The European Antitrust Review 2015

United Kingdom: Merger Control

This article examines the significant institutional, procedural and enforcement changes to UK merger control that occurred on 1 April 2014, when the Enterprise and Regulatory Reform Act 2013 (ERRA 2013) entered into force. On that date, the Competition and Markets Authority (CMA) assumed the functions of the Competition Commission (CC) and the competition and some consumer protection functions of the Office of Fair Trading (OFT),1 including merger control under the Enterprise Act 2002 (EA 2002). It also reviews the principal OFT, CC and CMA decisions, and Competition Appeal Tribunal (CAT) and the Court of Appeal judgments, in merger cases between June 2013 and May 2014.

Overview of the last year of the OFT and CC’s work

The OFT reviewed fewer mergers than in previous years, with fewer own-initiative investigations into non-notified mergers.2 However, it reviewed many mergers raising competition concerns,3 referring eight to the CC.4 Three mergers were not referred, despite raising competition concerns, as the lessening of competition in small local markets was in each case de minimis.5 Divestment remedies (including an upfront buyer requirement) remain under consideration in Diageo/United Spirits.6 It substantially increased its use of interim measures, requiring businesses to be held separate whilst investigating completed mergers.7

The CC also remained active, with three notable prohibitions. Ryanair/Aer Lingus8 involved a minority shareholding acquired as part of ‘book building’ undertaken to support a public bid that was prohibited by the European Commission under the EU Merger Regulation (EUMR). Royal Bournemouth and Christchurch Hospitals/Poole Hospital9 was the first merger of National Health Service (NHS) hospitals reviewed by the CC. In Eurotunnel/SeaFrance10 it prohibited a merger already approved by the French Competition Authority;11 the CAT overturned this prohibition on jurisdictional grounds and remitted the merger to the CC.12

In Imerys/Goonvean,13Cineworld/City Screen14 and Global Radio/GMG,15 the CC required remedies. It accepted price controls in Imerys, but rejected behavioural remedies in Cineworld, Ryanair and Eurotunnel. It approved eight mergers unconditionally; one, Optimax/Ultralase,16 on the basis of the ‘failing firm’ defence and one, Ericsson/Creative,17 by majority decision.

Overview of judicial activity in 2013/2014

In a number of important judgments, the CAT and Court of Appeal have provided guidance on jurisdiction, procedure, substantive assessment and remedies.

In Akzo Nobel,18 the Court of Appeal upheld the Akzo Nobel/Metlac prohibition,19 confirming that a ‘foreign-to-foreign’ merger can be prohibited if the acquirer carries on business in the UK through strategic and operational management of UK subsidiaries.

In Ryanair, 20 the CAT upheld the Ryanair/Aer Lingus prohibition: the CC’s finding of a substantial lessening of competition (SLC) was supported by sufficient evidence, even if some of the mechanisms by which the CC considered an SLC might have arisen were not certain to occur. In further assessing the interrelationship between UK and EU merger law,21 it held the CC’s duty of sincere cooperation with the European Commission did not prevent it from prohibiting Ryanair’s acquisition of a minority shareholding in Aer Lingus (and requiring its reduction to not more than 5 per cent) even though Ryanair had appealed the Commission’s prohibition, under the EUMR, of its proposed acquisition of Ryanair. It also confirmed that the CC is not required to provide full access to confidential evidence, provided the ‘gist’ is provided.22

The CAT also upheld the CC’s SLC finding in Global Radio/GMG and provided guidance on interpreting the term ‘substantial lessening of competition’.23 Although it overturned, on a narrow jurisdictional point, the Eurotunnel/SeaFrance prohibition (the CC having failed to consider properly whether the transaction was in fact a merger), it rejected challenges to the CC’s SLC finding and the remedies it imposed.24

Looking to the future: the CMA

The CMA’s Annual Plan25 and Prioritisation Principles26 set out how it will exercise its functions, including in the field of merger control.

It will continue a high level of merger enforcement, prohibiting anti-competitive mergers and identifying and investigating non-notified mergers that may harm competition. It required remedies in its first Phase II decision, Breedon/Aggregate Industries,27 and subsequently prohibited, on remittal from the CAT, the Eurotunnel/SeaFrance merger for a second time.28

The CMA will use its new enforcement powers to prevent or reverse integration steps taken by merging parties that may make it difficult or impossible to impose effective remedies. Indeed, on its first day, it imposed interim measures requiring merging businesses to be held separate,29 subsequently using them on several further occasions. The CMA will also exercise its new investigation and enforcement powers and, where appropriate, impose financial penalties for non-compliance.

The CMA has published new guidance on jurisdiction and procedure (the CMA Mergers Guidance)30 and the assessment of mergers in the water31and rail32 sectors, as well as new procedural rules.33 It has also adopted pre-existing OFT and CC guidelines on substantive assessment,34 remedies,35 decisions to open Phase II reviews36 and the assessment of health-care mergers,37 as well as ‘best practice’ guidance on economic analysis38 and consumer survey evidence.39 As much of this guidance is now several years old, the CMA will likely issue new and revised guidance of its own, reflecting current law and practice.40 All new and adopted guidance, and other materials on merger control, are published on the CMA’s website.41

Revised Phase I procedures

The ERRA 2013 made significant changes to Phase I procedures,42 enhancing certainty, transparency and procedural fairness. However, they also demonstrate the importance of pre-notification discussions with the CMA, particularly in complex cases, to ensure a smooth Phase I process and reduce the risk of a Phase II investigation.

First, the CMA must complete Phase I reviews within 40 business days of receiving sufficient information from the parties, whether or not a merger is notified voluntarily.43 The CMA will declare notifications incomplete if insufficient information is provided and will ‘stop the clock’ if information requests are not satisfied. However, it will not readily use its evidence gathering powers to artificially stop the clock to extend Phase I.

Second, mergers must be notified using a standard merger notice form;44 parties can no longer notify using an ‘informal submission’. Detailed market information is required on horizontal overlaps (if market shares exceed 15 per cent) and vertical relationships or conglomerate effects (if market shares exceed 25 per cent). The form also requires the submission of internal documents relating to the transaction and their assessment of competitive conditions on relevant markets. Evidence to support ‘failing firm’ or efficiencies claims should be set out in the notification. The CMA will be flexible as to the information required and may grant waivers in a particular case.

Third, in cases raising competition issues (such that a Phase II review is possible), parties will have greater access, and be able to make representations at an ‘issues meeting’, to the CMA’s Phase I decision-maker, who is a senior CMA official and not a member of the Phase I case team.

Finally, a new Phase I remedies procedure will apply, with ‘undertakings in lieu’ (UILs) being considered after the CMA has decided to open a Phase II review.45 UILs must be offered within five working days of the CMA’s decision, using a new Merger Remedies Form.46 The CMA has a five further working days to decide in principle whether to accept the offered UILs; detailed analysis and consultation then follows before the CMA finally accepts the UILs, if necessary with modifications. This new process enables parties to understand the CMA’s competition analysis before formally proposing and agreeing remedies, facilitating better targeted remedies. This may result in more mergers raising competition concerns being cleared in Phase I.

Enhanced CMA investigation and enforcement powers

The CMA has a number of new Phase I investigation and enforcement powers.

It can compel merging parties and third parties to provide information and documents. The CMA can extend its review timetable if a merging party fails to comply with a formal notice to provide information. Financial penalties can be imposed for non-compliance, providing false or misleading information and destroying documents.47

As notification remains voluntary, many mergers will be completed before being investigated by the CMA. The CMA has new powers to adopt interim enforcement orders to prevent – and, where appropriate, unwind – integration of businesses pending completion of its investigation.48 Penalties of up to 5 per cent of turnover may be imposed for non-compliance with enforcement orders.

In completed mergers, the CMA will routinely require merged businesses to be held separate. It has used its new powers on several occasions, requiring the parties to hold businesses separate,49 and to appoint monitoring trustees50 and hold-separate managers.51 However, it has shown flexibility by granting derogations from, where justified,52 and releasing hold-separate obligations if they cause ‘disproportionate harm’.53 The CMA has yet to require existing integration steps to be unwound and is likely to do so only if such steps would prejudice the implementation of remedies if an SLC were to be found.

CAT consideration of merger investigation procedures

In Ryanair54 and Eurotunnel,55 the CAT dismissed challenges to the CC’s (and now the CMA’s) merger review procedures, particularly arrangements for ‘access to file’ by merging parties and other interested parties.

In Eurotunnel, the CAT confirmed that the CC must act fairly and respect the European Convention on Human Rights, but rejected generalised assertions that its procedures generally breached the rules of natural justice.

In both judgments, the CAT held that the CC could legitimately withhold access to confidential information of third parties (particularly competitors), including the identities of those providing confidential evidence. It was sufficient for the CC to provide the merging parties or other interested parties56 with sufficient ‘gist’ of confidential information to enable them to understand the CC’s case and to make representations (including their own economic analyses) before the CC took its final decision. The CC could therefore provide redacted, non-confidential copies of evidence, and its own analyses, working papers and provisional findings; it was not obliged to establish confidentiality rings or data rooms.

Jurisdiction: what is a merger?

The CMA has jurisdiction to investigate ‘relevant merger situations’, which exist where two or more enterprises cease to be distinct and the jurisdictional thresholds are met.57

The concept of an ‘enterprise’ is broad.58 In Eurotunnel,59 the CAT held that an ‘enterprise’ is more than a collection of bare assets and must constitute the activities of a business (ie, a combination of assets and other inputs that are combined into outputs that are provided for gain or reward).60 The CC had not considered this distinction in concluding that three ferries formerly operated by SeaFrance (together with brands, domain names, IT systems, customer lists and goodwill) constituted an ‘enterprise’, particularly as SeaFrance was insolvent, had ceased trading and had not operated the vessels for over seven months. As the CC had not correctly established its jurisdiction to review the transaction, the CAT quashed the prohibition decision in Eurotunnel/SeaFrance. Upon remittal, the CMA again concluded that Eurotunnel had acquired an enterprise, by acquiring the essential activities of, and being able to quickly and easily recommence, a cross-Channel ferry business that was substantially the same as that formerly operated by SeaFrance.61

In EMR/Sita, leases to metal recycling sites were found to constitute an enterprise despite the sites having been closed, employees being under notice of redundancy and no customer or supplier contracts being transferred: the purchaser viewed the transaction as the acquisition of a going concern, goodwill was transferred to it and it had reactivated the sites quickly.62 In Adams Foods, goodwill, intellectual property, stock and employees constituted an enterprise, even though no manufacturing or other assets were acquired.63 The award of contracts to manage a major live entertainment venue64 and to extract and sell coal from a number of coal mines65 were also found to constitute enterprises; however, a sub-charter of ferries and crew66 and a portfolio of motorway service stations freeholds67 did not.

Enterprises ‘cease to be distinct’ by coming under common control. The EA 2002 identifies three levels of control: a majority shareholding (legal control); control of the policy of an enterprise (de facto control); and the ability to influence the policy of an enterprise (material influence).68

A change in the nature of control of an enterprise amounts to a merger: in Arriva/Centrebus, Arriva bought out its joint venture partners, thereby going from having material influence to sole control.69

While many joint ventures combining existing businesses involve at least some partners acquiring material influence over the joint venture, as in Tradebe/Sita,70 this will not be the case if key business decisions are taken by majority vote and none of the partners have veto rights.71 However, where the partners do have veto rights, or unanimity is required, over strategic issues (including the business plan), this will confer material influence.72

In Ryanair/Aer Lingus, the CC found that Ryanair’s minority shareholding in Aer Lingus enabled it to exercise material influence by enabling it to block special resolutions and the sale of Aer Lingus’s (valuable) Heathrow slots, thereby influencing Aer Lingus’s commercial strategy.73 In Diageo/United Spirits, a 25 per cent shareholding combined with a shareholders agreement requiring another shareholder to vote as directed by Diageo (thus giving Diageo a 36 per cent voting interest) and various board rights (including appointing key executive directors and a majority of non-executive directors) amounted to at least material influence over United Spirits.74

Application of the SLC test by the OFT, CC and CMA

Under the EA 2002, the UK authorities apply a substantial lessening of competition test when assessing mergers’ competitive effects. In Global Radio, the CAT provided guidance on the meaning of ‘substantial’. It held that it is not necessary to demonstrate that the SLC arising from the merger is ‘large’, ‘considerable’ or ‘weighty’ in absolute terms, but merely of such importance, in the context of the relevant market under consideration, to justify intervention.75 Accordingly, it upheld an SLC finding, in Global Media/GMG, limited to certain customer groups in seven local areas.

The UK authorities’ principal focus has remained on unilateral effects, particularly the ‘closeness’ of competition between the parties, although other theories of harm were assessed in specific cases. Where appropriate, economic techniques were used to determine if an SLC was likely to result from the merger, including upward pricing pressure analysis (to determine if post-merger price rises were likely)76 and analysis of retailer scanner data (to determine if the parties imposed a competitive constraint on each other and were thus close competitors).77

This often required undertaking a competitive assessment in narrow product or geographic markets, including:

  • bus services in specific towns, cities or areas;78
  • grades of kaolin for specific uses or applications;79
  • the supply of a specific isotope used in medical scans in hospitals in the south of England;80/li>
  • the provision of waste treatment and recycling services in local areas;81
  • the supply of aggregates, ready-mix concrete and asphalt in parts northern Scotland;82
  • cinemas in certain towns;83
  • acute NHS general hospitals in a conurbation in southern England;84
  • motor vehicle retailing and servicing in specific towns.85

In some cases, the effects of a merger were considered separately for different customer groups,86 different segments of an industry or product87 and for branded and unbranded products.88

In Ryanair/Aer Lingus, the CC found that Ryanair’s minority shareholding led to an SLC, even though the two airlines had continued to compete strongly post-acquisition. It found that Ryanair was able to influence Aer Lingus’s strategy and thereby reduce its effectiveness as a competitor, including through preventing it from combining with another airline (so limiting its ability to reduce costs and achieve synergies), issuing shares to raise capital and managing its portfolio of valuable Heathrow slots.89 The CAT upheld the SLC finding and the consequent prohibition of the merger.90

In Eurotunnel/SeaFrance, the CC was concerned that Eurotunnel’s acquisition of three former SeaFrance ferries and other assets was intended to prevent a smaller competitor, DFDS, acquiring those assets and becoming a more effective competitor. The merger was therefore likely to lead to DFDS (which was loss-making) exiting the Dover/Calais route, allowing both Eurotunnel and the remaining ferry operators to increase prices for passenger and freight customers.91 This substantive finding was upheld by the CAT, but the decision was quashed on jurisdictional grounds.92 On remittal, the CMA again prohibited this merger.93

In Bournemouth and Christchurch Hospitals, its first consideration of a merger of NHS hospitals, the CC had to consider how a merger affects non-price competition.94 The hospitals were each other’s closest geographical competitor and overlapped in many acute elective, non-elective and outpatient services. The merger reduced patient and doctor choice and the hospitals’ incentives to compete and to improve service quality. As it did not lead to patient benefits (from reconfiguring services) across all affected clinical areas, the merger therefore led to an SLC and was prohibited. The CMA did, however, approve another merger of district general hospitals (as several other strongly performing hospitals in each area ensured that patients and commissioning bodies would continue to have sufficient choice for all services)95 and a joint venture between London hospitals to combine their pathology services (given sufficient alternative providers).96

In Cineworld/City Screen, GUPPI and diversion ratio analyses showed that the merger would result in higher ticket prices, and thus an SLC, in Aberdeen, Cambridge and Bury St Edmunds. Such effects were not identified in other areas, as other cinemas imposed a greater competitive constraint and were more attractive to consumers.97

Imerys/Goonvean concerned a merger of the UK’s two main suppliers of kaolin.98 However, for most applications, there was no or very limited competition between the parties, given different physical characteristics of their kaolin and Goonvean’s lack of processing equipment and limited remaining deposits. An SLC was identified for a small number of applications for which the parties were the only suppliers and did compete, such that post-merger price rises were likely. The CC rejected Imerys’s efficiencies claims: there was no evidence that synergies would be rivalry-enhancing and its business plan assumed it would retain all synergies as additional profit.

In Breedon, the CMA found that the parties were close competitors and faced insufficient competitive constraints in three catchment areas for asphalt (in Aberdeen and Inverness) and ready-mix concrete (in Peterhead). The SLC in Inverness was limited in time, as the acquired plant was expected to close by 2018, when its lease expired. In other areas, the parties either did not overlap or faced effective competition from other rivals; in some areas, an SLC was discounted because rivals’ planned entry or expansion would mitigate the merger’s effects on competition.99

Ericsson/Creative concerned bidding markets for playout services provided to broadcasters under long-term contracts. The CC concluded (by a majority) that although the parties were the principal suppliers of playout services (and were the closest competitors for some tenders), other suppliers would continue to pose a credible competitive constraint.100

In both Barr/Britvic101 and Tradebe/Sita,102 the CC cleared ‘3 to 2’ mergers; in each case, the parties were not close competitors and the merger enabled the merged entity to compete more effectively with a larger supplier, thus benefitting customers.

In Barr/Britvic, the CC’s analyses showed that the parties imposed only a weak constraint on each other and diversion between their brands was limited. Price increases were therefore unlikely. Coca-Cola remained the largest supplier of carbonated soft drinks and would continue to impose a competitive constraint and retailers had buyer power.

In Tradebe/Sita, the CC found that transaction-related and rivalry-enhancing efficiencies would reduce the parties’ costs and make the joint venture a more effective competitor to the market leader. As a result, both the joint venture and its competitors would make lower-priced bids to win contracts. In Phase I, the OFT had been unable to approve the transaction on the basis of efficiencies, as the parties had provided insufficient evidence.103

In AEG/Wembley, an SLC was not identified despite the two largest live indoor entertainment venues in London coming under common control, as there was limited price competition between the venues: venue choice was not determined by price and price negotiations took place only once a venue had been booked. It was also unlikely that the venues would reduce non-price aspects of competition.104

In Diageo, the OFT identified an SLC in the whisky sector as a result of unilateral effects arising from the parties being close competitors and having a combined market share of up to 50 per cent. This was demonstrated through analysis of internal documents, economic analysis of retailer scanner data and competitors’ lack of spare capacity.105 However, using the same analyses, the OFT did not identify similar concerns in respect of vodka, despite a combined share of over 50 per cent, due to a limited overlap and there remaining sufficient alternative brands, such that diversion between the parties’ brands was limited.

The OFT and CMA were able to approve, in Phase I, other mergers, despite high market shares and market concentration levels, due to limited pre-merger competition and the existence of credible alternative suppliers.

In Lafarge Tarmac/Tarmac Building Products, high market shares of over 50 per cent for some products (such as screed and packed cement) were not problematic: the overlaps were limited and there were sufficient competitors with substantial spare capacity. Vertical concerns were also discounted: many competitors were vertically integrated and had excess capacity. As customers used the input product (cement) to make various downstream products (only one of which, mortar, could potentially be foreclosed), a foreclosure strategy would have been difficult to implement and unprofitable, given potentially substantial losses of upstream sales of cement and limited increases in downstream sales of mortar.106

In Boparan/Vion, there was no risk of an SLC despite shares of over 50 per cent for fresh chicken. Bidding data and internal documents confirmed that the merged entity would face competitive constraints when new contracts were tendered, particularly as retailers could and did split their contracts between several suppliers.107 Similarly, in Adams/First Milk, the parties were not close competitors and there remained strong and credible competitors with sufficient spare capacity.108

In Mueller/KME, very high shares of supply in the UK (over 90 per cent) were not problematic: the market for copper tubes was EEA-wide and the parties had lower shares and faced significant competition in the EEA. Coordinated effects were unlikely: prices were negotiated bilaterally, such that there was insufficient transparency (previous coordination had required an illegal cartel, in which both parties had participated) and demand for copper tubes was in decline (creating incentives to increase sales by cheating).109 Possible coordination by geographic segmentation of bus services in different parts of Manchester was discounted in First Manchester/Finglands.110

The OFT cleared a ‘3 to 2’ merger of suppliers of retail measurement services (for continuous tracking of product sales to consumers, using retail point-of-sale information), as the merged entity remained smaller than the largest supplier and competition between the parties for customer contracts was limited.111

Failing firm defence

In Optimax/Ultralase, the CC applied the failing-firm defence to approve a merger creating a duopoly between national providers of laser eye surgery, as the merger did not result in a less competitive outcome than Ultralase’s failure and exit.112 It was satisfied that Ultralase would have failed financially (having breached its banking facilities) and there was no other credible purchaser. The CC’s econometric analysis showed that, had Ultralase simply exited the market, its sales would have been distributed between Optimax and Optical Express (the other national provider) in the same manner as had resulted from the merger (which the CC could observe, as the merger had been completed and thereby provided a ‘natural experiment’). Therefore, no SLC arose as a result of the merger.

The OFT and CMA refused to apply the defence in several Phase I decisions. While the parties had generally demonstrated that the target business (and, in one case, also the purchaser’s business)113 was loss-making, insolvent or had negative net value, they had generally failed, to demonstrate, with appropriate evidence – such as strategic documents and board decisions – that exit was inevitable due to a final decision on closure having been taken114 and no further restructuring being possible.115 The OFT also refused to apply the defence if a closure decision could have been reversed, for example by winning new customers.116 Even where a strategic decision had been taken to close a business, the OFT did not accept the defence due to there being potential alternative purchasers,117 even if they were unwilling to meet the seller’s asking price.118

Merger remedies

In Phase I, instead of opening a Phase II review, the CMA can accept UILs offered by the merging parties; however, it cannot impose them.

UILs were offered in Diageo/United Spirits119 to resolve concerns of an SLC in certain blended whisky markets. Diageo agreed to divest United Spirits’s Whyte & Mackay branded and private label whisky business. The OFT required an up-front buyer as it was concerned about the existence of suitable buyers: it would accept UILs (and not refer the merger for a Phase II review) only if a provisional sale had first been concluded with an acceptable purchaser.120

In Phase II, if the CMA concludes that a merger will result in an SLC, it can – as alternative to prohibition – impose remedies to restore competition. If it prohibits a completed merger, it must also impose remedies, potentially including its partial or complete unwinding.

The CC (and now CMA) has a wide margin of appreciation in selecting remedies, which should be a comprehensive and effective solution to the SLC identified by it.121This is a high standard; in Ryanair, the CAT confirmed that the CMA is not limited to imposing lesser remedies that would only ensure, on the balance of probabilities, that no SLC would occur.122 It also held that structural remedies are neither unreasonable nor disproportionate by reason of the parties incurring a substantial loss in a forced sale within the timetable set by the CC.123

In Akzo Nobel, the Court of Appeal confirmed that, notwithstanding considerations of international comity, the CC could prohibit a merger to be implemented outside the UK if the purchaser carried on business in the UK. It upheld a finding that, by exercising strategic control over, and implementing centralised operational management of, the businesses of its UK subsidiaries, Akzo Nobel (a Dutch company) was carrying on business in the UK even if not itself present in the UK.124 The CAT reached the same conclusion in Ryanair.125

In Ryanair/Aer Lingus, Royal Bournemouth and Christchurch Hospitals and Cineworld/City Screen, the CC rejected offers of behavioural remedies, as these did not mitigate or prevent the identified SLC, were complex to design and required ongoing monitoring.

In Ryanair/Aer Lingus, Ryanair had offered to limit the exercise of its shareholder rights in Aer Lingus. However, the CC required Ryanair to reduce its shareholding from nearly 30 per cent to a maximum of 5 per cent and also imposed, from the outset, the appointment of a divestiture trustee.126 The CAT upheld the CC’s approach.127

In Royal Bournemouth and Christchurch Hospitals, the parties’ offer to benchmark the merged hospitals’ performance against other hospitals was rejected. As well as, at best, only mitigating the SLC (a decline in service quality), this did not in fact protect patients from declines in service quality but would only enable such declines to be identified and potentially remedied. In the absence of effective remedies, the merger was prohibited.128

In Cineworld, the parties, local authorities and third parties proposed, as an alternative to divestment, increased supervision and regulation of the cinemas acquired by Cineworld, including price controls. However, the CC required divestment of a cinema in each area in which an SLC arose, with Cineworld able to choose which to divest.129

In Eurotunnel/SeaFrance, the CC was constrained in its selection of remedies. Eurotunnel had given undertakings to the French Commercial Court handling SeaFrance’s liquidation that it would not dispose of the ferries for five years. The CC ruled that, if Eurotunnel did not divest the two passenger ferries acquired by it, it would be prohibited from operating on cross-Channel routes from Dover (and not merely the Dover–Calais route) for 10 years; even if it did divest those ferries, it would still be prohibited from operating on those routes for two years.130 The CAT upheld the CC’s imposed remedies: these were proportionate and necessary to prevent Eurotunnel raising tariffs. In addition, it held that the CC had correctly not taken account of any adverse effect of the remedy on the workers cooperative that operated the ferries: by contracting with Eurotunnel, and not obtaining clearance before implementing the transaction, the cooperative had assumed the risk of this adverse outcome.131 On remittal, the CMA again imposed this remedy.132

Nevertheless, in both Imerys/Goonvean and Breedon, behavioural remedies were accepted by the CC and CMA respectively.

In Imerys, a price control for five years and applicable to existing customers was imposed.133 The CC had identified an SLC only for a very few specific applications of kaolin. Most of the parties’ production was exported and no SLC had been identified in respect of the majority of the parties’ UK sales. Full or partial divestment of Goonvean’s business and assets would therefore have been disproportionate, difficult to implement and prevented the generation of synergies in mining, refining and processing kaolin. The price control was therefore a proportionate remedy in these unusual circumstances.

In Breedon, the SLC in asphalt in Inverness would have ceased by 2018, when the acquired plant’s lease expired and was unlikely to be renewed. In these circumstances, divestment of either party’s asphalt plant in Inverness area was either unachievable or unreasonable. The CMA therefore imposed a price cap on both parties’ asphalt plants in the Inverness area (to prevent a risk of circumvention if it had been applied only to the acquired plant), regulating average prices by reference to a specified index over a rolling 12-month period. However, divestments of overlapping ready-mix concrete plants were required in both Aberdeen and Peterhead.134

Notes

  1. CMA, New competition authority to make markets work well for consumers, business and the economy (1 April 2014).
  2. In the year to 31 March 2014, the OFT reviewed 65 mergers (2012/2013: 100) of which 12 were non-notified transactions found not to qualify for investigation (2012/2013: 23): CMA Merger Statistics, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/309111/Merger_stats.pdf.
  3. The OFT convened case review meetings in 19 cases, ie, 36 per cent of those qualifying for investigation (2012/2013: 32 (42 per cent)): CMA Merger Statistics, supra, note 2. These meetings are held if a merger raises competition concerns such that a Phase II review is a possibility.
  4. Three of these mergers were approved subject to remedies, three were cleared and two remain under consideration. In 2013/2014, eight mergers (15 per cent) were referred to the CC (2012/2013:14 (14 per cent) : CMA Merger Statistics, supra, note 2.
  5. Diamond Bus/First Redditch & Kidderminster (OFT, 23 August 2013) (bus routes in Redditch); Lookers/Shields Land Rover (OFT, 9 December 2013) (Land Rover repair services in Glasgow); and Arriva/Centrebus (CMA, 6 May 2014) (bus routes in West Yorkshire).
  6. Diageo/United Spirits (OFT, 25 November 2013). The CMA has not yet accepted Diageo’s offered remedy, so could still open a Phase II investigation.
  7. Interim measures were used in 26 cases, ie, 49 per cent of those qualifying for investigation (2012/2013: 23 (23 per cent)): CMA Merger Statistics, supra, note 2.
  8. Ryanair/Aer Lingus (CC, 28 April 2013).
  9. Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust/Poole Hospital NHS Foundation Trust (CC, 17 October 2013).
  10. Eurotunnel/SeaFrance (CC, 6 June 2013).
  11. Autorité de la concurrence, The Autorité de la concurrence clears, subject to conditions, the acquisition of certain SeaFrance assets by the Eurotunnel group (8 November 2012).
  12. Groupe Eurotunnel and Société Coopérative de Production SeaFrance v Competition Commission [2013] CAT 30.
  13. Imerys/Goonvean (CC, 10 October 2013).
  14. Cineworld/City Screen (CC, 8 October 2013).
  15. Global Radio/GMG (CC, 21 May 2013).
  16. Optimax/Ultralase (CC, 20 November 2013).
  17. Telefonaktiebolaget LM Ericsson/Creative Broadcast Services (CC, 27 March 2014).
  18. Akzo Nobel v Competition Commission [2014] EWCA Civ 482, upholding Akzo Nobel v Competition Commission [2013] CAT 13. The CAT also upheld the CC’s substantive findings, including confirming that it was entitled to reach a different conclusion from the German competition authority, given differences in their investigations and the evidence before them; this was not appealed to the Court of Appeal.
  19. Akzo Nobel/Metlac (CC, 21 December 2012): see O’Regan and Shrimpling, United Kingdom: Merger Control, (2013) The European Antitrust Review 2014 p.298.
  20. Ryanair Holdings v Competition Commission [2014] CAT 3.
  21. The Court of Appeal had rejected two earlier challenges by Ryanair to the OFT’s and CC’s jurisdiction, also involving an assessment of this relationship: see O’Regan and Shrimpling, supra, note 19.
  22. The CAT granted Ryanair permission to appeal on both points: Ryanair v Competition and Markets Authority [2014] CAT 6.
  23. Global Radio Holdings v Competition Commission [2013] CAT 26.
  24. Groupe Eurotunnel, supra, note 12.
  25. CMA Annual Plan 2014/15 (CMA15; 1 April 2014).
  26. CMA Prioritisation Principles (CMA16; 1 April 2014).
  27. Breedon Aggregates/Aggregate Industries (CMA, 9 April 2014).
  28. Eurotunnel/SeaFrance (Remittal), final decision on remittal (jurisdiction) and material change of circumstances (CMA, 27 June 2014).
  29. Wolseley/Fusion Provida (CMA interim enforcement order, 1 April 2014).
  30. CMA, Mergers: Guidance on the CMA’s jurisdiction and procedure (CMA2; January 2014).
  31. CMA, Mergers of Water and Sewerage Undertakings in England and Wales: Explanatory Note (CMAsupp2; March 2014).
  32. CMA, Rail Franchises: Questions and answers (March 2014).
  33. CMA Rules of Procedure for Merger, Market and Special Reference Groups (CMA17; 28 March 2014).
  34. OFT and CC, Merger Assessment Guidelines (OFT1254, CC2(Revised); September 2010).
  35. Merger Remedies: Competition Commission Guidelines (CC8; November 2008).
  36. OFT, Mergers: Exceptions to the duty to refer and undertakings in lieu of reference guidance (OFT1122; December 2010).
  37. OFT, The OFT’s role in reviewing NHS mergers: FAQs (OFT1521).
  38. CC, Suggested best practice for submissions of technical economic analysis from parties to the Competition Commission (CC2com3).
  39. OFT and CC, Good practice in the design and presentation of consumer survey evidence in merger inquiries (OFT1230, CC2com1; March 2011).
  40. On 9 May 2014, the CMA announced a public consultation on new guidelines for assessing mergers involving providers of NHS services: CMA, NHS merger review guidance (9 May 2014).
  41. See https://www.gov.uk/government/collections/cma-mergers-guidance.
  42. CMA Mergers Guidance, supra, note 30, chapters 5 to 9.
  43. The Phase II review timetable remains unchanged, at 24 weeks, with one extension of up to eight weeks. On Phase II investigations, see CMA Mergers Guidance, supra, note 30, chapters 10 to 14.
  44. CMA Merger Notice (January 2014). See CMA Mergers Guidance, supra, note 30, chapter 6.
  45. CMA Mergers Guidance, supra, note 30, chapter 8.
  46. Remedies Form for Offers of Undertakings in Lieu of Reference (January 2014).
  47. CMA, Administrative penalties: Statement of policy on the CMA’s approach (CMA4, January 2014).
  48. CMA Mergers Guidance, supra, note 30, paras. 7.28 – 7.31. The CMA has published a template for interim orders: Template Initial Enforcement Order (Completed Merger) (January 2014).
  49. In Spire Healthcare/St Anthony’s Hospital, the CMA prohibited integration of the target with the purchaser’s business and any act that would impair either business from competing independently as a going concern under its own brand identity (CMA initial enforcement order, 23 May 2014).
  50. Noble Egg/Manton (CMA initial enforcement order, 7 May 2014 and directions, 28 May 2014).
  51. Alliance Medical/IBA Molecular (CMA directions, 9 May 2014).
  52. In Spire Healthcare/St Anthony’s Hospital, the CMA permitted steps in relation to employees, compliance with regulatory obligations applicable to hospitals and insurance and financial reporting obligations (CMA consent, 28 May 2014).
  53. CALA/Banner (CMA release of undertakings, 23 May 2014). The CMA justified the release by referring to the ‘current stage of its review’. Presumably, it was then minded to clear the merger, as it subsequently did (CMA, 18 June 2014).
  54. Ryanair, supra, note 20.
  55. Groupe Eurotunnel, supra, note 12.
  56. In Groupe Eurotunnel, the CAT considered that procedural fairness required disclosure of the CC’s remedies working paper to the workers’ cooperative that operated the ferries acquired by Eurotunnel. Although the cooperative was technically an interested party, the proposed remedies would have gravely affected its interests and disclosure was required so that it could make representations on the proposed remedies.
  57. There are two alternative thresholds: either the target’s UK turnover exceeds £70 million (the ‘turnover’ test) or the parties’ combined share of the supply of goods or services in the UK or a substantial part of it exceeds 25 per cent (the ‘share of supply’ test): CMA Mergers Guidance, supra, note 30, paras. 4.47 – 4.62. The share of supply test can be satisfied through imports: in Associated British Foods/GB Plange (OFT, 6 January 2014), the target had no UK assets (its manufacturing facility was in the Netherlands), but the share of supply test was satisfied through imports.
  58. CMA Mergers Guidance, supra, note 30, paras. 4.6 – 4.11.
  59. Eurotunnel/SeaFrance, supra, note 10.
  60. Groupe Eurotunnel, supra, note 12.
  61. Eurotunnel/SeaFrance (Remittal), supra, note 28.
  62. European Metal Recycling/Sita Metal Recycling (OFT, 7 March 2014).
  63. Adams Foods/First Milk Cheese (OFT, 3 February 2014) (the vendor continued to supply cheese to the purchaser under a long-term supply agreement).
  64. AEG/Wembley Arena (CC, 2 September 2013).
  65. Hargreaves/Scottish Coal Company (OFT, 30 October 2013).
  66. DFDS/NTEX/North Sea Ro-Ro (OFT, undated).
  67. Extra MSA/Serena Properties (OFT, undated).
  68. CMA Mergers Guidance, supra, note 30, paras. 4.12 – 4.30.
  69. Arriva/Centrebus, supra, note 5.
  70. Tradebe/Sita (CC, 29 March 2014): 75/25 shareholdings, but 25 per cent shareholder had board representation, so could influence JV’s commercial strategy and thus had material influence.
  71. Transforming Pathology Partnership Joint Venture (OFT, 27 March 2014). This conclusion was not altered by certain decisions requiring unanimity, as these concerned key shareholder rights and not strategic matters.
  72. UCL Hospitals/Royal Free London/Doctors Laboratory/Pathology Joint Venture (OFT, 8 November 2013).
  73. Ryanair/Aer Lingus, supra, note 8. This finding was not challenged before the CAT.
  74. Diageo/United Spirits, supra, note 6.
  75. Global Radio, supra, note 23.
  76. GUPPI analyses were used in Cineworld/City Screen, supra, note 14 and Eurotunnel/SeaFrance, supra, note 10.
  77. In Barr/Britvic (CC, 9 July 2013), the CC used a demand estimation model, using scanner data; the parties also relied on consumer surveys, although the CC had reservations about their methodology. In Diageo/United Distillers, supra, note 6, the OFT analysed consumer panel switching data, price promotion data, retailer scanner data and profit margins.
  78. Diamond Bus/First Redditch & Kidderminster, supra, note 5 (local routes in Redditch), Arriva/Centrebus, supra, note 6 (inter-urban routes in West Yorkshire), and First Manchester/Finglands (OFT, 27 January 2014) (local routes in south Manchester).
  79. Imerys/Goonvean, supra, note 13.
  80. Alliance Medical/IBA Molecular (OFT, 24 March 2014): there were no substitutable isotopes for fluorodeoxyglucose 18F and its very short half-life limited transport distances.
  81. Tradebe/Sita, supra, note 70 (50 to 75 mile radius of joint venture’s sites) and EMR/Sita, supra, note 62 (50km radius of acquired sites).
  82. Breedon/Aggregate Industries, supra, note 27.
  83. Cineworld/City Screen, supra, note 14.
  84. Royal Bournemouth and Christchurch Hospitals/Poole Hospital, supra, note 9.
  85. Lookers/Shields Land Rover, supra, note 5 (acquisition of Land Rover dealership in Glasgow) and Ridgeway/Parkview Skoda (OFT, 21 March 2014) (acquisition of Skoda dealership in Reading).
  86. Mueller/KME Yorkshire (OFT, 11 February 2014) (national merchants and independent merchants considered separately); Ericsson/Creative, supra, note 17 (each customer considered separately, due to individualised requirements); Diageo/United Spirits, supra, note 6 (on-trade and off-trade customers considered separately) and Boparan/Vion (OFT, 18 June 2013) (different customer channels for processed chicken, ie, retail, food processors and renderers, considered separately).
  87. EMR/Sita, supra, note 62 (different activities in scrap metal recycling considered separately); ABF/GB Plange, supra, note 57 (different bakery ingredients considered separately); Adams Foods/First Milk Cheese, supra, note 63 (cheddar considered separately from other cheeses); Diageo/United Spirits, supra, note 6 (grain and malt whisky considered separately, with further distinction between bulk and bottled whisky); and Boparan/Vion, supra, note 86 (cooked, uncooked and frozen chicken considered separately).
  88. Diageo/United Spirits, supra, note 6 (whisky and vodka) and Adams Foods/First Milk Cheese, supra, note 63 (cheddar cheese).
  89. Ryanair/Aer Lingus, supra, note 8.
  90. Ryanair, supra, note 20.
  91. Eurotunnel/SeaFrance, supra, note 10.
  92. Groupe Eurotunnel, supra, note 12.
  93. Eurotunnel/SeaFrance (Remittal), supra, note 28.
  94. Royal Bournemouth and Christchurch Hospitals/Poole Hospital, supra, note 9. NHS hospital treatment is free to patients.
  95. Frimley Park Hospital/Heatherwood and Wexham Park Hospitals (CMA, 14 May 2014).
  96. UCL Hospitals/Royal Free London/Doctors Laboratory/Pathology Joint Venture, supra, note 72.
  97. Cineworld/City Screen, supra, note 14.
  98. Imerys/Goonvean, supra, note 13.
  99. Breedon/Aggregate Industries, supra, note 27.
  100. Ericsson/Creative, supra, note 17.
  101. Barr/Britvic, supra, note 77.
  102. Tradebe/Sita, supra, note 70.
  103. Tradebe/Sita (OFT, 29 October 2013).
  104. AEG/Wembley Arena, supra, note 64.
  105. Diageo/United Spirits, supra, note 6.
  106. Lafarge Tarmac/Tarmac Building Products (CMA, 9 April 2014).
  107. Boparan/Vion, supra, note 86.
  108. Adams Foods/First Milk Cheese, supra, note 66.
  109. Mueller/KME, supra, note 92.
  110. First Manchester/Finglands, supra, note 78.
  111. Information Resources/Aztec (OFT, 13 December 2013). A competitor successfully challenged the decision not to open a Phase II investigation as the acquiring party had failed to provide certain material information to the OFT: AC Nielsen v Competition and Markets Authority [2014] CAT 8. The CMA will now undertake a further assessment of the merger.
  112. Optimax/Ultralase, supra, note 16.
  113. Diamond Bus/First Redditch & Kidderminster, supra, note 5 (although the buyer’s and target businesses were loss-making, no evidence that exit of either business was being considered let alone was inevitable).
  114. First Manchester/Finglands, supra, note 78 (although Finglands was insolvent after years of losses, no final closure decision had been taken).
  115. Lafarge Tarmac/Tarmac Building Products, supra, note 106 (no evidence that the target was unable to meet is financial obligations or that it could not be further restructured, and no internal documents to the contrary were produced); Ridgeway/Parkview Skoda, supra, note 85 (Parkview had negative net value and was loss-making, but there was no evidence of what restructuring was, or could have been, planned to avoid insolvency); and Alliance Medical/IBA Healthcare, supra, note 86 (despite the target having mothballed one plant, negative EBITDA and lost customer contracts, exit was unlikely, as there was scope for restructuring the business).
  116. Adams Foods/Milk Link Cheese, supra, note 63 (vendor had decided to exit and to close its site, having lost key customer contracts, but the site remained operational and the closure decision could have been reversed if new customers were won).
  117. EMR/Sita, supra, note 62 and Alliance Medical/IBA Healthcare, supra, note 80.
  118. BT/ESPN Global (OFT, 5 July 2013).
  119. Diageo/United Spirits, supra, note 5.
  120. As at 21 June 2014, the CMA had not accepted UILs from Diageo, so could still open a Phase II review.
  121. This was confirmed by the CAT in Global Radio (supra, note 23), Groupe Eurotunnel (supra, note 13) and Ryanair (supra, note 20).
  122. Ryanair, supra, note 20.
  123. Ibid.
  124. Akzo Nobel, supra, note 18. Had Akzo Nobel merely exercised shareholder rights in its subsidiaries and left the subsidiaries’ management to their directors, the outcome could have been different.
  125. In Ryanair, supra, note 20, the CAT held that the CC had correctly concluded that Ryanair Holdings (an Irish company and the ultimate parent company of the Ryanair group) carried on business in the UK as it and its main operating subsidiary (which had several UK operating bases, and was clearly itself carrying on business in the UK) had a common management.
  126. Ryanair/Aer Lingus, supra, note 8.
  127. Ryanair, supra, note 20.
  128. Royal Bournemouth and Christchurch Hospitals/Poole Hospital, supra, note 9.
  129. Cineworld/City Screen, supra, note 14.
  130. Eurotunnel/SeaFrance, supra, note 10.
  131. Groupe Eurotunnel, supra, note 12.
  132. See supra, note 28.
  133. Imerys/Goonvean, supra, note 13.
  134. Breedon/Aggregate Industries, supra, note 27.

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