UK M&A - The CMA's Recent Proposed Updates to Merger Control Guidance and Procedure
In preparation for the end of the Brexit transition period, the CMA has recently released two consultations inviting comments on proposed updates to its merger control guidance and procedures. On 17 November 2020, the CMA released draft updates to its Merger Assessment Guidelines, which contain the CMA’s substantive approach to the assessment of transactions. On 6 November 2020, the CMA proposed changes to its guidance on Jurisdiction and Procedure and the CMA’s Mergers Intelligence Function.
These updates reflect the CMA’s most recent case precedents including high-profile prohibitions. Such decisions confirm the significant degree of discretion the CMA enjoys over issues of jurisdiction and substantive assessment, whilst also signalling an increasingly interventionist approach.
Against this background, the new draft guidance focuses on how the CMA intends to respond to novel antitrust issues raised in digital and platform markets. It also clarifies the CMA’s approach to the application of the share of supply test, which is often regarded as a particularly flexible jurisdictional tool.
Consultation on the draft Merger Assessment Guidelines is open for comment until 8 January 2021. With the aim of concluding its review by the end of the Brexit transition period, the CMA’s consultation on Jurisdiction and Procedure, and the Mergers Intelligence Function is open for comment until 4 December 2020.
HOW IS THE CMA PROPOSING TO UPDATE ITS PRACTICES IN RELATION TO THE SUBSTANTIVE ASSESSMENT OF MERGERS?
Many of the updates concern digital markets in response to the recommendations set out in the Furman and Lear reports of 2019 on this topic. For example, the Furman report recommended that:
“…assessment should be able to test whether a merger is expected to be on balance beneficial or harmful, taking into account the scale of impacts as well as their likelihood. This change would move these merger decisions to a more economically rational basis, and allow big impacts with a credible and plausible prospect of occurring – critical in digital markets – to be taken properly into account.”
Accordingly, some of the key proposed changes to the CMA’s Merger Assessment Guidelines involve:
- Inclusion of a list of scenarios which may be considered as giving rise to a substantial lessening of competition (‘SLC’), e.g., where the level or pace of future innovation is under threat; or the merger involves firms at different levels of a supply chain which may lead to the foreclosure of an important rival.
- Additional clarity on how the CMA assesses evidence: including a greater willingness to accept more uncertainty in the counterfactual, particularly in dynamic digital markets where future plans are more likely to change in response to unforeseen market events.
- Additional detail on the CMA’s assessment of two-sided platforms: the CMA may consider each side separately, or incorporate both sides in one assessment. Ultimately, the CMA’s approach will depend on factors such as the competitive conditions on both sides; the strength of indirect network effects in both directions (whether the value of the product for customers on one side depends on the volume of users on the other side); and whether such network effects are likely to increase the risk of ‘tipping’ (shortening the period of time that platforms compete to be the winning platform).
- Additional detail on the CMA’s assessment of potential competition and innovation, including assessment of the loss of future competition and dynamic competition.
- Additional clarity regarding the CMA’s approach to market definition as an analytical tool: the CMA proposes to take a more simple approach to market definition, appreciating that this is not an end in itself. The CMA also recognises that competitive assessments tend to capture competitive dynamics sufficiently.
WHAT PROCEDURAL CHANGES IS THE CMA PROPOSING TO INTRODUCE?
The CMA’s proposed procedural updates reflect its more recent decisional practice and its desire for continued cooperation with international merger control authorities post-Brexit. For example:
- Share of supply and the CMA’s jurisdiction: whether the parties hold a 25% combined share of supply in the UK represents one of the ways in which the CMA’s jurisdiction to review can be triggered.
The CMA has now gone further in its acknowledgement of the broad scope of this jurisdictional test. It notes that “competitive interactions between firms may not be reduced to overlaps in directly-marketed products or services but can result, for example, from overlaps involving pipeline products or services, or where there are sufficient elements of common functionality between the merger parties’ activities, amongst other factors.”
This serves as a helpful reminder to merging parties not to base their assessment of the parties’ share of supply on a traditional economic approach to market definition.
- “Fast-track” review and conceding an SLC: the CMA has clarified its guidance on the two main purposes for which a case can be fast-tracked at Phase 1, namely, to proceed more quickly to offer remedies (with the objective of achieving a Phase 1 clearance with remedies); or proceeding to an in-depth Phase 2 investigation. Importantly, the CMA no longer intends to specify that cases may only be fast-tracked “exceptionally”.
The parties may also concede the existence of an SLC in certain markets in a Phase 2 investigation (but must formally waive their right to challenge this position during the CMA’s review).
The CMA may, however, decline to accept that concession where this would not align with the substantive assessment of the case (either because material uncertainty remains about the nature and scope of competitive concerns, or where this would not be appropriate for the assessment of possible remedies). The CMA will also consider whether such a concession would in any way affect the ability of the CMA to align its investigation with those in other jurisdictions.
RELATIONSHIP WITH OTHER MERGER CONTROL AUTHORITIES
UK merger control is voluntary, but the CMA maintains an active Mergers Intelligence Function to monitor market activity and any possible investigations it might wish to launch.
The draft Mergers Intelligence Guidance clarifies that the CMA may take into account merger control proceedings in other jurisdictions when reviewing a transaction, or when deciding whether to open an own-initiative investigation. It goes without saying that the CMA will take a keen interest in transactions affecting UK markets unless it can be sure that any remedies imposed in other reviews will address sufficiently any competition concerns that might arise in the UK. The CMA welcomes early engagement from merging parties on the progress of other investigations, including confidentiality waivers to allow the CMA and relevant competition authorities to discuss their respective processes.
COMMENT AND NEXT STEPS
By formally acknowledging the approach taken in recent cases in which novel issues have arisen, the CMA hopes to better reflect market realities on how businesses now compete, the influence of the rise in digital technologies, and its own case precedents. That can only assist merging parties in their discussions with the authority and the preparation of UK and international merger control strategies. At the same time, the proposed updates seek to embed the significant degree of discretion enjoyed by the CMA over issues of jurisdiction and substantive assessment, and which may serve to limit the scope for successful judicial challenges to the exercise of its powers.
The proposed updates also serve as a timely statement of the CMA’s intention to continue cooperating with international merger control agencies following Brexit, even in the absence of a formal cooperation agreement, and to the extent permitted by the parties’ confidentiality waivers.
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