The Office of Fair Trading has announced that it has suspended until further notice the provision of confidential guidance or informal advice to parties considering a merger.

In the past the OFT has given both confidential guidance and informal advice (sometimes referred to as the "fireside chat") on whether it would be likely to refer a proposed merger to the Competition Commission (CC) for detailed investigation. Both procedures were only available when the proposed merger was still confidential. This meant the OFT would give its view before it could know the views of third parties, such as the merging parties’ customers or consumers. Recent appeals on OFT merger decisions have emphasised the importance of the OFT taking into account third party comment in its merger decision making process.

The OFT has stated that it intends to undertake a public consultation early in its next financial year (beginning April 2006) on the long term position on provision of these services. In the interim, confidential guidance will not be provided at all, and informal advice only in pro bono cases where the requesting party is unable to afford external competition law advice. Exceptions may be possible but are likely to be rare. “Focused” pre-notification contact with the OFT will however continue to be possible. Pre-notification concentrates on practical matters concerning transactions which are close to being concluded, such as timing and format of notifications and agreeing whether a draft notification’s scope, level of information and reasoning etc are adequate.

When explaining the change in policy the OFT said that circumstances had changed. The duty to refer merger cases to the CC imposed on the OFT under the Enterprise Act 2002, along with judicial guidance on this, has made it "more difficult to give helpful advice on whether the OFT is likely to refer a case" to the CC. The OFT added that the value of such advice was inherently limited by dependence on inquiring parties' submissions without any ability to test arguments with or gather evidence from other market participants. Despite these limitations, the OFT has found that parties would rely too heavily on its advice without due regard for the qualifications and caveats laden in it. The move also appears to be motivated by increased pressure on the OFT’s resources following from the changes to the merger control regime under the Enterprise Act 2002.

What this means for parties involved in potential merger activity is that, at least until the end of the consultation period (probably around summer 2006), a merger notification will now only be possible when there has been a public announcement about the merger. It will be up to parties and their advisers to form a view on whether it may be referred to the CC, or to publicly announce a proposed merger and then pre-notify it to the OFT for prior merger clearance. This latter option is unlikely to be popular with vendors due to a risk of their business being adversely affected by the commercial uncertainty created in the period between announcement and the OFT granting merger clearance.

From a practical point of view, the change in policy will mean that clients will become far more dependent on expert competition law advice which in many cases will have to be sought at the earliest stages of a transaction.

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