The deadline for the UK government to make a request to extend the Brexit transition period under the Withdrawal Agreement has now passed. While it may technically be possible for an alternative form of extension to be negotiated later in the year, this would give rise to significant legal and practical issues and would involve agreement on a continuing UK contribution to the EU budget. It is therefore prudent for businesses to assume that the transition period will end on 31 December 2020 (Completion Day).
The interface between the EU and UK merger control regimes may therefore present businesses with some challenges in the coming months. This update (i) outlines the transitional arrangements for 'live' EU merger investigations at the end of the year; and (ii) examines the practical impact of these arrangements on transaction planning.
The transition period
During the transition period, the jurisdiction of the European Commission (Commission) and the UK Competition and Markets Authority (CMA) over notifiable mergers and acquisitions remains unchanged, with the EU one-stop-shop principle continuing to apply in relation to the United Kingdom. The relevant UK turnover of merging parties will therefore need to be taken into account when establishing whether a transaction satisfies the EU Merger Regulation (EUMR) jurisdictional thresholds. Where this is the case, the Commission will retain exclusive jurisdiction over that merger, including with respect to any effects in the United Kingdom. The CMA will not open an investigation unless jurisdiction is transferred under the referral request mechanisms set out in the EUMR.
At the end of the transition period (Completion Day), there will be a number of 'live' merger cases which are still under review by the Commission but where a final decision has not yet been taken. The Commission will retain exclusive jurisdiction over these cases if the date of notification falls before Completion Day (or if the Commission has accepted a referral request). Where the Commission retains jurisdiction, it will also continue to be responsible for monitoring and enforcing any commitments accepted by the merging parties, unless it agrees to transfer responsibility to the CMA.
However, the Commission will not retain jurisdiction over transactions which have not been formally notified at that time, even where pre-notification discussions are already underway.
The CMA will therefore monitor the Commission's cases towards the end of the transition period and may approach parties (or third parties) to request information about a merger which is in the pre-notification phase and which may fall within the United Kingdom's jurisdiction. It may also conduct its own preliminary analysis of the issues raised in advance of opening a formal investigation.
After Completion Day, mergers will no longer be subject to the one-stop-shop principle in relation to the United Kingdom. EU merger control will still apply to UK companies engaging in transactions which satisfy the EUMR jurisdictional thresholds based on the operations and turnover of the merging parties in the remaining EU Member States. Equally, the UK aspects of mergers being reviewed under the EUMR may qualify for investigation by the CMA. This means that parties may need to notify mergers to both the Commission and CMA after 31 December 2020. The two authorities will not necessarily be able to coordinate their investigations and/or reach a consistent outcome in these cases. The difference in timetables between the two regimes may also have an impact on transaction planning and costs.
In certain cases, the exclusion of UK turnover from the EUMR thresholds may affect whether or not a transaction has an EU dimension (assuming that the EUMR thresholds remain unchanged). More transactions may therefore fall outside the scope of the EUMR from January 2021.
Overall, it is expected that there will be a marked increase in notifications to the CMA, which has secured significant additional financial resources and will handle larger, more complex cases in the future.
- It will be important for businesses to engage with the CMA at an early stage if a planned merger is unlikely to be notified formally to the Commission by the end of the transition period and may raise potential competition concerns in the United Kingdom.
- The CMA is likely to be able to progress a case more efficiently if the merging parties are ready to share with the CMA information which they have previously shared with the Commission.
- If there is uncertainty over whether the CMA will obtain jurisdiction over a particular case, the CMA is recommending that the parties consider requesting an early referral of a case to it in order to clarify the situation.
- Businesses should also consider the potential impact of the jurisdictional issues outlined above on transaction planning and costs; it might, for example, make sense exceptionally to bring forward or delay a transaction in the light of the operation of the jurisdictional thresholds in the EUMR and potentially applicable national merger control rules.
- The ongoing Covid-19 crisis may mean that there are continuing delays to the formal notification and review of mergers in any event.
This note provides outline guidance only. For additional information, please contact David Harrison or Julian Ellison.