT assessed the merger in light of the turbulent state of the financial markets, concluding that there is a "realistic prospect" of a substantial lessening of competition ("SLC") in three markets.
- With respect to personal current accounts, concerns are identified at both national and local levels as the merger is expected to further strengthen an existing market leader (Lloyds TSB), increase its market share, and shift the focus from competing for new customers to enhancing margins on its current customers.
- For banking services to small and medium enterprises, concerns are focused on reduced incentives to compete for new customers primarily in the Scottish market.
- In the case of mortgages, while the OFT believes that there is a realistic prospect of an SLC, its concerns are more marginal, although the OFT did note that the cost of a "wrongful clearance" under such circumstances could be very high. There are concerns that there may be greater barriers to entry and reduced customer switching.
Despite these concerns, the Secretary of State gave regulatory clearance to the merger on 31 October. He did however ask the OFT to "continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy" (an area the OFT has had its eye on for a while - with the personal current account market in particular being under scrutiny).
Although the clearance is not entirely surprising, this is the first time that the UK public interest intervention powers have been used to clear a merger deemed to merit a reference to the Competition Commission.
Competition Commission Reports On Charges At Stansted Airport
The Competition Commission's ("the CC") report and recommendations on airport charges at Stansted airport ("Stansted") was published this week. This report is important as, if the CC's recommendations are adopted by the Civil Aviation Authority ("the CAA"), BAA (Stansted's owner), will be able to impose higher charges on airlines using the airport. Moreover, the criticism leveled at BAA may mean that airlines and travelers will see significant changes in the way that the airport is run in the future.
In terms of airport charges, the CC rejected calls for the removal of price controls altogether (as had been proposed by the CAA last year) and instead recommended that, during the five year period beginning in April 2009, BAA may increase its airport charges at Stansted by 21 pence per passenger. This is less than the increase suggested by BAA (which asked for more to assist with the costs of the new runway it is seeking to build). The findings will also be disappointing for Ryanair, which has been asking for lower levies at Stansted (its main UK base) for a number of years.
The CC also highlighted a number of areas where BAA is considered to have acted against the public interest. It was noted how the introduction of new security arrangements had given rise to "unacceptable delays" for passengers and that development plans (especially the construction of a new runway and terminal) had not been adequately consulted on. The CC underlined the importance of strong channels of communication between BAA and airlines, since "airline customers are generally in a much better position than the regulator to suggest what development is needed". The CC has suggested the introduction of a quality rebate scheme, imposing financial penalties if BAA fails to meet agreed standards (as is already in place at Heathrow and Gatwick) and offering off-peak discounts to the largest aircraft (currently excluded from such a benefit).
The CAA will now consider the recommendations before announcing its final decision in March 2009. Given the current economic situation (and the resulting uncertainties as to passenger numbers), the CC has stated that its findings should be kept under review. Similarly, the unstable economy led the CC to query the wisdom of pursuing extension plans at Stansted. These concerns will no doubt be picked up during the planning enquiry into BAA's application to expand the airport timetabled for next year.
The CC's report follows its preliminary findings in August this year that BAA should be required to sell two of its three London sites as well as either Glasgow or Edinburgh. In September, BAA put Gatwick up for sale but so far no moves have been made regarding Stansted.
Breach Of Procurement Rules Leads High Court In Northern Ireland To Set Aside Framework Agreement
The High Court in Northern Ireland (the "High Court") has set aside a decision of the Northern Irish Department of Finance and Personnel to enter into a framework agreement on the basis that the award process for the agreement was found to have breached the Public Contracts Regulations 2006. The framework agreement may now be re-tendered (with the tender being open only to the 11 original tenderers) or dispensed with altogether (with separate procurements for each of the contracts that were to be awarded under the framework agreement).
The framework agreement, for construction contracts for urban regeneration projects, was entered into earlier this year between the Department and five contractors and was due to last for four years. However, no individual contracts (so-called "call off contracts") have ever been awarded under the framework agreement.
One of the unsuccessful tenderers raised an action challenging the process (it had finished sixth out of eleven tenderers just behind those 'winning' tenderers which came fourth and fifth). The High Court found that the Department had breached the procurement rules by failing to disclose to bidders some of the detailed sub-award criteria and their corresponding weightings which the evaluation panel subsequently took into account when assessing the final bids.
In a recent judgment the High Court addressed the issue of procurement remedies. The procurement rules limit the remedies that can be awarded in respect of a concluded contract to damages. However, the High Court ruled that this limitation did not apply to a concluded framework agreement. The Court distinguished between (i) the top level "framework agreement", which involves the selection of parties who will go on to bid for specific contracts under the framework agreement and (ii) a "contract", which is awarded according to the terms of the framework agreement (possibly supplemented in a mini-competition) and involves specific parties performing works, services and/or supplies for consideration. It concluded that the remedies available for breach of a framework agreement were broader than those available for breach of a contract and that in this instance the framework agreement could be set aside.
The High Court considered that setting aside the framework agreement was preferable to adding the aggrieved tenderer to the framework agreement, which it considered would unfairly dilute the work of the five parties to the framework.
Under the New EC Remedies Directive (due to be implemented into national law by December 2009) certain completed contracts may be deemed 'ineffective' even after they have been concluded. Given that this will be novel ground for UK procurement law, since in the past procurement remedies were limited to damages post-contract conclusion, the OGC is still considering the legal consequences of a contract being ineffective.
FRENCH DEVELOPMENTS
New Merger Thresholds Introduced Under The Law On The Modernisation Of The Economy
The law on the modernisation of the economy (the "LME"), enacted on 4 August 2008, introduces new turnover thresholds which relate specifically to mergers in the retail business sector or which involve companies active in the French overseas departments or territories (i.e. French West Indies, French Guiana, Reunion, Mayotte and Saint Pierre and Miquelon). These specific thresholds will apply instead of the existing general thresholds.
These provisions will enter into force either on promulgation of the ordinance implementing the LME or on 1 January 2009 at the latest.
The specific thresholds will apply where either at least two of the undertakings involved in the merger run retail businesses or at least one of the undertakings involved in the merger runs all or part of its business in the French overseas departments or territories.
In such cases, the merger will have to be notified if: (i) the aggregate worldwide turnover of all the undertakings involved in the merger is over €75 million and (ii) as regards the retail sector, the aggregate turnover achieved in France in the retail business sector by at least two of the undertakings involved is over €15 million or (iii) as regards overseas activities, the aggregate turnover achieved individually by at least two of the undertakings, in at least one relevant French overseas departments or territories, is over €15 million.
As is the case for all mergers, the new Competition Authority (l'Autorité de la concurrence, see Issue 389 of Community Week) will only have jurisdiction over such mergers if they fall outside the scope of the European Merger Regulation.
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.
