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International businesses carrying out M&A in Europe have consistently welcomed the “one stop shop” of merger control: the principle that larger deals are reviewed only in Brussels and not by multiple member states. This post (the first in a series on merger control) examines how Brexit may affect that principle, and the practical consequences for merging parties.
The one stop shop
Since 1989, the European Commission has had exclusive jurisdiction over mergers between parties that meet certain turnover thresholds. It examines the impact of those mergers on competition throughout the EU and EEA, and national competition authorities are prevented from applying national rules. This reduces the burden of multiple notifications, especially for international businesses, which could otherwise in principle face up to 31 separate procedures.
The EEA model
As noted elsewhere, it remains unclear what form the UK’s future relationship with Europe may take. If the UK were to adopt the current EEA model (the “Norway option”), the one stop principle would be largely preserved. The European Commission would continue to have exclusive jurisdiction where its turnover thresholds are met (Article 57(2) EEA), working in cooperation with the EFTA Surveillance Authority in cases with a strong EFTA element (see Protocol 24 to the EEA Agreement for details).
A few cases may be treated differently: certain marginal cases may drop out of the Commission’s jurisdiction, as UK turnover will no longer count towards the thresholds. On the other hand, businesses focussed in the UK and other EFTA States would benefit from a separate one stop shop in the form of the EFTA Surveillance Authority (Article 57(2)(b) EEA). However for the vast majority the position would be unchanged.
Outside the EEA
Absent membership of the EEA however, it seems to us very likely that the one stop shop principle would cease to apply to the UK on Brexit, with significant consequences for merging parties.
First, parties will have an additional merger authority to deal with, namely the CMA. This will increase costs and the risk of substantive divergence and may delay transactions. However, the issue is not unusual or insurmountable: companies commonly deal with one or more national authorities outside the EU as well as making an EUMR filing, and the UK will need to be added to the list. The CMA and the European Commission will presumably cooperate closely with one another.
Second, the UK will have the right to invoke public interest considerations in mergers without the constraints of Art. 21(4) of the EUMR. This might apply, for example, to the protection of R&D capability in the UK (cf. Pfizer / AstraZeneca) or the retention of manufacturing capability (cf. Kraft / Cadbury).
Third, the (occasionally) contentious requests for referrals back by the UK will be a thing of the past. The UK will have assured jurisdiction over cases such as Three / O2. We doubt the outcome of that case would have been different had it been considered by the CMA rather than the European Commission. But the change may make a procedural difference, with arguably a greater risk that any given case will be taken into phase 2. And, despite the high levels of alignment of substantive analysis, it might conceivably make a difference to the outcome in some cases.
Finally, parties will seek reassurance that the CMA has the resources and capabilities necessary for what is likely to be a significant change to its caseload. Current rules result in the UK typically considering only relatively smaller deals that are focused on the UK. Brexit without EEA membership would result in a significant increase in the CMA’s case load, along with a greatly increased focus on the UK aspects of large international deals. Andrea Coscelli, the CMA’s Acting Chief Executive, recently (read here) estimated this increase in workload at “at least 40 to 50%”, noting that the CMA would “evidently need to be ready and equipped to deal with such an increase if necessary”.