A consultation in the UK will look at whether the country should adopt the compulsory merger-control system common in other jurisdictions. Few in the UK think there is a need, as the present system works well. Writer Geraldine Lambe
What is it?
A consultation on changes to the competition regime in the UK. One issue will be whether the UK should move to a compulsory merger-control system - meaning that all mergers that meet certain thresholds have to be notified for competition clearance before they can go ahead.
Not to be confused with...
The recent consultation by the UK Takeover Panel on the regulation of UK takeover bids. This followed the controversial takeover by US giant Kraft of Cadbury, a historic UK confectionary brand, during which politicians and other public figures, including the former chairman of Cadbury, raised concerns that the outcome of some bids is unduly influenced by short-term investors, who only become interested in a stock once a bid is in process. The panel has judged that offerors have a tactical advantage over offerees and has put forward some proposed amendments to the UK code as a result.
Who dreamed it up?
Compulsory merger controls are a topic that is periodically revisited in the UK, largely because the UK is one of the few jurisdictions to have a voluntary system, meaning that companies can take their own view on whether a merger raises competition concerns and should be considered by the competition authorities (although the competition authorities also have their own powers to investigate).
The impending consultation by the Department for Business Innovation & Skills on merger pre-notification - part of a wider review of the competition regime (part of which means that the UK Competition Commission itself is currently awaiting a consultation about a planned merger with the UK Office of Fair Trading) - is supported by UK business secretary Vince Cable. He recently used an 'intervention notice' in relation to News Corp's proposed acquisition of the rest of satellite TV operator Sky, to force media regulator Ofcom to assess the public-interest consideration of media plurality.
What are the main provisions?
There is only one real provision: that all mergers that qualify (by size of transaction) must be notified to the Competition Commission (or whatever the newly merged entity may be). This would apply to all eligible businesses entering into merger-and-acquisition transactions in the UK.
Under current rules, parties to a merger go ahead with it as they see fit. The incentive for change comes from the fact that if the competition authorities subsequently take issue with the transaction, a lot of effort and significant cost is required to unscramble it.
What does the industry say?
Caroline Thomas, senior associate in the anti-trust, regulatory and competition department at law firm Norton Rose, is not sure the problem is big enough to require the imposition of mandatory controls. "If the case for making a change is the problem of unwinding mergers that have already gone ahead, then the figures do not suggest there is a huge problem. In the past three or four years, fewer than five deals have led to investigations that ended with an order to divest all or part of the acquired company," says Ms Thomas.
The law of unintended consequences
Depending on the threshold for qualifying deals, the rule will lead to large numbers of deals having to be notified for clearance by the authorities, therefore risking a bureaucratic bottleneck. In a speech to the Confederation of British Industry, Mr Cable revealed that Competition Act cases take on average three and half years between investigation and resolution; a pile of new deals to assess (including those that are not from the outset considered to present a risk to competition rules) is hardly likely to create a more efficient or timely process.
Moreover, it would add fairly hefty costs to business. Ms Thomas points out the additional cost of management time, as well as the not-insignificant lawyers fees that will come with the process. There is also the question of fees to the Competition Commission/Office of Fair Trading, which range from £30,000 ($47,000) to £90,000 for every transaction submitted.
Could we live without it?
The UK has managed so far without it. The biggest driver for change seems to be that the UK regime is different to other jurisdictions, which is a poor reason for rule-making. "The system [the UK has] works quite well – it is flexible for businesses and relatively low-cost," says Ms Thomas. "If the consultation does lead to the rule change, we must hope they maintain those benefits."
