A July 2013 judgment by Britain's Competition Appeal Tribunal indicates the extraterritorial reach of UK merger control

The proposed acquisition by the Netherlands company Akzo Nobel of shares in an Italian competitor, Metlac, taking Akzo's interest in Metlac from a pre-existing 49 per cent to full 100 per cent ownership, was notified to nine competition authorities across the world under their merger control laws. Only one of those competition authorities – the UK's Competition Commission – ordered prohibition of the merger, and that prohibition was applied, in spite of the fact that both of the merging companies were based outside the UK33.

Now, in a landmark judgment, the UK's Competition Appeal Tribunal has rejected an appeal by Akzo against the prohibition – and outlined the circumstances in which the UK can intervene to block foreign-to-foreign mergers34.

The issue

For UK merger control to apply to an acquisition, it must be the case that the target has some sales to UK customers – either £70 million of turnover in the UK, or sales that, together with the sales of the acquiring group, constitute 25 per cent of sales of a particular product or service in the UK35.

But there is also a further requirement that in principle constrains the UK authorities from intervening in mergers where both parties are operating outside the UK (and merely exporting into the UK). The legislation provides that the Competition Commission may make an order – for example, to prohibit a merger, or require a disposal of a business – in respect of the "conduct outside the United Kingdom" of a "person" (which includes a company) only if that person is:

  1. a United Kingdom national;
  2. incorporated under the law of the UK or any part of it; or
  3. a person carrying on business in the UK36.

The significance of the Competition Appeal Tribunal's judgment in this case is that it demarcates the extent to which this is in fact a constraint on intervention by the UK authorities. Clearly, the Competition Commission's order to prohibit the merger extended to Akzo's conduct outside the United Kingdom, because it prohibited Akzo acquiring shares that it did not already own in Metlac, which is an Italian company37. Although Akzo had subsidiaries in the UK, which clearly were "carrying on business in the UK", it was the Netherlands parent company, and not any of those subsidiaries, which was proposing to acquire the shares in Metlac, and therefore the Netherlands parent company against which the prohibition order was directed. The question therefore was: Could the Netherlands parent company – which clearly was neither a United Kingdom national nor a body incorporated under the law of the UK – be a person "carrying on business in the UK"?

The answer

The Competition Appeal Tribunal upheld the Competition Commission's decision that a prohibition order could be made against the Akzo Nobel Netherlands parent company, and it concluded that the Competition Commission had not made an error of law in considering that the parent company "carried on business in the UK".

The principles underlying the Tribunal's judgment – which are of course of wider practical application – were that, in order to determine whether a company is a "person carrying on business in the UK":

  • A parent company could not be considered to be "carrying on business in the UK" simply by virtue of the activities of its (UK) subsidiary. A subsidiary's business cannot be attributed to its shareholders, because that would run contrary to the English legal doctrine of not going behind the "corporate veil"38.
  • In this connection it is important to remember that the relevant entity is the legal "person" – i.e. the legal company – not, as more generally in UK and EU law cases, the entire corporate group that constitutes an "undertaking".39 It is not legitimate to conflate the businesses of the parent and subsidiary, or to fix the parent company with the rights and liabilities of its subsidiaries40.
  • There is, nevertheless, no requirement that the company "carrying on business in the UK" should itself have a fixed place of business in the UK41.
  • Although it is not legitimate to attribute to a company the activities of its UK subsidiaries, the facts of the situation need to be looked at on a case-by-case basis, having regard to how the business operates in practice: "It is a question of fact and degree in each case whether the activities of the parent company are such as to be treated as carrying on business activities that are properly attributable to it as a legal person"42.
  • The key issue is how the business works in practice. Where (as is common in multinational corporate groups) the "operational" structure of the group differs from the "legal" structure, with activities being allocated to "functional business units" or divisions, rather than according to corporate entities, it is quite possible that in a business unit responsible for sales to the UK, some of the business is carried on within that unit by the UK subsidiary company and some by the foreign-incorporated parent company. It is plausible to conclude, depending on the facts, that the decisions of the functional business units are in reality those of the parent company. In this case, for example, certain strategic decisions about sales to the UK were made within the functional business units, as evidenced by the absence of a strategic plan for subsidiaries, as were certain contracting decisions and other operational decisions. Accordingly, it was possible to conclude that the functional unit's activities, extending to the UK – including carried on by the parent company – constituted the carrying on of business within the UK by the parent company.43

In practical terms, then, even a foreign parent company can be said to be "carrying on business in the UK" where some of the UK business decisions are carried on, not specifically by UK subsidiaries, but by functional business units for which the parent company is responsible.

Related Articles


33UK Competition Commission, merger report, Akzo Nobel / Metlac Holding, December 21, 2012.
34UK Competition Appeal Tribunal, Case 1204/4/8/13, Akzo Nobel v Competition Commission [2013] CAT 13, judgment of June 21, 2013.
35UK Enterprise Act 2002 section 23.
36UK Enterprise Act 2002 section 86(1).
37Competition Appeal Tribunal judgment (as above), paragraph 44.
38Competition Appeal Tribunal judgment (as above), paragraphs 106 to 107.
39Competition Appeal Tribunal judgment (as above), paragraph 82.
40Competition Appeal Tribunal judgment, (as above), paragraph 108.
41Competition Appeal Tribunal judgment, (as above), paragraph 112.
42Competition Appeal Tribunal judgment, (as above), paragraph 109.
43Competition Appeal Tribunal judgment (as above), paragraphs 110, 113 and 114.

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.