UK Merger Control

Jonathan Parker, Adrian Majumdar

• Publisher: Hart Publishing
• Year: 2011
• Print ISBN: 9781849460156
• eBook ISBN: 9781847317193
• Edition: 1
• Topic: Jura
• Subtopic: Wettbewerbsrecht

This book is a fully up-to-date, comprehensive guide to the law, economics and practice of UK merger control law, including a review of the recently revised guidelines of the Office of Fair Trading and the Competition Commission. This guide presents an integrated legal and economic assessment of the substantive appraisal of mergers and examines in detail the following topics: the history of the Enterprise Act and its development from the Fair Trading Act; the various regulatory bodies that form the institutional structure of the UK merger control regime; enterprises subject to merger control regulation and the jurisdictional thresholds of the Enterprise Act; the relationship of the Enterprise Act with the European Merger Regulation; the procedural and substantive practice of the Office of Fair Trading; references to, and in-depth reviews by, the Competition Commission; appeals to the Competition Appeal Tribunal; public interest mergers and the role of the Secretary of State; and merger remedies. Uniquely, this book also provides insights into the substance and procedure of UK merger control from Simon Pritchard, formerly Senior Director of Mergers, OFT.

Chapter 1

OVERVIEW OF THE UK MERGER CONTROL REGIME

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1.1 Introduction

1.2 The Fair Trading Act

1.2.1 Overview

1.2.2 Enforcement Authorities

1.2.3 Jurisdictional Thresholds

1.2.4 Review by the OFT

1.2.5 In-depth Investigation by the CC

1.2.6 The Public Interest Test

1.3 Proposals for a New Merger Control Regime

1.3.1 The Government’s Consultation Document

(a) Introduction

(b) The introduction of a competition-based test

(c) Independent competition authorities

(d) Public interest cases

(e) Special merger regimes

(f) Pre-notification of mergers

(g) Jurisdictional thresholds

1.3.2 The Response to the Consultation on Proposals for Reform

(a) The introduction of a competition-based test

(b) Removing ministers from the decision-making process

(c) Independent competition authorities

(d) Public interest cases

(e) Process and timetables

(f) Jurisdictional thresholds

1.3.3 The White Paper and the Enterprise Bill

(a) The White Paper

(b) The Enterprise Bill

1.4 The Enterprise Act

1.5 The OFT and CC Merger Guidelines

1.6 Decisions of the OFT, the CC and the CAT

1.7 The Precedential Value of FTA Cases

1.8 The Merger Regulation

1.9 The Office of Fair Trading

1.10 The Competition Commission

1.11 The Secretary of State

1.12 The Competition Appeal Tribunal

1.13 Sectoral Regulators

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1.1 INTRODUCTION

The main provisions of the UK merger control regime are contained in the Enterprise Act 2002 (the “Enterprise Act”), which received Royal Assent on 7 November 2002. The merger control provisions entered into force on 20 June 2003. The Enterprise Act replaced the Fair Trading Act 1973, as amended (the “FTA”), and introduced a new framework for merger control in the UK. In particular, it removed the vast majority of decision-making in respect of mergers from the political domain,¹ and replaced the public-interest test with a competition-based test as the substantive assessment tool for merger analysis. The Enterprise Act also brought about institutional changes to the UK merger control regime. Such changes included abolishing the position of Director General of Fair Trading (the “DGFT”), transforming the Office of Fair Trading (the “OFT”) into a corporate body, and creating a specialist tribunal, the Competition Appeal Tribunal (the “CAT”), to hear, inter alia, appeals of merger decisions of the OFT and the Competition Commission (the “CC”).

Prior to the Enterprise Act’s coming into force, reform of the existing merger control regime under the FTA had been under consideration for some time. In August 1999, the Government published a consultation document setting out its main proposals for change.² The Government received a large number of responses from a wide range of stakeholders, including law firms, barristers, companies, business and consumer groups, private individuals, and trade unions.³ Following these responses, the Government announced its main conclusions in October 2000⁴ and published a white paper in July 2001⁵ further refining its thinking on a revised merger control regime. This process eventually resulted in the Enterprise Bill, which was introduced into the House of Commons on 26 March 2002 and led to some illuminating debates in Standing Committee before receiving Royal Assent.

This chapter contains a brief account of the historical development of the UK merger control regime, summarising the merger control regime under the FTA, examining the motivations behind, and the proposals for, adopting the Enterprise Act, considering the main features of the merger control regime under the Enterprise Act, and describing each of the UK’s main competition authorities, namely the OFT, the CC and the CAT, as well as briefly summarising the competition authorities that are responsible for regulated sectors of the UK economy.⁶

1.2 THE FAIR TRADING ACT

1.2.1 Overview

UK merger control first received a statutory footing in 1965 with the Monopolies and Mergers Act. The merger control regime put in place by this Act was essentially carried forward by the FTA. The Secretary of State for Trade and Industry was the key decision-maker.⁷ He was advised by the DGFT and the Monopolies and Mergers Commission (the “MMC”),⁸ which became the CC under the Competition Act 1998 (the “Competition Act”).⁹ As is the case now, the regime was ‘voluntary’ in the sense that merging parties were not obliged to notify their transactions to the OFT even where they met the relevant jurisdictional thresholds. The OFT itself existed on a non-statutory basis to support the work of the DGFT. The DGFT, however, was under a statutory duty to keep all UK merger activity under review¹⁰ and could investigate any merger that fell within his jurisdiction.

Following an investigation, the DGFT advised the Secretary of State whether to clear the merger unconditionally, to clear the merger subject to undertakings in lieu of reference, or to refer the merger to the CC for an in-depth inquiry. The Secretary of State then took into consideration the DGFT’s advice, but was not obliged to follow it. Similarly, when a reference was made and the CC presented its advice to the Secretary of State, he would take into consideration the CC’s advice but could reach a different conclusion, if he so wished. However, before the Enterprise Act came into force, the Secretary of State had established a practice of following the DGFT’s and/or the CC’s advice in almost all cases, and from October 2000, at the time of the publication of the Government’s proposals for reform, the Secretary of State announced that he would follow the DGFT’s advice in all but exceptional circumstances.

1.2.2 Enforcement Authorities

Under the FTA, there were three principal merger control authorities in the UK: (i) the DGFT; (ii) the CC; and (iii) the Secretary of State. The DGFT was the head of the OFT and was appointed by the Secretary of State.¹¹ The OFT carried out preliminary investigations of mergers and the DGFT advised the Secretary of State as to whether a merger should be cleared unconditionally, cleared subject to undertakings in lieu of reference, or referred to the CC. The CC was an independent body consisting of members appointed by the Secretary of State and drawn from a range of backgrounds including industry, commerce and academic life. The CC’s role in respect of mergers was to conduct in-depth reviews of mergers that were referred by the DGFT and to present its conclusions to the Secretary of State.

The Secretary of State was the ultimate decision-maker in merger cases and had a wide discretion to accept or reject the advice of the DGFT and/or the CC. In deciding whether or not to make a reference, the Secretary of State took into account the DGFT’s advice, but was not bound to follow it. However, in practice, it was highly unusual for the Secretary of State not to follow the DGFT’s advice.¹² Following an in-depth investigation, if the CC had concluded that a merger might be expected to operate against the public interest, the Secretary of State could decide to clear the merger unconditionally, clear the merger subject to undertakings or prohibit the merger. The Secretary could not, however, prohibit or impose conditions upon a merger in the absence of an adverse finding by the CC.

1.2.3 Jurisdictional Thresholds

The FTA provided that, following an OFT investigation, a merger reference could be made to the CC by the Secretary of State where it appeared to him that “it is or may be the fact” that two or more enterprises, at least one of which must have been carried on in the UK, or by or under the control of a body corporate incorporated in the UK, had ceased to be distinct enterprises,¹³ or that such a transaction was in progress or in contemplation,¹⁴ and that either: (i) the value of the (worldwide) assets being acquired was more than £70 million;¹⁵ or (ii) the merger would have resulted in the enterprises ceasing to be distinct having a share of supply in relation to the supply of goods or services of any description in the UK, or a substantial part of the UK, of 25% or more.¹⁶

1.2.4 Review by the OFT

As the merger control regime under the FTA was voluntary there was no requirement for merging parties to notify their merger to the OFT before or after completion. However, if merging parties chose not to notify their merger in advance of clearance, they ran the risk that their merger might have to be unwound in the event of a negative finding by the CC and a negative ruling from the Secretary of State. The DGFT was under a duty to review merger activity generally in the UK¹⁷ and mergers could be referred to the CC at any time up to four months after completion or, if the transaction had not been made public, four months after it was made public or the DGFT or Secretary of State were informed about the merger.¹⁸ Information was regarded as having been made public when it was generally known or readily ascertainable.¹⁹

There were two methods by which merging parties could notify a merger to the OFT: (i) the statutory pre-notification procedure; or (ii) the informal submission procedure. Under the statutory pre-notification procedure, the DGFT had a maximum of 35 working days to reach a decision (a 20 working day review period²⁰ with a maximum extension of 15 working days,²¹ which was often used by the OFT). Under the informal submission procedure, there was an administrative target of 45 working days for the OFT to conduct an investigation, for the DGFT to provide his advice and for the Secretary of State to reach a decision²² (in practice, this was split into 39 working days for the DGFT to provide his advice and 6 working days for the Secretary of State to reach a decision).

1.2.5 In-depth Investigation by the CC

Following a merger reference from the DGFT/Secretary of State, the CC was required to investigate and report on: (i) whether a merger situation qualifying for investigation had been (or would have been) created; and (ii) if so, whether the creation of that situation operated, or may have been expected to operate, against the public interest.²³ A merger reference was required to specify a period (of no longer than six months beginning with the date of the reference) within which the CC’s report on the reference was to be made.²⁴ An extension of this period for up to three months was permissible if representations were made by the CC and the Secretary of State was satisfied that there were special reasons why the report could not be made within the period specified in the reference.²⁵ In making their report, the CC was required to inclu...

Table of contents

• Cover
• Title
• Copyright
• Author’s Preface
• Editor’s Preface
• Contents
• Table of Cases
• Table of Decisions
• Table of Legislation
• 1. OVERVIEW OF THE UK MERGER CONTROL REGIME
• 2. RELEVANT MERGER SITUATIONS: ENTERPRISES CEASING TO BE DISTINCT
• 3. RELEVANT MERGER SITUATION: THE SHARE OF SUPPLY AND TURNOVER TESTS
• 4. RELATIONSHIP WITH THE MERGER REGULATION
• 5. PUBLIC INTEREST MERGERS
• 6. THE OFFICE OF FAIR TRADING’S ADMINISTRATIVE PROCESS
• 7. THE OFFICE OF FAIR TRADING’S DUTY TO REFER AND EXCEPTIONS TO THE DUTY TO REFER
• 8. THE COMPETITION COMMISSION’S ADMINISTRATIVE PROCESS
• 9. THE COUNTERFACTUAL
• 10. MARKET DEFINITION
• 11. CONCENTRATION MEASURES AND SCREENS
• 12. UNILATERAL EFFECTS
• 13. COORDINATED EFFECTS
• 14. NON-HORIZONTAL MERGERS
• 15. COUNTERVAILING CONSTRAINTS
• 16. UNDERTAKINGS IN LIEU OF REFERENCE
• 17. SECOND-PHASE REMEDIES
• 18. JUDICIAL REVIEW
• Index