The Competition and Markets Authority (CMA) has published guidance on its approach to merger control during the COVID-19 pandemic. The guidance deals with procedural issues as well as substantive assessment, and makes it clear that on the whole the CMA’s approach remains one of ‘business as usual’. Unlike in many other jurisdictions, statutory timelines have not been suspended or extended. The CMA has of course had to make some practical adjustments to its working arrangements and recognises that some aspects of its investigations, in particular the pre-notification phase, may in some instances take longer than usual.
On substantive assessment the CMA is keen to highlight that COVID-19 will not result in a relaxation of its current standards, which remain essential to protect the interests of consumers in the longer term. On the failing firm defence, the CMA recognises it is likely to see an increase in the number of applications as a result of the economic impact of the pandemic. It will treat these on a case by case basis “in a fair and transparent way that appropriately protects the interests of consumers”. For good measure the CMA has attached a summary of its position on mergers involving failing firms as an annex to the guidance, which reflects its existing Merger Assessment guidelines and decisional practice on the issue.
Last week the CMA announced its provisional clearance of Amazon’s proposed acquisition of a stake in Deliveroo, accepting that the failing firm defence applied as a result of the COVID-19 pandemic. The CMA based its decision on evidence showing that without Amazon’s investment Deliveroo is likely to exit the market and concluded that the loss of Deliveroo as a competitor would be more detrimental to competition and to consumers than permitting Amazon’s investment to proceed (see our e-bulletin here). The CMA guidance emphasises that this is not as a result of a relaxation of the stringent conditions for the failing firm scenario, but is very much based on the specific circumstances of the case.
The CMA recognises that as a result of the COVID-19 pandemic it may be more difficult for businesses to respond to statutory information requests (due to staff shortages or conflicting and more urgent priorities). The CMA is therefore unlikely to impose fines where specified deadlines are not met, provided businesses are able to substantiate such claims. Failure to provide information by the specified deadline may however result in a greater use by the CMA of its ‘stop-the-clock’ powers.
Unlike many other competition authorities, the CMA has not suspended or extended its statutory deadlines, but greater use of its ‘stop-the-clock’ powers will in practice result in longer review timetables. The CMA recognises in particular that the pre-notification process will take longer than usual due to information gathering issues, with the lack of third party engagement seen as one of the main hurdles. The CMA will take steps aimed at mitigating such delays, for example by publishing invitations to comment during the pre-notification process. It does flag, however, that it may not be able to start the phase 1 review period in a case where third parties are unable to engage meaningfully with the CMA’s investigation, given the sector involved.
The CMA is not asking parties to delay notifications (it does not see such an approach working well with the UK’s voluntary filing system), but encourages the parties to consider whether certain filings could be postponed, for example because the transaction is at a very early stage and may ultimately not proceed. It will be more important than ever to engage early with the CMA on prospective filings.
Meetings and hearings
All meetings and hearings, including issues meetings, main party hearings and remedies hearings now take place by videoconference or telephone, and any arrangements for meetings should be discussed with the case team. Site visits are being replaced with alternative methods for gaining a greater understanding of the parties’ businesses, such as online “teach in” meetings with key operational staff.
The CMA has already received many requests for derogations to initial enforcement orders (IEOs) and interim orders (IOs) that are already in place in completed mergers, in order to allow merging parties to deal with operational challenges caused by the COVID-19 pandemic. All such requests will be assessed on a case by case basis. The CMA says it is unlikely to lift interim measures that are already in place, but that derogations can be granted swiftly where the parties are able to demonstrate they are necessary to protect the viability of their business and appropriate safeguards to protect the CMA’s ability to take the necessary measures to protect consumers are put in place. It is clear that the CMA will be prepared to show flexibility where parties can produce the necessary evidence.
The CMA has not relaxed its current substantive assessment standards in light of COVID-19. While the impact of the pandemic will be factored into the substantive assessment of a transaction where appropriate, the CMA is keen to flag that a merger control investigation typically looks beyond the short-term and will assess the lasting structural impact of a merger on the relevant market. A short-term economic crisis such as the impact of COVID-19 will therefore in itself not necessarily override the competition concerns raised by a permanent structural change in a market. It will be important for merging parties to provide the CMA with as much evidence as possible to show the likely impact of the pandemic on the relevant sector.
On the prospect of merging parties trying to rely on the failing firm defence to get their deal cleared, the CMA makes it clear that all submissions will be considered carefully on a case by case basis. The guidance emphasises that the CMA’s approach to the defence has not changed in light of the current pandemic and will be applied in line with the principles set out in its existing guidance and decisional practice. Where the parties consider there to be a failing firm scenario, the CMA recommends early engagement with the case team in order to establish what information is likely to be required. The CMA’s focus is again on evidence, and it indicates for example that it will request detailed financial information and relevant internal documents from any target that is in financial distress, as well as analysis produced by the target’s financial advisers. It will also probe in some detail whether there are any other realistic prospective purchasers. It will be crucial for merging parties in this position to prepare a dossier of relevant information and evidence to maximise their chances of making use of this defence.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2020