Antitrust

A new dawn, a new day for UK merger control: are investors feeling good?

In what is shaping up to be the most consequential reform of UK merger control in over a decade, the government and the Competition and Markets Authority (“CMA”) each published on 13 February the equivalent of Jeff Bezos’ “Day 1” letter to Amazon shareholders, setting out a new culture and operating model for the CMA.  Lauding the CMA as “one of our foremost regulators”, the Business Secretary announced a consultation on the government’s priorities for the agency, which include “being proactive, transparent, timely, predictable and responsive in its engagement”.  Earlier in the day, the CMA’s CEO Sarah Cardell set out her plans to drive rapid, meaningful change, focusing on the CMA’s review of mergers.  This was followed by a video of Ms Cardell and the CMA’s Interim Chair, Doug Gurr, a former Amazon executive.  In this post we look at the key elements of the CMA’s proposals and what will be needed to deliver on the CMA’s new approach.   

A strategic steer focused on delivering investment and economic growth

The UK government has been clear that it expects the CMA to do more to support the government’s pro-growth agenda (see our previous post).  It is no surprise that this forms the central focus of the government’s proposed strategic steer to the CMA.  Indeed, a direction to support investment, innovation and growth is nothing new, having formed part of the previous strategic steer to the CMA under the Conservative government.  This garnered little attention at the time, with the strategic steer often seen as little more than a statement that the CMA ought to be cognisant of the government’s wider political objectives.

Following Marcus Bokkerink’s recent resignation as Chair of the CMA, however, the new strategic steer is seen to carry far greater weight.  Alongside a sharper focus on supporting economic growth and enhancing the attractiveness of the UK as a destination for international investment, notable differences to the previous strategic steer include directions:

• To consider growth and investment not only in the CMA’s decision-taking and case selection, but equally in the way in which the CMA goes about its work.  In particular, the CMA is directed to engage proactively with businesses, seek collaborative approaches to resolving issues, and work in a “swift, predicable” manner.
• To take account of parallel regulatory action in other jurisdictions, and to avoid duplication where these parallel actions can effectively address issues arising in the UK.  This contrasts starkly with the previous strategic steer to “act as a thought leader at home and abroad” and use its post-Brexit role “to provide strong leadership on global competition and consumer issues…including influencing other regulators to follow the UK model of proportionate regulation”. 

A new approach to merger reviews

Sarah Cardell has responded to the strategic steer by announcing a “step change” in the operation of the UK merger regime, with a focus on pace, predictability, proportionality, and process.  Cardell previously outlined these ‘4Ps’ in her Chatham House speech in November, but has now announced a number of concrete changes.  In particular:

• Faster merger reviews.  By June 2025, the CMA will establish a new KPI to complete the pre-notification phase within 40 working days, compared to a current average of 65 which can be significantly exceeded in some cases.  The review of Microsoft’s partnership with OpenAI remains in pre-notification some 14 months after the removal and reinstatement of Sam Altman as OpenAI CEO.  The CMA will also aim to approve ‘straightforward’ Phase 1 cases within 25 working days, down from its current target of 35.
• Clarification on ‘material influence’ and ‘share of supply’ tests.  The CMA plans to consult in June on revised guidance on how it applies the ‘material influence’ and ‘share of supply’ tests in asserting jurisdiction over mergers.  UK law gives the CMA “an unusually broad jurisdiction by international standards”, which it has applied expansively.  The CMA therefore intends to clarify and delineate its remit, as far as legally possible, to “strengthen business certainty about which deals might attract the CMA’s attention”. 
• Revised approach to remedies.  The CMA had previously announced a planned review of its approach to remedies.  Cardell has now confirmed a consultation will take place in March.  This will assess not only process but also how the CMA assesses behavioural remedies, including remedies which can secure increased investment, as seen in Vodafone/Three.  The CMA has called on businesses and advisors to engage with these objectives in good faith, by putting forward robust remedies proposals and well-evidenced claims around merger benefits.
• A more restrained approach to global mergers.  In direct response to the strategic steer, the CMA will also review how it assesses global deals, where action by other authorities could resolve UK concerns.  Although no firm proposals are made, the indication is that the CMA may take a less prominent role in reviewing certain global deals.  This builds on guidance from the Competition Appeal Tribunal in Meta/Giphy that the demands of comity require the CMA to be at least conscious of the international dimension of global deals.

The CMA will publish a ‘Mergers Charter’ in March containing a public commitment to deliver on the ‘4Ps’, underpinned by “meaningful actions to break down barriers to more direct engagement” with businesses, including more senior meetings earlier in the merger review process.    

What is needed to deliver cultural change

The sentiment underpinning the CMA’s proposals will be widely welcomed by businesses, in particular the notion of faster merger reviews and greater predictability in how the CMA exercises its functions.  However, businesses know that organizational change depends crucially on the quality of the execution.  As Doug Gurr has said, borrowing from Jeff Bezos, “good intentions don’t work, mechanisms do”.  It will be the consistent day in and day out delivery against the CMA’s commitments that will build trust in the regulatory regime. In practice, this will mean the following:

• Timely engagement and feedback.  A common refrain from businesses and advisors is a lack of timely feedback from case teams on the CMA’s areas of concern, and an unwillingness to hear directly from businesses early in the CMA’s process (including in pre-notification).  For the CMA to deliver faster reviews, there needs to be early and regular interaction with merging parties.  As Cardell has acknowledged, meaningful reform will require “a step change in more direct, open and constructive engagement with businesses and investors”.  Businesses will embrace the opportunity to have an early kick-off meeting with senior leaders at the CMA.
• Clear delineation of the CMA’s call-in powers.  The CMA’s commitment to delineate its call-in powers will be warmly welcomed, in particular in light of the spate of recent AI partnership cases.  Several of these cases called into question the CMA’s current guidance that it will only investigate if there is a reasonable chance the test for a reference will be met.  The CMA also appeared to change the facts that companies need to make public to start the 4-month call-in period. The Google/Anthropic partnership was widely publicised in 2022, but was investigated two years later following an amendment to a side letter which did not confer material influence.  How far the CMA is willing to go in acknowledging the limits of its discretion will be closely watched when it consults in June.
• Greater focus on evidence of harm, rather than theories of harm.  Vodafone/Three is a case where the CMA focussed on carefully weighing the evidence of merger harms and benefits, with the assistance of an experienced sectoral regulator.  This pragmatic approach shows what the CMA can do when it goes beyond a consideration of theories of harm to get to grips with the dynamics of a market.  A CMA that challenges itself to find substantive evidence of serious harm to competition and consumers, justifying costly intervention, would go a long way to restoring stakeholder confidence. 
• Engagement and feedback on remedies, efficiencies and merger benefits.  UK law gives the CMA broad discretion to remedy, mitigate or prevent the harms arising from a merger.  The CMA has traditionally taken a strict approach to remedies, applying a standard which is tougher than peer agencies, such as the European Commission.  These differences were highlighted in the Microsoft/Activision and Cargotec/Konecranes cases.  However, the CMA has now emerged as a global thought leader on investment remedies following Vodafone/Three.  As the CMA consults on its new remedy guidelines, ensuring that parties can engage with the CMA and obtain timely feedback, in parallel with other agencies, will be critical in global cases.
• End-to-end systems approach to process.  Businesses will support the CMA’s intention to streamline merger reviews and focus on cases where there is a clear and direct impact in the UK.  If the CMA is to deliver quicker pre-notification and Phase 1 processes, there will need to be a wholesale change in the nature of the interaction between the CMA and notifying parties from the very outset.  As Cardell rightly points out, delivering these changes will also require the cooperation of merging parties.  In our experience, this is a challenge businesses will be keen to meet. 

A case for legislative change?

Ultimately, the Business Secretary Jonathan Reynolds is likely correct that the CMA will need to be less “risk averse” in order to achieve the rapid, meaningful change it has committed to.  However, the CMA has put a clear marker in the ground that it believes legislative change may be required to enable it to truly deliver on its ‘4Ps’ approach.  For example, the proposal to provide greater predictability by delineating the CMA’s remit in reviewing mergers is noted to be “as far as legally possible”.  More explicitly, Cardell stated that it “is open to government to go further, through legislative change, both by locking some of these changes into the statutory framework and making further legislative changes to embed our 4Ps approach”.  

Cardell’s challenge to government is a timely one, as many of the key concepts that underpin the UK merger regime date from the 1960s and 1970s.  As the CMA has been a major player on the global stage for 4 years following Brexit, businesses, advisors, groups representing civil society and the CMA itself have a much clearer picture of the areas where the legal framework needs to be updated.

First mergers, what next?

The CMA has made bold proposals to reform its mergers functions, and it will now be closely watched for how it delivers on its commitments.  Moreover, Cardell has made clear the CMA does not intend to stop there, but will apply its ‘4Ps’ framework across all areas of its work.  In our previous post, we outlined several areas where the CMA could have an outsized impact on the government’s growth agenda.  The government’s draft strategic steer specifically highlights the importance of the CMA exercising its new powers under the digital markets regime “flexibly, proportionately and collaboratively” and taking “particular care to ensure growth and innovation benefits are prioritised” in digital markets.  With the first cases currently going through the new regime – each focusing on US tech companies operating in global markets – this is another area where the CMA can expect to face intense scrutiny and debate on how its work supports growth and investment in the UK.