While investigating a merger, the Competition & Markets Authority (‘CMA’) has often requested the merging parties to provide their internal documents, that is, those documents generated internally by an organisation during the ordinary course of its business.
These internal documents can include study reports, presentations, emails, hand-written notes etc., irrespective of where they are stored -sent/deleted/outbox/inbox of custodians, hard-drives or cloud, external media, shared folders etc.
The CMA has considered these documents to be an important source of evidence during merger investigations and through this Guidance, has tried to set out the manner in which the parties are expected to respond to requests for internal documents, the scope of such requests as well as penalties for non-compliance.
Although, specifically intended to cover requests for internal documents during merger investigations, the Guidance is likely to be helpful outside of the merger context, for instance, while responding to requests for internal documents in cartel or abuse matters.
When does the Guidance apply?
The Guidance applies to investigations in both Phase 1 and Phase 2 of the merger investigation.
However, breadth of the information/ internal documents requested for in a Phase 1 investigation would typically be less than those requested for in a Phase 2 investigation and this would largely be dependent on the circumstances of each case.
Phase 1: the CMA may be interested in looking at the ‘material’ internal documents during a Phase 1 investigation if the evidence it already possesses is not sufficient to carry out a proper competitive assessment of the merger and it believes that the internal documents such as emails or internal presentations etc. could be of further assistance. The CMA would call for internal documents if it believes it to be necessary to fill an ‘evidence gap’ in relation to the investigation, i.e., cases of incomplete or inconsistent submissions and evidence.
The CMA might also request for internal documents in the course of a Phase 1 investigation to assess whether a firm would have exited the market or if there would have been an alternative purchaser for the firm.
This scenario is likely to arise if parties have raised the ‘exiting firm’ counterfactual.
Phase 2: during an in-depth Phase 2 investigation, the parties can expect the CMA to request for extensive documentary evidence (including internal communications) from the very start of the investigation. There may also be follow-up requests asking for further internal documents to fill the evidentiary gaps.
The CMA can send requests for internal documents to third parties as well, as long as they are for the purposes of assessing a merger.
Scope of requests for internal documents
The CMA may ask for ‘any’ potentially relevant documents as long as they fall under the scope of a merger investigation.
A lot will depend on how an organisation runs its commercial activities and the manner in which the information was gathered or stored to assess the merger.
The CMA may engage in a dialogue with the merging parties to discuss this beforehand.
Internal documents requested for could range from emails to internal spreadsheets, presentations, market studies, handwritten notes etc., where appropriate.
The CMA has the power to request information for ‘permitted purposes’, which might be of assistance during assessment of a merger.
The CMA can request information both ‘informally’ or per the statutory powers assigned to it.
The period for which internal documents are requested will vary on a case-to-case basis, but it is typical for the CMA to request for information for the preceding three years.
Parties may not be expected to submit documents in their draft versions as the CMA would typically expect documents in their final or recent versions.
Also, the CMA might request a statement of compliance with information request to be signed by the CEO or General Counsel, where deemed appropriate.
This might happen when the information requested is extensive, where CMA has encountered difficulties in evidence gathering or where senior individuals have self-selected their emails rather than allowing a forensic check.
How to prepare for the response
The CMA has clarified in its Guidance that it is likely to seek understanding of the ‘IT environment’ of the organisations, that is, how and where the documents are typically stored, and how communications are conducted in the normal course of business.
In furnishing its responses, the organisation will have to cover its entire IT environment (cloud, inboxes/deleted folders, instant messaging systems etc.)
Pursuant to the Guidance, the CMA would expect parties to provide measures it has taken to ensure full and proper disclosure of information it has requested for.
For this purpose, it can ask the parties to provide a list of search words they used for filtering through their internal systems in order to collate the relevant documents.
It can also request information with respect to relevant custodians of the documents, time parameters used for search, and the parts of a custodian’s IT environment searched (inbox/sent/deleted items, shred folders, cloud services etc.).
The CMA expects the documents supplied to be text-searchable and, in most cases, the CMA is likely to require the parties to provide the metadata for responsive documents.
These responsive documents ought to be provided in their entirety. The parties are expected to ensure that there are no duplicate document submissions. The documents are expected to be in their final or most recent versions and in their native formats.
Legally privileged documents
The CMA is likely to ask the parties to describe the process used to identify and withhold privileged materials, in cases in which the parties have redacted or removed documents from the final production.
Parties may also be requested to provide a privilege log describing the documents withheld from production. It is therefore crucial for the parties to engage in discussions with the CMA at an early stage of the investigation regarding privileged materials.
It may be worthwhile to note that the CMA has powers under the Enterprise Act to impose penalties and other sanctions (stopping the clock or rejection of the merger notice) for non-compliance with its requests.
Moreover, altering or supressing information, as well as supplying false or misleading information to the CMA, are criminal offenses under the Act.