UK moves to sever unlawful mergers

A bill going through UK parliament could give competition regulators greater powers to stop and reverse anti-competitive mergers that have already begun integration, according to a client memo from law firm Speechly Bircham.

Private equity firms will need to be aware of these changes when undertaking transactions, both for platform deals and add-on acquisitions. Speechly Bircham’s client memo advocated that firms take competition issues into account at an earlier stage to not fall foul of the changes.

The “Enterprise and Regulatory Reform” bill, which has already been passed to the House of Lords, will allow regulators to intervene in anti-competitive mergers at an earlier stage of the transaction. Sources expect the bill to come in to effect late next year when the newly unified Competition and Markets Authority (CMA) comes into force.

Current law grants the Office of Fair Trading (OFT) the power to stop merging parties from further integration when the OFT suspects a “relevant merger situation” has occurred. However there is much market uncertainty surrounding what a “relevant merger situation” is. 

This uncertainty has historically led the OFT to seldom using the full force of its powers, in effect allowing merging companies to put their transaction into effect notwithstanding a parallel competition investigation from the Competition Commission – the UK’s competition investigator.

As such, when the OFT has referred a partially or fully completed merger to the Competition Commission,  it has been extremely difficult, and often impossible, to unwind the deal and preserve the status quo if it is ultimately found that the deal broke competition laws.

The new bill will give the CMA increased powers that can prevent companies merging if the CMA is considering an investigation and has reasonable grounds to suspect that the parties have (or are in the process of becoming) merged. This allows the regulator to carry out investigations without the fear that they will be undermined by parties that have already begun merging.

There will also be substantial sanctions for companies that do not comply with these “hold separate” orders. The CMA will be able to fine up to 5 percent of the companies’ worldwide turnover. It can also order that any integration that has already begun be reversed.