We have written previously about the broad jurisdictional scope of UK merger control and the growing trend of interventionism by the Competition and Markets Authority (CMA). With some of the most elastic jurisdictional rules in the world, the CMA can - and has - reviewed (and intervened in) mergers with limited nexus to the UK, including where the target business has no UK revenues. And with Phase 2 outcomes resulting in a deal mortality rate that hovers around 67-70% and a further 10% or so of cases involving remedies, any unexpected encounter with the CMA is high risk.

Until now, the main safe harbour from CMA jurisdiction (at least on competition aspects) has been the EU’s One Stop Shop for merger control: if a deal is notified to the European Commission, there is no need to worry about a parallel review by the CMA (except for the small number of deals that are referred between the authorities). Although the UK left the EU on 31 January 2020, it has – for merger control (and most other) purposes – continued to be treated as an EU Member State during the transition period throughout 2020. While the exact details of the position in 2021 will depend on the final exit agreement reached, it is a near certainty that it will mark the end of the 30-year era of One Stop Shop merger control (1990-2020).

The end of the One Stop Shop will mean that many mergers become subject to parallel review by the Commission and the CMA. This is not only a concern for 2021 and beyond: for deals signing now and in the coming months, the safe harbour is already receding into the distance, as we explain below.

So what do you need to do now? For any deal signing now, or that may not be on the clock with the Commission by the end of the year, make sure you have specialist UK advice on the risk that the CMA will call it in for review. This is crucial both on deal feasibility - given the CMA’s interventionist stance - as well as to avoid procedural headaches such as hold-separate orders and delay to completion.

Which authority?

Under the Withdrawal Agreement, any deal

• over which the Commission has jurisdiction (and therefore the CMA does not), and
• that is formally notified to the Commission (i.e. “on the clock”) by the end of 2020

will remain within the Commission’s sole jurisdiction. The CMA will not have power to “take back” the UK aspects of these deals unless they are referred to it by the Commission under the normal referral mechanisms in place since 2004.

For practical purposes, getting “on the clock” with the Commission means by no later than 23 December 2020, the Commission’s last working day of the year, and the Commission will need to buy in to starting the clock as late as this (which should not be assumed, especially for a more complex case or one with a significant UK nexus). For deals not “on the clock” by the end of 2020, jurisdiction to review UK aspects of the deal will revert to the CMA, while EU aspects will remain with the Commission (assuming that, once UK revenues are removed, the EU thresholds are still satisfied, which will not be the case for all deals).

Thus, the binary “in-out” classification of cases is superficially straightforward, but belies the complex issues that the coming months will pose for M&A.

Predicting getting “on the clock”

As seasoned deal-doers know, there is inevitable uncertainty about when the Commission will “start the clock”. Even in simple cases raising no serious competition concerns, the duration of pre-notification is a variable outside the parties’ control and cannot be predicted with certainty at the outset. The problem is even more acute for complex cases, where it is not uncommon for pre-notification to run for six months or more. This means it will not be clear until nearer the time whether the CMA may acquire jurisdiction over the UK aspects of a deal.

The CMA’s solution to this is clear: if there is a material likelihood that the merger will not have been formally notified or referred to the Commission before the end of the transition period, the CMA guidance encourages merging parties to consider engaging with the CMA “significantly in advance of the end of the transition period”, particularly where a merger may raise potential UK competition concerns.

To refer or not to refer

The possibility of referrals to and from the Commission prior to the exit date complicates the situation further. The CMA’s guidance again suggests that, where there is uncertainty as to which authority will have jurisdiction, merging parties may wish to consider requesting an earlier referral of a case to the CMA under Article 4(4) of the EU Merger Regulation. We expect that, in the coming months, the CMA will put significant pressure on parties to submit a referral request where a deal has a material UK dimension. Such requests would constitute the proverbial offer that is hard to refuse.

Where parties do not make a referral request, it is clear the CMA will be ready and willing to do it the hard way and make its own request. Under Article 9 EUMR, national competition authorities can claw back jurisdiction of EU-notified transactions where a deal threatens significantly to affect competition in a distinct market (or markets) within a Member State. If that market does not constitute a “substantial part of the EU”, the Commission must make a reference. If not, the Commission has discretion over whether to refer the merger (or part of the merger) back to the Member State, and will take into account which is the more appropriate authority, the value of the One Stop Shop, and legal certainty.

The CMA has already shown its willingness to seek referrals in cases where the final decision will come after the end of the transition period. By way of background, in the 2015 Hutchinson (Three UK) / Telefonica (O2) merger – which led to a prohibition decision that was recently overturned in the General Court (see our alert here) - the CMA tried and failed to obtain the case via an Article 9 referral on the basis the EC believed it was best placed to review the merger and ensure consistency given its numerous cases assessing (wholly domestic) mergers in the mobile telecoms sector. In the ongoing Virgin Media / O2 case, which was pre-notified to the Commission, the CMA has said it will make an Article 9 referral request because “this important merger will only impact consumers in the UK and since any review will likely conclude after the transition period, it is only right for the CMA to request it back now.” How the Commission approaches this request will offer a revealing insight as to how it will exercise its discretion in referring cases back to the CMA in the coming months.

Parallel review starts now

This means that the time for parties to M&A to consider and manage parallel reviews by the Commission and the CMA is already here, months before the end of the transitional period.

Parties who do not carefully plan potential engagement with the CMA risk starting from square one with the CMA in January 2021, potentially after several months of pre-notification with the Commission. This could result in a significant delay to the approvals process: it would be dangerous to assume that the CMA will align its timetable with that of the EU without full long-range planning and engagement. Indeed, it would be unwise to assume complete alignment as a matter of course even with a fully-cooperative approach. Various factors such as case complexity, resources and policy issues as well as whether in substance the centre of gravity of the case is UK or EU will probably play a role.

In addition, the procedural peculiarities of the UK regime, with its longer timetable (especially on remedies) and practice of imposing a “hold separate order” (often with monitoring trustee), means that even if a deal ultimately escapes intact, the headache and delay to integration and synergies can have a substantial cost.

The CMA is a unique animal in global merger control: its “voluntary and non-suspensory” nature can lull parties into a false sense of security, but its broad jurisdictional net and power (and willingness) to intervene in deals dictate that those parties who treat it as an afterthought do so at their peril.

For more on CMA merger control, head to our new dedicated page: Platypus. Here you can see statistics on CMA reviews over recent years, and read more about the regime and recent developments.