Ministers Kept Out of Merger Control - In Business Summer 2003

01 July 2003

The vast majority of merger decisions will be taken out of the hands of ministers under changes introduced by the new Enterprise Act. Under Part 3 of the Act, which replaces the merger provisions of the Fair Trading Act 1973 (except those concerning newspaper mergers), the final say on merger decisions will largely rest with the Office of Fair Trading (OFT) and the Competition Commission (CC). Ministers will become involved only where there is a defined exceptional public interest (such as national security) and in newspaper cases.

The new Act also changes the basis on which mergers are assessed. Decisions by the OFT and the CC will be made solely on a competition basis with the competition authorities looking at whether a merger is likely to result in a ‘substantial lessening of competition’ (SLC).

A merger will be eligible for investigation if the target company has a UK turnover of £70 million (‘the turnover test’) or if, as a result of the merger, the merging parties will together supply at least 25 per cent of goods and services in the UK or a substantial part of it (‘the share of supply test’). If one of the merging parties already has a 25 per cent share of supply, the second test only applies if this share of supply increases as a result of the merger.

While there is no legal requirement for companies to notify the OFT of a merger, most do notify eligible mergers in order to avoid problems later on. At present, about 90 per cent of mergers are cleared after the initial investigation – a figure the OFT believes will not change under the new regime.

International mergers which fall within the scope of the EC Merger Regulation (ECMR) are generally not investigated by member countries. However, the UK authorities may request that the UK-related parts of such a merger be referred back to the UK authorities, if it raises important national issues or if it affects a distinct market within the UK.

The Act gives companies a new right to appeal against any merger decision. These appeals will be heard by the Competition Appeal Tribunal (CAT), an independent body set up under the Enterprise Act to replace the CC Appeals Tribunals. The CAT will review the lawfulness and fairness of a decision and, if necessary, send it back to the OFT, CC or Secretary of State for reconsideration.

For more information please contact Peter Hawkes, Senior Partner & Head of Dispute Resolution.
 

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