ARTICLE
22 May 2023

Trends In Merger Control Post-Brexit : Fresh Out Of The Oven

MB
Mayer Brown

Contributor

Mayer Brown is a distinctively global law firm, uniquely positioned to advise the world’s leading companies and financial institutions on their most complex deals and disputes. We have deep experience in high-stakes litigation and complex transactions across industry sectors, including our signature strength, the global financial services industry.
In the two years since the United Kingdom left the European Union, the Competition and Markets Authority has established itself as a notable competition authority on the global stage...
European Union Corporate/Commercial Law

In the two years since the United Kingdom left the European Union, the Competition and Markets Authority has established itself as a notable competition authority on the global stage, including in the digital sphere. This article summarises a number of trends in UK merger control post-Brexit with reference to key cases, the CMA's expansive approach to the exercise of its jurisdiction, its work with other merger competition authorities and proposed reforms.

1. In January 2023, the Competition & Markets Authority (CMA) ordered the unwinding of the acquisition by Cérélia of Jus-Rol's UK and Irish dough business. The adoption of this decision at the start of 2023 is indicative of the CMA's ongoing forceful approach to merger control. 1 Although the CMA and its predecessors (the Office of Fair Trading and Competition Commission) have long been viewed as effective regulators, post-Brexit, in a number of merger cases, the CMA has made clear its sense of purpose through its willingness to adopt bold decisions and, where appropriate, deploy its significant fining powers.

2. The United Kingdom's formal exit from the European Union on 31 January 2020 resulted in a number of changes to the country's merger control regime and gave the CMA an expanded role. 2 Some of the subsequent developments were widely anticipated, and others less so. Below, we look at seven key trends that we have seen emerge since Brexit, and how they appear to be shaping the UK merger control landscape into 2023 and beyond. We also look at a menu of proposed reforms, and the impact they could have if implemented.

I. (NOT QUITE) DOUBLE HELPINGS OF MERGER REVIEW

3. When the United Kingdom left the European Union, much was made of the fact that the "one-stop shop" under the EU Merger Regulation (EUMR) would cease to apply within the United Kingdom. Concerns were raised about the risks of divergent outcomes and uncoordinated decision-making, as well as questions about how the CMA could take on so much additional merger work. Much of this has not happened in practice:

  • Of the predicted 30–50 parallel, i.e. additional, cases (which would have represented a 50% increase), only 12 3 were opened in 2021 and nine in 2022. This is far fewer than half the number mooted, and six of these were the subject of unconditional parallel clearances.
  • Of those 20 cases, five resulted in a divergent outcome, meaning that in five cases one authority blocked a deal whilst another permitted it. 4
  • The CMA has increased its headcount, and its staff work across legal areas, meaning that the CMA has in practice considerable flexibility to adapt the level of resources allocated to individual cases.

II. TOO MANY COOKS? THE CMA'S COLLABORATION WITH OTHER AUTHORITIES

4. The CMA has emphasised the need to work closely with other authorities post-Brexit. By way of recent example, the theme of collaboration features in its Annual Plan for 2023/4. 5 Similarly, the CMA has emphasised in speeches the need to work closely with other authorities—see, for example, a speech by the CEO of the CMA, Sarah Cardell, in February 2023, in which she said that "the CMA has always worked closely with other competition authorities around the world including the FTC and DOJ in the United States and the European Commission. Following Brexit, the scope, scale and intensity of that cooperation has increased, and today we have a close working relationship with a range of merger control authorities globally." The CMA's Jurisdictional Guidelines, 6 updated following Brexit, emphasise the need for authorities to coordinate on merger review and remedies. This is echoed, for example, the CMA's collaboration with the Australian Competition and Consumer Commission (ACCC) and the German Bundeskartellamt in a joint statement on merger control. 7

5. The CMA's approach in this respect is in line with that of other major authorities. For example, the French Autorité de la concurrence (FCA) has been willing to take steps in respect of mergers that may have a significant adverse effect on competition, for example by hindering innovation, but fall short of the statutory thresholds above which the FCA could claim jurisdiction. It has done this by relying upon the European Commission's statement 8 that it may be willing to accept referral of such mergers, even when they do not meet the criteria for examination at national level (for example, the FCA's referral of Illumina/GRAIL 9 ). Interestingly, the Bundeskartellamt has bucked the trend by investigating Meta/Kustomer 10 in parallel with the Commission.

6. Some notable instances of collaboration by the CMA include:

  • Cargotec/Konecranes: 11 the CMA, DOJ, ACCC and European Commission all raised similar concerns in this case and applied a broadly similar analytical framework, but the CMA rejected the proposed remedies. Although the DOJ's and ACCC's investigations were not concluded before the merger was abandoned, both authorities also indicated that they had concerns with the remedy and the DOJ told the parties that it was preparing to challenge the transaction. The European Commission came to a different conclusion on remedies, based on its evidence from market participants, reflecting to some extent differences in the underlying evidence base.
  • Stryker/Wright: 12 the parties offered a divestment package to address competition concerns in both the USA and the United Kingdom. The CMA extended its timetable for considering remedies to align with the Federal Trade Commission's timetable and ensure that any remedy accepted by the CMA was also acceptable in the USA (and vice versa); and
  • S&P/IHS: 13 the CMA worked closely with the DOJ and the European Commission on a material divestment package.

7. All that said, the CMA frequently stresses that its priority is to ensure the right outcome for UK consumers, not to avoid divergence per se, and that it reaches its decisions based on UK law, guidance, and the facts of each case. Roll on a formal cooperation agreement with the EU . . . In the meantime, in practice, parties are giving confidentiality waivers to permit coordination between authorities.

III. THE CHALLENGES OF CATERING TO ALL TASTES

8. Like other agencies, the CMA has recently adopted an increasingly expansive approach to jurisdiction, particularly to deal with digital and dynamic markets. For example:

  • Roche/Spark, 14 in which the CMA measured the "share of supply" by reference to the number of employees and patents;
  • Sabre/Farelogix, 15 in which the CMA attributed a UK share of supply to the target, despite the target having no direct UK customers and no UK turnover. This was subsequently upheld by the Competition Appeal Tribunal (CAT), which affirmed the wide discretion of the CMA in applying the share of supply test, including the need for no minimum increment; and
  • Facebook/Giphy, 16 in which the CMA asserted jurisdiction over the transaction on the basis of the share of supply test, even though Giphy did not generate any revenue in the United Kingdom. The CMA found that Facebook and Giphy overlapped in "the supply of apps and/or websites that allow UK users to search for and share GIFs"—a very wide definition, especially given the vertical integration of Giphy's GIFs into Facebook's services. This approach was upheld by the CAT.

9. The flexible nature and focus of the share of supply test therefore sometimes allows the CMA to claim jurisdiction over mergers which other authorities cannot review because the applicable thresholds are based on factors such as turnover and/or assets. However, even the UK share of supply test has its limits: it is not applicable in purely vertical cases, so the CMA could not "call-in" Illumina/GRAIL, whilst the European Commission and other national competition authorities relied on Article 22 EUMR to ensure the merger was reviewed.

10. Proposed CMA reforms, details of which were published in April 2022, would see the CMA's review powers expanding even further, both in terms of turnover thresholds for review and on the basis of amendments to the share of supply test. The CMA has stated that it will take a more focused approach, excluding smaller enterprises from merger review and capturing so-called "killer acquisitions" and other mergers that do not involve direct competitors. 17 These reforms are discussed further in section VII of this article. Should they become law, the new thresholds will enable the CMA to scrutinise a greater range of transactions.

11. In this context, the relatively new briefing note procedure (a variant of the informal/confidential guidance procedures used in the past by the Office of Fair Trading), which is rapidly becoming widely used, might be employed by parties and their advisers even more frequently. 18 In appropriate cases, that procedure can provide informal comfort within as little as a few days that the CMA does not intend to investigate, although in practice it can take weeks rather than days to obtain this.

IV. A CRÈME DE LA CRÈME CASE-LOAD

12. Post-Brexit, the CMA has reviewed some larger and more complex mergers than was typically the case previously, in part because of the inapplicability of the EU one-stop shop to the assessment of the impact of certain large transactions in the United Kingdom. Key examples include:

  • Illumina/PacBio 19 and Thermo Fisher/Gatan: 20 these transactions were abandoned;
  • Sabre/Farelogix 21 (see above);
  • Facebook/Kustomer: 22 the CMA cleared Facebook's acquisition of Kustomer unconditionally at Phase 1, and the European Commission cleared it at Phase 2 without remedies;
  • Carpenter/Recticel: 23 the CMA accepted a fast-track remedy following a Phase 2 investigation. It concluded that the acquisition would reduce competition in the United Kingdom, and that Carpenter will be required to sell the majority of the UK arm of Recticel's engineered foams business to an independent third party approved in advance by the CMA. Carpenter subsequently agreed to divest Recticel's UK assets and operations to a "suitable upfront purchaser."
  • Sika/MBCC: 24 the CMA accepted remedies at Phase 2 to address the substantial lessening of competition that the CMA found at Phase 1 had resulted or might be expected to result from the merger. Sika and MBCC are the two largest UK suppliers of chemical admixtures used in concrete and cement. Sika's acquisition of MBCC was completed in November 2021 as part of a £4.5 billion deal.
  • Microsoft/Activision: 25 on 8 February 2023, the CMA provisionally identified what it believed to be competition concerns with this merger in relation to the supply of console gaming and cloud gaming services in the United Kingdom. On 24 March, the CMA announced that it was no longer concerned that the transaction might give rise to a substantial lessening of competition in the market for the supply of console gaming services in the United Kingdom, but would focus its enquiry on the market for cloud gaming services. This $69 billion deal is also being examined by the US Federal Trade Commission (which has filed a lawsuit to block the merger), the European Commission and around eight other national competition agencies. The deal has already been approved unconditionally in several other jurisdictions, including Brazil, Chile, Saudi Arabia and Serbia.

V. ADMINISTRATIVE PENALTIES LEAVING A BITTER TASTE

13. The CMA has recently imposed administrative fines on Facebook (£50.5 million, in relation to the Facebook/Giphy case) and on ION Trading Technologies (£325,000, in relation to its completed acquisition of Broadway Technology Holdings LLC) for non-compliance with initial enforcement orders (IEOs). The fine imposed on Facebook is notable for its scale, and is significantly higher than previous fines issued by the CMA. It is also notable that, prior to the imposition of the fine, Facebook had twice appealed the scope of the IEO imposed on it by the CMA, and the CMA's refusal to grant derogations from the IEO. The CAT, and subsequently the Court of Appeal, endorsed the CMA's approach to the imposition of IEOs, and it is likely that the CMA will continue to take a robust approach to the enforcement of such orders and the conduct of its investigations more generally.

VI. MERGER CONTROL, NATIONAL SECURITY, SUBSIDY CONTROL . . . A RECIPE FOR INDIGESTION?

14. One of the biggest recent changes to the UK regulatory regime governing mergers has been the introduction of the National Security and Investment Act 2021, which entered into force fully in January 2022. Its impact is now being felt, with a large number of transactions being notified to the Investment Security Unit (ISU) of the Department for Business and Trade (formerly BEIS). Both the CMA and the ISU have publicly acknowledged that coordination between the two authorities is to be expected. The CMA issued a revised version of its Guidance on the CMA's Jurisdiction and Procedure on 4 January 2022, in which it notes that "the CMA and the ISU expect to coordinate, as may be appropriate, to manage the interactions between the two regimes that may arise in specific cases." 26

15. Separately, on 4 January 2023, the Subsidy Control Act 2022 came into effect. This saw the CMA establish a new Subsidy Advice Unit (SAU). In contrast to the EU's State aid regime, the SAU will not provide an ex ante approval but will be able to provide a non-binding assessment of financial assistance referred to it. By contrast, decisions to grant subsidies can now be challenged in the CAT by way of judicial review.

16. Subsidies from public UK resources to companies engaged in economic activity in the European Union might also be subject to scrutiny by the European Commission under the EU's new Foreign Subsidies Regulation, 27 which will require mandatory notification of certain mergers involving such subsidies from October 2023.

VII. WHAT'S COOKING FOR 2023 AND BEYOND?

17. The Digital Markets Act entered into force in the European Union on 1 November 2022, and digital markets have been a focus of merger control globally in recent years. The CMA has recommended the introduction of mandatory notification for certain mergers by companies designated as having "strategic market status." In addition, the forthcoming Digital Markets, Competition and Consumer Bill will be brought forward in 2023 by the new Department for Science, Innovation and Technology, and will see the formal establishment of a specialist Digital Markets Unit within the CMA.

18. On 20 April 2022, the UK Government published its consultation response on Competition and Consumer Policy, 28 detailing key reforms to be undertaken in the coming years. In terms of merger control, these look set to include:

  • Raising the turnover threshold in line with inflation;
  • Creating an additional basis for establishing jurisdiction to enable review of "killer acquisitions" and other mergers that do not involve direct competitors. Jurisdiction would be established where at least one of the merging businesses has: (i) an existing share of supply of goods or services of 33% in the United Kingdom or a substantial part of it; and (ii) a UK turnover of £350 million. In response to feedback received, these thresholds have been raised from the levels originally consulted upon;
  • Introducing a small merger safe harbour, exempting mergers from review where each party's UK turnover is less than £10 million, to reduce the burden on small and micro enterprises;
  • Monitoring the operation of the share of supply test, of which the government may consider further reform at a later date; and
  • Enabling the CMA to deliver more effective and efficient merger investigations by:

(i) accepting commitments from businesses that resolve competition issues earlier during a Phase 2 investigation; (ii) enhancing and streamlining the "fast-track" merger review procedure; and (iii) updating how the CMA is required to publish its Merger Notices.

VIII. THE IMPORTANCE OF PREPARATION . . .

19. As the CMA has forged a path in the post-Brexit world, it has been keen to ensure that it is seen as a peer of other leading competition authorities worldwide. Its interventionist approach towards some of the most recent high-profile deals, and its decisions to impose large penalties in connection with others, suggest it is ready to bare its teeth and step into its new role outside the European Union with assurance.

20. Crucially, the CMA's intervention in the Facebook/Giphy case serves as a timely reminder that it only takes one jurisdiction to block a merger in order for it to be jeopardised. Whilst the UK regime remains unusual in that notification of mergers under it is voluntary, and the regime is in principle non-suspensory, the CMA has shown itself to be a force to be reckoned with in cases of global significance. Addressing the UK merger control aspects of transactions as early as possible is therefore more essential than ever.

Footnotes

1. Cérélia has lodged an appeal against this decision: Case 1579/4/12/23 Cérélia Group Holding SAS and Cérélia UK Limited v. Competition and Markets Authority, Summary of application, 20 February 2023 (catribunal.org.uk). Note also that on 9 February 2023, ForFarmers and 2Agriculture (a subsidiary company of Boparan) announced that they had abandoned their proposed poulty food joint venture, after the CMA announced that it had referred the deal for in-depth, Phase 2 investigation.

2. See speech by Sarah Cardell, CEO of the CMA, Informa UK Competition Law Conference, 27 February 2023.

3. Including Facebook/Kustomer, Cargotec/Konecranes (UK), S&P Global/IHS Markit, Thermo Fisher/PPD, SK Hynix/Intel's NAND and SSD business, Graphic Packaging/AR Packaging, and AstraZeneca plc/Alexion Pharmaceuticals, Inc.

4. Being reviewed in "different phases," is not considered divergent outcomes for these purposes.

5. CMA_ANNUAL_PLAN_2023-2024_.pdf (publishing.service.gov.uk)

6. https://www.gov.uk/government/publications/mergers-guidance-on-the-cmas-jurisdiction-and-procedure

7. https://www.gov.uk/government/publications/joint-statement-by-the-competition-and-markets-authority-bundeskartellamt-and-australian-competition-and-consumer-commission-on-merger-control/joint-statement-on-merger-control-enforcement

8. Communication from the Commission, Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases, OJ C 113, 31.3.2021, p. 1, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52021XC0331(01)&from=EN

9. Commission prohibits acquisition of GRAIL by Illumina (europa.eu)

10. Bundeskartellamt, press release, Bundeskartellamt clears acquisition of Kustomer by Meta (formerly Facebook), 11 February 2022, https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2022/11_02_2022_Meta_Kustomer.html

11. https://www.gov.uk/cma-cases/cargotec-corporation-slash-konecranes-plc-merger-inquiry

12 https://www.gov.uk/cma-cases/stryker-wright-medical-merger-inquiry

13. https://www.gov.uk/cma-cases/s-and-p-global-inc-slash-ihs-markit-ltd-merger-inquiry

14. https://www.gov.uk/cma-cases/roche-holdings-inc-spark-therapeutics-inc-merger-inquiry

15. https://www.gov.uk/cma-cases/sabre-farelogix-merger-inquiry

16. https://www.gov.uk/cma-cases/facebook-inc-giphy-inc-merger-inquiry

17. Reforming competition and consumer policy: government response, "A rebalanced merger control system" (GOV.UK) https://www.gov.uk/government/consultations/reforming-competition-and-consumer-policy/outcome/reforming-competition-and-consumer-policy-government-response

18. The number of briefing papers submitted in 2020/21 represented an increase of 112% relative to 2020/21, according to the CMA's figures.

19. https://www.gov.uk/cma-cases/illumina-inc-pacific-biosciences-of-california-inc-merger-inquiry

20. https://www.gov.uk/cma-cases/thermo-fisher-scientific-roper-technologies-merger-inquiry

21. Supra note 14.

22. https://www.gov.uk/cma-cases/facebook-inc-dot-slash-kustomer-inc

23. https://www.gov.uk/cma-cases/carpenter-co-slash-recticel-nv-slash-sa-merger-inquiry

24. https://www.gov.uk/cma-cases/sika-ag-slash-mbcc-group-merger-inquiry

25. https://www.gov.uk/cma-cases/microsoft-slash-activision-blizzard-merger-inquiry

26. Supra note 6, s. 17.4.

28. P. Vander Schueren, N. Mizulin, D. Geraets, T. Martin-Brieu, I. Baranenko, J. Ellison and A. Pomana, The EU Paves the Way for New Regulatory Regime: The Council adopts the Regulation on Foreign Subsidies Distorting the Internal Market, Mayer Brown, 15 December 2022, https://www.mayerbrown.com/en/perspectives-events/publications/2022/12/eu-paves-way-for-new-regulatory-regime-council-adopts-regulation-on-foreign-subsidies-distorting-internal-market.; and Dr Andrea Pomana, Nikolay Mizulin, David Harrison Julian Ellison, Christian Horstkotte, Nathalie Jalabert Doury, Dr Dylan Geraets, European Commission Publishes Draft Implementing Rules for EU Foreign Subsidies Regulation: another layer of complexity | Perspectives & Events | Mayer Brown

28. Supra note 16.

Originally Published by Concurrences, 9 May 2023

Visit us at mayerbrown.com

Mayer Brown is a global services provider comprising associated legal practices that are separate entities, including Mayer Brown LLP (Illinois, USA), Mayer Brown International LLP (England & Wales), Mayer Brown (a Hong Kong partnership) and Tauil & Chequer Advogados (a Brazilian law partnership) and non-legal service providers, which provide consultancy services (collectively, the "Mayer Brown Practices"). The Mayer Brown Practices are established in various jurisdictions and may be a legal person or a partnership. PK Wong & Nair LLC ("PKWN") is the constituent Singapore law practice of our licensed joint law venture in Singapore, Mayer Brown PK Wong & Nair Pte. Ltd. Details of the individual Mayer Brown Practices and PKWN can be found in the Legal Notices section of our website. "Mayer Brown" and the Mayer Brown logo are the trademarks of Mayer Brown.

© Copyright 2023. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More