Written by Alistair Lindsay & Alison Berridge
In our second post on the implications of Brexit for merger control, we ask whether a new relationship with Europe might prompt amendment to merger control rules in the UK.
New jurisdictional thresholds?
As described in our earlier post , the most significant changes to the merger control landscape occur if the UK opts to leave not only the EU but also the EEA. In that case the “one stop shop” principle giving the European Commission exclusive jurisdiction over larger transactions no longer applies. This in turn is likely to lead to a significant increase in the CMA’s workload, to include many more large international deals.
This change may put pressure on certain distinctive features of the CMA’s jurisdictional rules. Businesses planning large international acquisitions are used to dealing with multiple merger filings. But they expect to know unequivocally whether a filing is needed. The UK’s jurisdictional rules on the other hand are not designed with certainty in mind. The share of supply test requires a level of analysis of overlapping supplies or purchases. And applying the material influence test is an art all of its own, not uncommonly involving the examination of voting records or the potential for certain shareholders to wield special influence (as in BSkyB/ITV).
The UK may come under pressure to move to a more easily applicable turnover based test, consistent with the recommended practices of the International Competition Network, and or a clear “control” threshold. This would reduce the burden on business but at the same time increase the risk of type two errors, i.e. failures to intervene in mergers that in fact harm consumers. Examples of the kinds of cases that might fall outside such a regime include Ryanair/Aer Lingus (examined under the material influence rules) and Linergy/Ulster Farm (target having low turnover).
A mandatory regime?
There may also be questions over the current voluntary notification system. A voluntary system relies on effective intelligence to identify problematic mergers that are not notified. Only if parties feel there is a real risk of discovery will they voluntarily incur the costs and risks of filing. The CMA has enhanced its intelligence function in recent years and the result is widely believed to be highly effective.
However if the CMA’s remit extended to a much larger number of international mergers, the burden on the intelligence unit would increase. It may benefit from information received from countries operating a mandatory system, such as Germany, but would nevertheless need to carry out some investigation to assess the potential impact on the UK. It is possible that these new burdens might start to tip the balance in favour of a mandatory system, with the corresponding costs to business. An analysis of the costs and benefits of a mandatory regime (albeit absent any Brexit related change in case mix) can be found in the Government’s 2011 consultation on reforms to the merger regime .
Return to a public interest test?
Finally, the new Prime Minister has already signalled a willingness to prevent takeovers of UK companies in important sectors, such as AstraZeneca in the pharmaceuticals industry, from foreign takeovers.
This is in part an opportunity created by Brexit and in part not.
On the one hand, leaving the EEA would make it easier to implement such a policy. Currently, where the Commission has jurisdiction over the competition analysis, Member States may take their own action to protect national interests (such as public security), but the interests protected must be recognised as “legitimate”, either under existing EU legislation or by decision of the Commission. Leaving the EEA would free the UK from these constraints.
On the other hand, it is not certain that the above regime would have prevented the UK from protecting AstraZeneca. The deal collapsed before the Commission expressed a view.
Moreover, in cases falling outside the Commission’s jurisdiction, the UK currently has a free hand to protect whatever interests its chooses. Yet its own rules also limit public interest interventions to a narrow category of cases, closely mirroring those found in European legislation (although the categories can be expanded). Alex Chisholm, the then Chief Executive of the CMA, analysed the evolution of and reasons for this approach in his 2014 Fordham speech, available here . Any new protectionism would therefore reverse decades of industrial policy, developed in parallel with – but independently of – Europe.
Whether and when any of these changes might be implemented is a matter for speculation. Merger control will need to take its place in the lengthy queue of national laws requiring amendment following Brexit. New trade deals agreed with Europe or elsewhere may limit the Government’s scope to make changes, particularly any attempt to restrict foreign takeovers. We will post further updates as the position develops.