When you decide to merge businesses, through takeover, acquisition or a joint venture, you may be reducing competition in the market(s) in which you operate. If it is found that your merger will substantially lessen competition it may be prohibited or you may have conditions imposed upon you.
The Office of Fair Trading (OFT) is responsible for investigating mergers in the first instance. If it believes a merger might result in substantially reduced competition, the OFT can refer it to the Competition Commission (CC) for an in-depth inquiry. The Secretary of State for Business, Innovation & Skills (BIS) may also consider and refer to the CC any mergers which raise wider public interest concerns – mainly in the defence, media or certain financial markets. Mergers are only investigated if they meet certain criteria.
This merger control process allows the OFT to identify mergers where such competition issues may arise (or the Secretary of State for BIS in the case of wider public interest issues), so that they can be examined in greater detail by the CC.
This guide will explain what to do if you are involved in a merger above a certain size.
Who is responsible for UK merger control?
Under the Enterprise Act 2002, mergers are investigated in the first instance by the Office of Fair Trading (OFT) to determine whether they raise potential competition concerns. The Competition Commission (CC) investigates further any mergers which are referred to it by the OFT. If necessary, the CC can decide on the solutions that need to be applied to mergers referred to it or, ultimately, prohibit the merger.
The Secretary of State for Business, Innovation & Skills (BIS) retains responsibility for considering whether mergers raising wider public interest issues should be referred to the CC – particularly for the defence, media and certain financial markets.
Role of the OFT
The OFT is responsible for reviewing UK mergers under the Enterprise Act 2002.
Where the OFT decides the merger raises no substantial competition concerns, it will clear the merger – ie not refer it to the CC. The OFT may also decide not to refer to the CC a merger which does raise competition concerns but where the:
- market/s concerned are not important enough to justify the cost of referral
- benefits of the merger to customers are greater than any adverse effects on competition
- merger arrangements concerned are not far enough along, or are not sufficiently likely to proceed
Instead of referring a merger to the CC, the OFT can also accept undertakings from the parties involved to take certain action that would prevent the competition concerns from arising. For example, these actions might be to:
- sell overlapping stores in certain areas – referred to as a ‘structural’ remedy
- accept conditions in the way it carries on business, eg by accepting a price cap limit – referred to as a ‘behavioural’ remedy
Any merger on which the OFT makes a decision on reference is subject to a fee, which must be paid by the merging parties, though there are some exceptions to these fees, including for small and medium-sized enterprises. The fees are as follows:
- £30,000 if the UK turnover of the company being acquired is £20 million or less
- £60,000 if the UK turnover of the company being acquired is over £20 million but not over £70 million
- £90,000 if the UK turnover of the company being acquired exceeds £70 million
Role of the CC
The OFT will refer mergers to the CC if it believes a ‘relevant merger situation’ has caused, or may be expected to cause, competition to be reduced substantially within any UK markets.
The OFT has a duty to provide any information to the CC that it may reasonably require to allow it to carry out its functions.
The CC decides the outcome of merger cases referred to it. It has no authority to investigate any merger unless it has been asked to do so.
Role of the Secretary of State for BIS
Under the Enterprise Act, the Secretary of State for BIS can intervene in public interest cases. In these cases, the Secretary of State for BIS may take public interest factors other than the OFT’s competition assessment into account in deciding whether to clear, refer or remedy a merger.
Read more: nibusinessinfo.co.uk
