Answer ... Under Section 23 of the Enterprise Act 2002, the UK merger control regime will apply to any transaction which has, or will have, the effect of two or more distinct ‘enterprises’ ceasing to be distinct and in which either:
- the relevant turnover threshold is exceeded; or
- the ‘share of supply test’ is met.
These thresholds and tests are set out in question 2.6.
Under Section 129 of the Enterprise Act 2002, an ‘enterprise’ is defined as the activities, or part of the activities, of a business. It therefore need not be a separate legal entity. Under Section 26 of the Enterprise Act, two enterprises will be considered to ‘cease to be distinct’ if they are brought under common ownership or control. Two enterprises will be treated as being under ‘common control’ if they are:
- enterprises of interconnected bodies corporate;
- enterprises carried on by two or more bodies corporate of which one and the same person or group of persons has control; or
- an enterprise carried on by a body corporate and an enterprise carried on by a person or group of persons having control of that body corporate.
Answer ... Under Section 26(3) of the Enterprise Act 2002, ‘control’ is defined as including:
- material influence;
- de facto control; and
- legal control (ie, a controlling interest in an entity).
It is also specified that this control may be exerted directly or indirectly.
This is a very broad definition, which encompasses both legal ownership and control and effective ownership or control. Accordingly, a wide range of ownership structures may fall within the scope of the merger control regime under the Enterprise Act 2002.
Answer ... Under Section 26(3) of the Enterprise Act 2002, the acquisition of a minority interest in an enterprise may fall under the UK merger control regime if, as a result of that acquisition, “a person or group of persons is able, directly or indirectly, to control or materially to influence the policy of a body corporate”.
In particular, the acquisition of a minority shareholding will be covered by the merger control regime if it can be said to allow the acquirer to “materially influence” the actions of the company. The larger the minority interest, the more likely this is to be the case. For example, an acquisition of over 25% of a company’s shares would enable the purchaser to block any special resolutions, thus giving the purchaser significantly more power to influence the company than a purchaser of exactly (or less than) 25% of the company's shares. Accordingly, there is a presumption that a purchaser of over 25% of a company’s shares will be able to “materially influence” that company.
There is no such presumption in relation to shareholdings of less than 25%. However, the CMA’s guidance states that it “may examine any shareholding of 15% or more”, and that “exceptionally, a shareholding of less than 15% might attract scrutiny where other factors indicating the ability to exercise material influence over policy are present”. This is likely to be the case, for example, where the acquirer is also obtaining additional voting rights or the right to appoint members of the board, or can be said to have ‘de facto’ control over the company in question.
Answer ... The broad definition of ‘enterprise’ and ‘control’ adopted in the Enterprise Act means that joint ventures may (and indeed are likely to) fall within the scope of the UK merger control regime. The Competition and Markets Authority (CMA) guidance on mergers states that “the CMA will have regard to the substance of the arrangement under consideration, rather than merely its legal form”.
Answer ... Yes, provided that the jurisdictional thresholds set out in question 2.6 are met. (If neither party carries on business in the United Kingdom, these thresholds will not be met.)
Answer ... There is no obligation to notify. However, a merger will be considered by the CMA to be subject to the merger regime where:
the value of the annual UK turnover of the enterprise being taken over exceeds:
- in the case of a ‘relevant enterprise’, as defined in Section 23A of the Enterprise Act, £1 million; or
- in all other cases, £70 million; or
- as a result of the enterprises ceasing to be distinct enterprises, at least 25% of all goods and/or services of a particular description which are supplied in the United Kingdom are supplied by or to the same person, or by or to the persons by which the enterprises in question are carried on.
For the purposes of this test, a ‘relevant enterprise’ is defined as an enterprise whose activities consist of or include:
- developing or producing restricted goods (ie, goods, software or information that is controlled under export control legislation);
- holding information that is capable of use in connection with the development or production of restricted goods and is responsible for achieving or exceeding the performance levels, characteristics or functions of the restricted goods that are specified in the relevant export control legislation;
- owning, creating or supplying intellectual property relating to the functional capability of computer processing units, the instruction set architecture for such units or computer code that provides low-level control for such units;
- designing, maintaining or providing support for the secure provisioning or management of roots of trust of computer processing units or computer code that provides low-level control for such units; and
- various activities relating to quantum computing or simulation, quantum imaging, sensing, timing or navigation, quantum communications or quantum resistant cryptography.
Answer ... Where a merger falls under the scope of the EU Merger Regulation, it is almost always excluded from review under the UK regime by virtue of the European Union’s ‘one-stop shop’ principle. A merger will fall under the EU regime where it has an ‘EU dimension’.
This will be the case where:
- the combined aggregate worldwide turnover of the undertakings is more than €5 billion; and
- the aggregate EU wide turnover of each of at least two of those undertakings is greater than €250 million;
- the combined aggregate turnover of all the undertakings involved is more than €2.5 billion;
- in each of at least three member states, the combined aggregate turnover of all those undertakings is more than €100 million;
- in each of at least three of the member states included for the purposes above, the aggregate turnover of each of at least two of the undertakings concerned is more than €25 million; and
- the aggregate EU wide turnover of at least two of the undertakings concerned is more than €100 million.
However, in either of the above situations, this will not be the case if each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within the same member state.