UK Merger Control – CMA

perspective – priorities and reforms

The Law Society

1

Sheldon Mills

Senior Director,

Mergers

19 May 2016

2

● UK remains a voluntary regime. In practice, this means:

- Parties self-assess. We review fewer cases than our

counterparts in most developed economies. Most deals go

through without any CMA involvement.

- We end up reviewing a number of cases which may prima facie

involve competing firms

- We need mechanisms to capture non-notified deals:

Own-initiative investigations supported by our Mergers

Intelligence team

Protective measures to stop, cease, pause (and, in some

cases, unwind) integrative measures (Initial Enforcement

Orders)

- We need transparency to enable parties to self-assess.

What voluntary means in practice

3

Improving our work

Pace

KPIs

Fast track

Staff handover

Experience

Impact

Mergers Intelligence

Remedies

Evaluation

Engagement

Quality

Strong MDP teams

Role/process clarity

Developing staff/know-

how

4

● Against this general background, we have worked on several ways to

improve quality of our work including information gathering and

decisions

- Introduced more senior roles in the Mergers team

- Greater levels of scoping of theories of harm on cases

- Ensuring training of all staff including decision makers at both phases

- Working on clarity of roles across our multi-disciplinary teams

- Sharing know how and being transparent

- Reaching out externally to get views on how we are doing

● Context is important when judging us:

- We have strong levels of fair process and transparency. Examples include:

Access to decision-makers consistently provided at phase 1 and 2

Transparency of information (enhanced at phase 2)

Reasoned statements of issues/provisional findings with opportunities to

discuss these with decision-makers

Reasoned decisions on ALL cases at phase 1 and 2

Improving quality

● We continue to find ways to improve the pace and

efficiency of all we do and reduce burden on business

and taxpayer

● Our approach in this year has been to introduce

alongside quality improvements targets to support our

work. Performance has been improving:

- Pre-notification down from 37 WD to 25 WD across all cases

- Decision issued in all cases w/in 34 WD

- Publishing decisions w/in 6 weeks of announcement

- Found not to qualify decisions – down to 2 in last year

- 3 of 5 de minimis findings taken at Internal State of Play (around

Day 15 – 20)5

Improving pace

● In general terms, three broad categories of pre-notification work:

- Less complex cases – standard pre-notification – ensuring sufficient

information to start the investigation – up to 25 WD

- We have introduced more senior engagement to scope issues and

information requests.

- Complex:

Possible Phase 1 remedy cases - pre-notification allows the

parties to work with the CMA on information and evidence

requirements.

New issues/new market cases - pre-notification can be useful for

the parties to work with the CMA to understand the market before

market testing.

- We have introduced more senior engagement to be clear about the

CMA’s willingness to engage in extensive pre-notification. BUT with no

outcome determinative guarantees!

6

Improving pace: pre-notification

● Two fast track notifications in two years of CMA in major UK mergers (BT/EE

and Ladbrokes /Coral)

● We believe that fast track notifications can, in the right type of cases, bring

real benefits:

● Speed and efficiency

● Reduced burden on agency and parties

● Reduced duplicated effort between phases

● Not suitable for every case. Why? Simply put, sometimes parties and the

agency require the statutory time available across Phase 1 and 2 to get to the

right outcome.

7

Improving pace: fast tracks

● We have worked on handover from Phase 1 to 2. Key components include:

- Group – appointing the Group and dealing with conflicts early

- Staff continuity / availability – team grows in size at phase 2

- Transfer of file, information

- Publishing the phase 1 decision

● Fresh pair of eyes/independence of view is baked into the system and our

approach:

- Group are new to the case. Experienced professionals with a hands-on

decision-making role

- Team grows in size with people new to the case

- we ensure that Group is aware of information on the file, scope in phase

1 and then able to take investigation forward with fresh pair of eyes

● We seek to reduce duplication of information requests for parties and third

parties but inevitably the aim of Phase 2 is to deepen levels of inquiry8

Improving pace - handover

● Our investigations are faster with tighter scoping on issues:

- Theory of harm/investigation plan and scoping meetings earlier

- More senior team with greater involvement throughout

- Access to the decision maker in complex cases

● Performance makes this pretty clear:

● All cases: Phase 1 average length is 34WD

● 25 cases cleared ≤ 35WD:

- Nikkei/FT (10WD), Heineken/Diageo (20WD), NSMP/Total (21WD),

Aviator/Swissport (22WD), Netto/Co-op (23WD)

● P1 timetable suspended in only 3 cases (Art.4(4) referrals)

● Northern Rail Franchise, Celesio/Sainsbury’s, Muller/Dairy Crest

9

Improving pace: investigation

● Ultimately, our impact comes from three inter-related effects:

● Deterrence – the regime and our activities may deter anti-competitive mergers. Trick

is to get the right balance: too costly and we deter pro-competitive or competitively

neutral mergers

- In this context, we are considering our approach to small mergers

● Reasoning – our reasoned decisions enable firms to self-assess. We can still innovate

but we still need a reasonably consistent body of work across phases to enable

sensible choices to be made by business (and for us to do our own work).

- Improvements on training and knowledge sharing across larger CMA including

decision-makers

- Improvements to external and internal guidance on process and substance.

● Solutions - UILs, remedies (or prohibitions) to solve competition problems.

- Structure, design and implementation – we work hard to structure and design

remedies which may work. We invest in this expertise. We then monitor.

- Evaluation - we evaluate the impact of our interventions on a regular basis to see

if our interventions have worked. This can then feedback into our work.

- Review – we have reviewed historic merger remedies to see if they are

worthwhile maintaining10

Improving impact

● Our remedies process at Phase 1 is working well. We worked on many

components in the run up to regime reform. These have been successful.

We consulted on/accepted 9 Phase 1 UILs/remedies in 15/16 and 3 in 14/15

(some are ongoing)

● Key hallmarks include:

● Remedies Form

● Parties get the upfront SLC decision and make their offer w/in 5

WD

● Can discuss draft offers with case team at Issues meeting and in

first 5 WD. Case team will give input

● 50WD w/ extension of up to 40WD

● We benefit from huge institutional expertise : Phase 2 remedies, business

and financial analysis team.

11

Improving impact: remedies

● One of the priorities for the CMA is to ensure that concurrency regimes work

under CA98 provisions with the many sectoral regulators.

● There is no concurrency in merger control in the UK. However, some

regulators have the ability to provide views and opinions formally in the

process. We also work closely with all regulators in markets where they have

functions or knowledge.

● We have published specific sector guidance in rail, water and healthcare in

past two years. We also have previous guidance in local media mergers.

● Cases where we have relied on views, information or knowledge from

regulators include:

- BT/EE (Ofcom); Pennon/Bournemouth (Ofwat) and Ashford / St Peter’s (Monitor); IAG/Aer

Lingus (CAA); several cases with FCA.

12

Relationships with regulators

● We have a productive working relationship with the Commission. We

work closely with them on most cases involving material UK interests

(including the recent 3/02 merger)

● We also attend every Advisory Committee meeting and EU Merger

Working group meeting where we have run several initiatives.

● Several referral cases during the year including Article 22 referral up

● Always best to contact the CMA if you consider any possibility of a

referral to/from UK

13

Relationship with Commission

● CMA view on minority shareholdings were that we supported an extension to

the Merger Regulation but that we were concerned that a mandatory regime

would be challenging to operate. We proposed a voluntary type mechanism

to deal with these issues.

● Expanding jurisdiction to capture innovative markets. The CMA has reviewed

new markets including Facebook/Whatsapp. The main issues include:

- Jurisdiction. Often targets do not meet turnover thresholds. Brussels

and other jurisdictions may consider shifting the boundaries. The share

of supply test can be flexible enough for us. But most other jurisdictions

cannot look at some deals.

- Substance. Defining markets is challenging. Forward-look at harm can

also be challenging. However, it is important to consider closely

business documents, plans and to test these with third parties.

- Shifts in consumption, technology impacts, new ways of delivering

services are always challenging but agency has experience and tools to

deal with these (Game/GameStation merger; recent Sheffield Taxis

merger)14

Future reforms

● Process: we will continue to work to improve our processes and

procedures including handover from Phase 1 to 2 and supporting

members on Phase 2 inquiries

● Substance: we will work on the way we assess mergers with a view

to updating our local retail mergers commentary.

● Sectors: we expect to continue merger control work in the sectors

including water, rail and healthcare and will continue to build on

guidance, MOUs and work we have done in the past year with

regulators and stakeholders in those sectors.

● EU/International: we will participate closely in the EU Merger Working

Group and support ICN projects throughout the year. We will also

work to support new agencies on developing their merger control

regimes and expertise.

15

Looking ahead..

- THANK YOU FOR YOUR ATTENTION

16

17

ANNEXES

Annex 1 - Statistics

18

1. FY is 1 April to 31 March2. Delays in accepting UILs mean these numbers are not strictly comparable3. Please note that decisions up to and including 31 March 2014 were given by the Office of Fair Trading (OFT),

and decisions on or after 1 April 2014 were given by the Competition and Markets Authority (CMA).

Source: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/513028/Merger_inquiry_outcomes_for_31_Mar_16.pdf

Financial year 04/05 05/06 06/07 07/08 8/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16

Referred 18 17 13 10 8 7 8 9 14 8 6 11

UIL accepted 5 6 7 5 6 5 4 5 10 0 3 9

Unconditional

clearances

- 'de minimis'

exception

103

0

118

0

86

0

78

3

53

4

43

7

43

4

62

3

49

4

42

3

56

7

36

4

Found not to

qualify

45 69 22 15 9 10 14 21 23 12 10 2

Total decisions 171 210 128 111 80 72 73 100 100 65 82 62

Cases to CRM 35 36 30 22 29 22 21 30 32 19 24 24

IU – IEO 6 10 11 10 11 10 9 25 24 30 31 20

19

Annex 2 : Phase 1 referral/UIL list

P1 referrals (10) P1 UILs (9)

Poundland/99p InterCity/East Coast

Pennon/Bournemouth GTCR/Gorkana

Joseph Ash/Corbett Greene King/Spirit

BT/EE TOBC/Bowlplex

Linergy/Ulster Farm Mueller/Dairy Crest

Pearson/Learndirect Reed Elsevier/Jordan

Celesio/Sainsbury’s BCA/SMA

Fenland/Fishers Regus/Avanta

Iron Mountain/Recall MRH/Esso

Ladbrokes/Coral

Clariant/Kilfrost

● Xchanging/Agencyport (clearance) – 29/4/2015

● Pork Farms/Kerry (clearance) – 3/6/2015

● Reckitt Benckiser/KY (remedy) – 12/8/2015

● Sonoco/Weidenhammer (clearance) – 3/7/2015

● Joseph Ash/Corbett (abandoned) – 23/7/2015

● Ashford St Peters/Royal Surrey (clearance) – 16/9/2015

● Poundland/99p (clearance) – 18/9/2015

● Pennon/Bournemouth (clearance) – 5/11/2015

● BT/EE (clearance) – 15/1/2016

● Linergy/Ulster Farms (clearance) – 6/1/2016

● Pearson/Learndirect (abandoned) – 6/1/2016

● Celesio/Sainsbury’s – ongoing

20

Annex 3: Phase II case list

● Fenland/Fisher’s (abandoned) – 7/1/2016

● Ladbrokes/Coral – ongoing

● Iron Mountain/Recall – ongoing

● Clariant/Kilfrost – ongoing

● ICE/Trayport - ongoing

21

Phase II, cont.