Merger Assessments in the UK During the Coronavirus Pandemic
In recent weeks the UK Government and the Competition and Markets Authority (CMA) have worked in tandem to relax competition law in certain defined circumstances and to provide guidance on the regulator’s enforcement approach to essential business cooperation during the Coronavirus crisis (which we previously discussed here).
The CMA has also now issued guidance on its approach to assessing mergers (including acquisitions and joint ventures) during the crisis.
While the new guidance makes clear that the CMA’s overall approach to merger assessments remains unchanged, it highlights certain procedural modifications covering information gathering, the timing of its investigations, meetings and hearings, ‘hold separate’ interim measures and the CMA’s substantive assessment of mergers.
It also provides a helpful ‘refresher’ on the application of the ‘failing firm defence’ (or ‘exiting firm counterfactual’) during the crisis, the most recent example of which is the CMA’s provisional clearance decision in Amazon/Deliveroo.
The guidance acknowledges that businesses (whether merging parties or third parties) may be facing difficulties in responding to statutory information requests because of conflicting priorities or staff shortages. Importantly, the CMA suggests it is ‘unlikely’ to impose penalties for failure to comply with information requests by specified deadlines where a business can demonstrate this is due to difficulties brought about by the COVID-19 crisis – this will generally constitute a ‘reasonable excuse’ for failure to comply.
However, the CMA may ‘stop the clock’ where merging parties are unable to provide information by a specified deadline.
The timing of investigations
The CMA has stressed that the statutory deadlines that apply to its work remain unaltered and, unlike a number of other competition authorities outside the UK, the CMA is not currently asking merging parties to delay merger notifications. Rather, the CMA is encouraging merging parties to consider whether some filings could be postponed (such as where a merger is not particularly well-advanced and may not proceed).
However, the CMA does anticipate delays to the pre-notification process. The CMA has also indicated that it may not start its 40-working day clock in which it has to complete its Phase 1 investigation if third parties are unable to provide their views. In this regard, the CMA will take steps to mitigate any delays in third party engagement, for example by publishing ‘Invitations to Comment’ during the pre-notification stage.
Meetings and hearings
The CMA has confirmed that all meetings and hearings are now being conducted remotely via videoconferencing or telephone.
However, ‘site visits’ that typically occur early on in a Phase 2 investigation are not currently taking place. Instead, the CMA will arrange alternative opportunities to gain a greater understanding of the merging parties’ businesses and meet (remotely) key operational staff.
‘Hold separate’ interim measures prevent further integration of merging businesses while the CMA’s merger assessment is underway. The CMA says it is unlikely to lift such ‘initial enforcement orders’ and ‘interim orders’ that are already in place in completed mergers, but that derogations can be, and have been, requested and granted rapidly where:
- the merging parties are able to demonstrate derogations are necessary to safeguard the commercial viability of their businesses; and
- adequate safeguards are implemented to enable the CMA to take appropriate action to protect UK consumers.
Substantive assessment of mergers
Notably, the CMA has emphasised that its overall approach to assessing whether a merger gives rise to competition concerns remains unchanged. The CMA is keen to flag that, while the impact of the COVID-19 crisis will be factored into the substantive assessment of mergers where appropriate, its merger investigations are forward-looking and evidence-led. On that basis, the CMA says that a short-term industry-wide economic shock will not in itself override the competition concerns raised by a permanent structural change in a market brought about by a merger.
The ‘failing firm’ defence
Finally, the CMA clarifies it is aware the current market environment may lead to additional submissions that businesses involved in merger transactions are failing financially and would have exited the market absent the transaction in question (the ‘failing firm defence’ or ‘exiting firm counterfactual’).
An annex to the guidance emphasises that the CMA’s approach to the failing firm defence has not changed in light of the COVID-19 crisis and will be applied in line with the principles set out in its merger assessment guidelines and decisional practice, namely:
- Whether the firm would have exited the market (through failure or otherwise) absent the transaction;
- Whether there would have been an alternative purchaser for the firm or its assets; and
- What the impact of exit would be on competition compared to the competitive outcome that would arise from the merger transaction.
This ‘refresher’ follows the CMA’s previous announcement on 17 April 2020 that it had provisionally cleared the Amazon/Deliveroo merger (pending the outcome of a 3-week consultation on the provisional findings) on the basis that Deliveroo’s exit from the market would be inevitable without access to significant additional funding that, according to the CMA, only Amazon would be willing and able to provide at this time. The CMA also provisionally found that Deliveroo’s exit would be worse for competition than allowing the Amazon investment to proceed.
Nonetheless, the CMA reiterates in the annex to the new guidance that, in its experience, relatively few cases are cleared through satisfying the stringent failing firm conditions. Moreover, a large volume of supporting documents and data will need to be provided to the CMA to evidence financial failure and the absence of any realistic and substantially less anti-competitive alternative purchaser.
It is clear that it is business as usual for the CMA. However, given that pre-notification may be longer than usual and there may be more ‘stopping of the clock’ by the CMA once the statutory merger review period commences, businesses should expect delays to the usual merger investigation processes during the COVID-19 crisis.
In the context of EU merger control, the European Commission (EC) is encouraging parties to ‘discuss the timing of notifications’ with the relevant case team, noting difficulties in collecting information from notifying parties and third parties. Nevertheless, the EC continues to process already filed merger notifications and has confirmed that it stands ready to deal with cases where the parties can show ‘very compelling reasons’ to proceed without delay.
If you would like to talk through the consequences for your business, please email us and one of our team will get in touch.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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