Rob Williams QC and Ben Lask successfully defend CMA decision in Ecolab merger
The Competition Appeal Tribunal has upheld the CMA’s decision to block the merger between Ecolab Inc. and The Holchem Group Ltd, rejecting in its entirety a judicial review challenge to that decision brought by Ecolab: Ecolab Inc. v Competition and Markets Authority  CAT 12.
Ecolab and Holchem both supply formulated cleaning chemicals and ancillary services to professional food and beverage customers in the UK. These goods and services are used by such customers to clean manufacturing and processing equipment and premises. In November 2018, Ecolab (a large US corporation) acquired Holchem (a UK company), thus combining two of the four largest suppliers in the market and triggering an investigation by the CMA under the Enterprise Act 2002.
In a final report issued in October 2019, the CMA found that the merger had resulted or may be expected to result in a substantial lessening of competition (SLC) in the relevant market. In particular, it found that the parties exerted a strong competitive constraint on each other, and that the elimination of such competition as a result of the merger would have an adverse impact both on their existing customers and new customers. The CMA decided that the appropriate remedy was for Ecolab to sell Holchem Laboratories (a subsidiary of Holchem) to a suitable purchaser. In reaching that decision, it rejected an alternative divestiture proposal (ADP) submitted by the parties, whereby a portfolio of one of the parties’ customers would be divested to another existing supplier, concluding that the ADP had “serious shortcomings” and would not effectively remedy the merger’s adverse impact on competition.
Ecolab challenged the CMA’s decision by way of judicial review before the Competition Appeal Tribunal. It advanced four grounds, arguing that the SLC decision was irrational and unsupported by evidence (Ground 1), and that the decision to reject the ADP was irrational, procedurally flawed, and based on an error of law (Grounds 2 to 4).
In a judgment issued on 21 April 2020, the Tribunal unanimously dismissed all four of Ecolab’s grounds. It held in summary that:
- Ground 1: the evidence cited in the report was clearly sufficient to support the CMA’s finding that there was an SLC across the market as defined. Ecolab argued that any SLC should have been limited to large UK only customers. However, the Tribunal found that the CMA was entitled to rely on a lessening of competition for small UK only customers as part of its SLC finding, even though the effect on large UK only customers was more marked.
- Ground 2: the decision to reject the ADP was neither irrational nor based on an error of law. In particular, the Tribunal held that, since the CMA’s intervention in merger cases was a one-off, as a matter of policy it was entitled to seek a remedy in which it had a “high degree of confidence” that it would achieve its intended effect. In the present case, the CMA was fully entitled on the evidence to reject the ADP on this basis.
- Ground 3: the CMA had been well within its “wide margin of appreciation” to decide that further consultation on the ADP was unnecessary, especially when there was no reason to suppose that this would overcome the ADP’s shortcomings, and when it would have required the CMA to extend the statutory deadline for delivery of its report. Whilst the CMA was empowered to extend the deadline for “special reasons”, parties could not expect it to invoke this power where they proposed a remedy only shortly before the deadline, or prevented the CMA from consulting on crucial aspects of the remedy for commercial reasons.
- Ground 4: the fall-back ADP put forward by the parties did not address or mitigate any of the CMA’s principal objections to the ADP. As such, it did not merit any further consideration by the CMA of affect the rationality of its assessment.