The UK merger control regime is unusual in two respects. First, the UK system is voluntary, in the sense that it is up to the merging parties to decide whether or not to notify the deal to the competition authorities. Second, the UK system is non-suspensive; that means that the parties can choose to complete the deal before receiving clearance, irrespective of whether the OFT investigates the case (notified or unnotified).
This system allows for much flexibility and, in particular, it gives the acquirer the option to take the antitrust risk by completing the deal without notification. This often provides a timing or financial advantage that can be significant (especially in competitive bids). The decision on whether or not to notify is an easy one to take where there are evidently no issues. However, it can also be used in the hope that the case may be below the OFT's radar.
This possibility has not escaped the competition authorities. In particular, the OFT seems to have a growing concern that it is missing potentially harmful mergers and has formalised and expanded a specialist unit seeking to identify precisely such ‘below the radar’ cases. In parallel, the Competition Commission has encountered significant problems in trying to unscramble completed mergers where it prohibits the deal after an investigation that will have taken the best part of a year.
This has led the Competition Commission, and particularly its chairman, to think openly about a change to a mandatory merger regime. Is the time now right to debate whether there is merit in such a change? If so, what effects will this have on business in these uncertain times?
The key advantage of the current regime for businesses is its flexibility. The parties are relatively free in the way they apportion the antitrust risk and the buyer can take the full antitrust risk.
The principal disadvantage of the current regime is that it can potentially miss harmful deals. In other words, the OFT needs to use its own resources to identify harmful (non-notified) deals and for this it relies to some extent on complaints from the market. It also seems that completed and unnotified mergers are regarded with increasing suspicion. In addition, the flexibility of a voluntary non-suspensory regime is increasingly undermined by the use of hold separate orders, where the OFT prevents the acquiring party from integrating (any further) the target business until the case has been decided. Moreover, the OFT now provides very little (if any) opportunity to discuss satisfactorily more complex cases and potential solutions (either by way of informal guidance or formal pre-notification discussions). It therefore seems that the key advantage of the system has been eroded to such an extent that modifying the regime may also benefit businesses.
One way of addressing the issues would be to introduce a full mandatory notification system along the lines of the EC merger regime model. The required changes would not be difficult to devise or implement within the current institutional framework. This would certainly deal with both the ‘below the radar’ issue and the ‘unscrambling difficulty'.
It is less clear, however, that a mandatory regime will necessarily need to have a full suspension requirement to be effective. In most regimes more than 90 per cent of notified cases do not give rise to any competition issues. Any suspension requirement could therefore be modelled in such a way that it captures only these potentially harmful, rather than all, mergers. This could take different forms. In the United States and Canada, for example, the authorities provide early termination letters to cases that they identify as evidently not giving rise to issues. This enables the parties to complete the deal without having to await the expiry of the waiting period. Similarly, in Germany, the Bundeskartellamt has the institutional flexibility that allows it to issue quick clearances within as short a period as a week (or even a few days) in cases with obviously no substantive issues.
An alternative model would be to return to the suspension requirement under the original EC merger regulation, whereby the OFT would have to identify early in the process of its review (say within two weeks) whether the suspension requirement ought to continue for the full process. If not, the parties could implement pending a final decision by the OFT. If yes, then the parties would have to wait with integration until the final is issued.
Such an approach, if implemented correctly, could introduce some advantages of the mandatory regime whilst preserving some of the advantages of the voluntary regime that has served the UK very well over the past decades. Given that under the present regime many tools of managing the antitrust risk have been eroded over time, such a remodelling of the system could bring with it significant benefits for business. There are a number of tried and tested ways in which the system could be remodelled.
However, all such models depend on the ability of the first stage authority (i.e. the OFT) to deal with a significant case load and its ability to identify particularly non-problematic cases easily. That is very much a challenge for the OFT to take on.
John Schmidt is a partner specialising in competition law at leading UK law firm Shepherd and Wedderburn LLP.