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Print articleM&A – Proposed new UK merger control regime
May, 2023 - Shoosmiths LLP
This comment addresses the proposed introduction of a mandatory reporting regime as a prior step to the current merger control regime in the UK.
Under the proposed rules, a purchaser that has been identified by the UK's Competition and Markets Authority (CMA) as having a strategic market status (so a SMS Purchaser), who agrees to acquire shares in a ‘UK-connected body’ the value of which is at least £25 million, must report the transaction to the CMA if this results in holding 15% or more of the shareholding (with reporting also required as the shareholding passes certain levels). At least two important points arise.
First, the definition of a ‘UK-connected body’ includes the acquisition of a UK company and any foreign company that supplies goods or services to an entity in the UK. Consequently, the acquisition, for example, by a US SMS Purchaser of a German company that has sales into the UK would be potentially caught by the proposed new law.
Second, the proposed regime requires mandatory reporting to the CMA of the transaction prior to the transaction being completed. The waiting period is very short, five working days from confirmation by the CMA that the submitted report is accepted by the authority as being sufficient. The CMA’s response to the submitted report, once it has confirmed the report is sufficient which it should do within five working days of submission, would be either (i) no response, (ii) consent that the transaction can be completed, or (iii) intervention, formally or informally. In relation to no response, this can be expected to be the case for all transactions that on their face present no possible competition issues. In relation to consent, this response would only likely occur because of the special circumstance where insolvency of the target entity was imminent and closure of the transaction was necessary within a very short period of time. In relation to intervention, this would be as a result of the report and could either be by the CMA identifying that it wished the parties entered into an undertaking not to complete the transaction or the CMA issuing an order not to complete, until the CMA has undertaken a preliminary investigation under the normal merger control regime.
The competition issues arising from some transactions are debatable and under the current merger control regime a purchaser may decide to complete a transaction on the basis that the CMA would be unaware of the transaction occurring and, even if subsequently aware, unlikely to pursue a merger investigation. Under the proposed new regime, the CMA will be aware of such transactions due to the reporting obligation. While the details of what information should be reported is not yet known, it is likely that the report would include argumentation as to why there are no competition issues. By definition, this (a) raises the issue before the authority, and (b) enables the authority to be more interventionist. The latter point, for example, will be relevant for those that wish to complain about a transaction, because under the proposed rules they can be certain the authority will, in any event, receive a report from the purchaser about the proposed transaction.
A question for a potential SMS Purchaser is whether the proposed new regime should accelerate current transaction plans. In cases, as mentioned above, where the competition issues are in the ‘grey’ area, the response would seem to be ‘yes’, such a purchaser should accelerate the transaction if it wants to avoid the foreseen mandatory reporting regime and its consequences. The most recent CMA decision to block the proposed acquisition of Activision Blizzard by Microsoft likely complicates consideration of accelerating a transaction timetable.
https://www.ft.com/content/c1e1c11c-ad58-4d03-88be-cbdf49120cfa#post-90e00e65-b447-4037-9185-e6259e5cd4de
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