Impact on M&A strategy
Important changes to the UK merger regime from 1 April 2014 will affect the planning and implementation of UK M&A transactions.
- A single regulator – the CMA: A single body, the Competition & Markets Authority, or CMA, will investigate mergers at both phase 1 and phase 2 – using separate teams for each phase. It will take over the powers of the Office of Fair Trading and Competition Commission, both of which will cease to exist.
- Hold separates immediately the CMA intervenes/is notified: A deal can still be completed without CMA clearance – and notification remains voluntary. However, if the CMA decides to investigate a deal, it can immediately require the buyer to suspend integration of the target and to unravel any integration steps (for example, exchanges of information) taken before the CMA intervened and to maintain these hold-separates until the outcome of the CMA's investigation. The CMA does not need to confirm in advance that it has jurisdiction over the deal before it exercises these powers and penalties of up to 5% of global group revenues can be imposed for failure to comply with the hold-separates. The CMA’s hold separate powers also apply where the parties have notified the CMA of deal and where they have not yet completed a deal.
- Updated notification process: If the parties decide to notify the CMA, they must use a prescribed-form Merger Notice, which is a revised version of the current merger notice. Notification fees, currently between £40,000 and £160,000, will not change, but payment will be required only on publication of the CMA’s merger decision.
- 40 working day phase 1 investigation: The CMA will have a statutory deadline of 40 working days within which to investigate a merger and decide whether to clear it or refer it to phase 2. This fixed deadline may make it more difficult for the parties to persuade the CMA to end pre-notification discussions and start the clock. (The deadline for a phase 2 investigation remains 6 months.)
- Longer time for negotiation of remedies to get the deal through: If the CMA’s phase 1 decision indicates an intention to refer the deal to phase 2, there will be a 50 working day period for the buyer to offer and negotiate remedies (extendable by 40 days for special reasons). The buyer may also offer remedies at an earlier stage in phase 1. If the CMA identifies competition concerns at phase 2, the period for negotiation of remedies is 12 weeks (extendable by 6 weeks for special reasons).
- New powers to require information: The CMA will have the power to compel the parties to the deal and third parties to provide information, in the form of documentation and witness interviews, to assist its investigation as soon as it intervenes in a deal and even before the 40-day phase 1 timetable starts. Failure to provide information can attract a lump-sum penalty of up to £30,000 or a daily penalty of up to £15,000.
What will not change:
- EU merger regime priority: The UK merger regime will apply only if the EU regime (with its higher financial thresholds) does not apply.
- Deals covered by the UK regime: Acquisitions of minority shareholdings as low as 15% are still covered, alongside mergers, acquisitions of full control or blocking rights, asset acquisitions and some joint ventures.
- Jurisdictional thresholds: The revenue and share of supply thresholds above which the UK regime applies remain the same.
- Test for assessing mergers: The “substantial lessening of competition” test used to determine whether a deal should be blocked or cleared will also remain the same.
- Limitation period: As under the existing regime, the CMA loses jurisdiction over a deal four-months after it has been completed, or, if later, publicly announced.
New CMA guidance
The CMA has issued new guidance on its new powers and procedures.
These reforms are likely to have significant implications for the parties to UK M&A. For example, the CMA's powers to impose hold separates may make it more difficult than in the past for a seller to require the buyer to take the competition risk of a transaction. In addition, “clean” teams and rooms and other anti-gun-jumping safeguards are likely to acquire a greater focus at an early stage.