Member Article

Considerable publicity and a sense of shock surrounded a judgment of the Competition Appeal Tribunal (CAT) published on 3 December in relation to a proposed merger of two companies involved in the supply of data systems to the NHS. The judgment focuses on how decisions are reached by the bodies responsible for UK merger control and, in particular, the degree of discretion given to the OFT to clear cases without ordering a full four month inquiry. It is of interest to all parties involved in the acquisition or disposal of UK businesses. Implications of the Decision The CAT decision is being referred to the Court of Appeal but pending the appeal we believe that the practical implications of the case include the following:- (1) It is now much more likely than before that the OFT will refer to the Competition Commission (CC) any UK merger which will give rise to a combined market share of over 50%. This is particularly the case where the parties involved in the proposed merger are competitors. (2) If there is a reasonable doubt that a merger may give rise to a substantial lessening of competition the OFT will be more likely than before to make a referral to the CC rather than taking a robust view and deciding not to refer. (3) The OFT’s role in acting as a “first screen” in a merger investigation must not pre-empt or be seen to pre-empt a fuller investigation by the CC in cases where it may be thought such an investigation may be justified. (4) The OFT may, particularly in cases where a merger may be regarded as potentially problematical, seek to make greater use of its powers to demand undertakings from the parties to limit the potentially harmful impact of the merger as a condition of deciding not to refer to the CC. For example, on 9 January, the OFT accepted pricing undertakings from IVAX in lieu of referring its acquisition of 3M’s asthma products distribution business to the CC. (5) In order to ensure transparency in its decisions the OFT will be likely to publish more detailed reasons for its decisions; we believe this may mean that a fuller review will be undertaken in some cases than might previously have been the case. (6) The OFT will be concerned to avoid the risk that interested third parties (including competitors or customers of the merging businesses) may seek to challenge a decision by applying to the courts for judicial review. This is a totally new development. For the business community this creates both concerns and opportunities. Concerns include: - the advent of a tighter UK merger regime limiting the freedom of companies to make acquisitions, particularly in complex sectors of the economy - the likelihood that the OFT will become more reluctant to provide confidential or informal guidance to businesses contemplating merger opportunities - a greater likelihood that any potentially contentious merger may be referred to the CC -- since the decision, the OFT has referred three deals to the CC – well above average for the period. - many parties will be reluctant to “fight” a full four month CC reference – so more deals may be aborted Opportunities, particularly for third parties opposed to a merger include: - a greater potential ability for third parties to challenge mergers of which they are critical, by presenting evidence to the OFT which may tip the balance and force a referral to the CC and/or to consider intervention by way of judicial review 2004 looks to be a year where M&A activity is revived. But, pending resolution of the dispute, it will also be a year in which a new air of caution will surround the review of possible merger opportunities in the UK. If you would like to discuss issues arising from this note please telephone one of the following members of our competition law team. Andrew Pickin: Direct Dial: 08700 865032 Direct Fax: 08700 865002 E-mail: [email protected] Peter Andrews: Direct Dial: 08700 865035 Direct Fax: 08700 865002 E-mail: [email protected]