On 27 February 2023, Sarah Cardell (Chief Executive of the Competition and Markets Authority, or the "CMA") delivered a speech addressing the CMA’s approach to merger control enforcement in the UK. In particular the speech, which sought to address recent criticism of what appears to be an increasingly expansionist and interventionist approach on the part of the CMA, provides commentary on a number of issues. This alert summaries some of the key points made by Ms Cardell, including comments on the CMA’s approach to the scope of its jurisdiction, the extent of its interventions, its approach to behavioural remedies, and views on international alignment in merger control outcomes.
CMA’s jurisdiction
Ms. Cardell noted that the CMA has naturally become more actively involved in the consideration of global deals post-Brexit, as the UK now has the ability to review international deals where previously it would have had to stand aside for the European Commission to investigate. For example, the CMA’s jurisdictional reach can include a deal between two non-UK companies that has its ‘centre of gravity’ outside of the UK because such a deal can still have a material effect on the UK market.
In this context, Ms. Cardell emphasised that the CMA only reviews those deals where there is an impact on UK markets, and that there has been no change of approach. Eluding to the flexibility that the share of supply test confers upon the CMA, and noting that this "goes hand in hand" with the voluntary nature of the UK merger control regime, Ms. Cardell stated that there are important mechanisms that enable merging parties to achieve certainty (namely, submitting a briefing paper to the Mergers Intelligence Committee (the "MIC")). Indeed, Ms. Cardell confirmed that there has been a "very substantial" increase in the number of briefing papers submitted to the MIC as parties seek certainty from the CMA, although she also noted that the increase in submissions has not led to an increase in the number of cases called in by the MIC (on average 13 cases in each of the past 5 years).
CMA’s approach to intervention
Ms. Cardell refuted recent suggestions that the CMA had adopted an overly interventionist stance, including in relation to blocking deals. In doing so, Ms. Cardell noted that:
- The vast majority of competition issues identified in merger cases continue to be horizontal in nature, and there has been no material shift in the way that the CMA approaches these cases.
- A greater number of deals that raise novel issues (for example, threats to dynamic or potential competition and innovation) are being scrutinised. This reflects a conscious decision by the CMA (and other merger control authorities) to adapt their approach in light of evidence of “historic under-enforcement” in those areas.
- Examples of the evolution in the CMA’s practice in this area of merger control include: a willingness to consider a more competitive counterfactual (to take account of the likely strengthening of the target as a future competitor); an increased focus on dynamic competition; a consideration of whether deals might lead to reduced rates of innovation; consideration of ‘flywheel’ or ecosystem theories of harm; and an increased interest in the role played by data held by merging parties.
Ms. Cardell accepted that, although the perception of an increasingly interventionist CMA is "understandable", the changes which have occurred have been driven by evidence about gaps in enforcement, or the ways in which the CMA considers that it can improve merger control in the UK.
Behavioural remedies
Ms. Cardell challenged the view that the CMA is overly resistant to considering behavioural remedies. She stated that, while the bar for the successful use of behavioural remedies is high, there are reasons for that:
- Rather than seeking to address the underlying issues, a behavioural remedy seeks to manage market outcomes by controlling the behaviour of the merged entity for a period of time. Once the remedy expires, the underlying issues may remain.
- There are many practical challenges to designing an effective behavioural remedy. For example, market conditions can change and render such a remedy ineffective. Monitoring and implementing such remedies can be very challenging.
However, Ms. Cardell emphasised that behavioural remedies still play a role, and that there are some limited circumstances where such remedies are appropriate. These circumstances include situations where structural remedies are not feasible, where the harm is short-lived, or where substantial relevant customer benefits will be preserved.
International alignment
In light of the increase in parallel review of international mergers by various competition agencies (including the CMA), Ms. Cardell confirmed that the CMA does not seek divergent outcomes but seeks the outcome "guided by the evidence that is right for UK consumers and businesses". In doing so, she emphasised that instances of divergence in merger control outcomes are typically driven by specific differences in the relevant regimes and remain the exception, and that "divergence is very much the exception, not the rule".
Comment
The CMA has been subject to criticism that it is has become increasingly interventionist and aggressive in its approach to merger control enforcement. Nothing in Ms. Cardell’s speech suggests that the CMA is planning a change of approach. Potential merging parties, especially those in the rapidly evolving digital and technology sectors, should carefully consider merger control issues at the outset of a transaction. In particular, this will require careful consideration of jurisdictional issues and potentially novel theories of harm. It is clear that the CMA will continue to adopt a flexible approach to the 'share of supply' test, and will continue to tackle new questions (such as dynamic and potential competition), which may impact the extent of the antitrust risk arising out of a transaction.
Authored by James Dayman, Mez Azizi, Matt Giles and Christopher Hutton.
