The Competition Appeal Tribunal ("CAT") has, in its UniChem
decision of 1 April 2005, reversed for a second time an OFT decision not
to refer a
merger to the Competition Commission (the first reversal having been its IBA
Health decision of December 2003).

UniChem and another firm, AAH Pharmaceuticals, are the leading players in
the UK pharmaceutical wholesaling market. Phoenix Healthcare (part of a German
group) is a less important player that sought to make inroads on the UK market
through its acquisition of East Anglian Pharmaceuticals (EAP), a wholesaler
of prescription drugs.

The UniChem case concerned the proposed acquisition by Phoenix of EAP. Phoenix
had applied for confidential guidance from the OFT on a possible merger in
April 2004 (with the OFT indicating in response that a referral would be likely)
and had followed up with a formal notification in October 2004. The OFT (having
considered whether it was or might be the case that the proposed merger might
be expected to result in a substantial lessening of competition) issued a decision
not to refer the merger to the Competition Commission in December 2004. Shortly
thereafter UniChem applied to the CAT for review of the decision.

In its decision not to refer the proposed merger, the OFT had purported to
consider the likely impact of the merger on the relevant market. In particular,
it expressed views as to the ability of UniChem (and AAH) to respond to the
opportunity presented by customer dissatisfaction with the combined Phoenix/EAP
operation. However, the evidence upon which these views were based had not,
in the view of the CAT, been adequately tested with UniChem.

According to the CAT judgment, "the central difficulty that arises in
these proceedings is that the OFT purported to make findings of primary fact
about the logistics and economics of UniChem’s distribution system, UniChem’s
past pattern of success in East Anglia, and UniChem’s service levels,
on the basis of information supplied largely by the merging parties, without
checking certain facts with UniChem or discussing with UniChem the inferences
about UniChem which the OFT was minded to draw from the material supplied by
the merging parties".

In the absence of such checks, and in view of the fact that UniChem was disputing
the accuracy of these primary facts, the CAT decided that the OFT's decision
did not have an adequate factual basis. In view of that finding, the CAT decided
to quash the decision and remit the matter to the OFT for re-consideration
(as to the points in dispute).

In its conclusions, the CAT offered the following guidance for the future: "In
a case where facts about a third party are central to a decision, a balanced
and fair procedure should not rely almost entirely on what the merging parties
say about the third party without any cross-check of those facts with the third
party concerned. That is particularly important where, as here, the decision
is a final decision not to refer. A precaution of that kind should also greatly
limit the likelihood of proceedings such as this before the Tribunal in future".

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