U.K. Government Proposes New Merger Control Powers in its Digital Markets, Competition & Consumer Bill
On 25 April 2023, the U.K. Government put before Parliament its long-awaited Digital Markets, Competition & Consumer Bill (the Bill), which apart from establishing a new ex ante regulatory regime for Digital Markets also introduces a series of wide-ranging U.K. competition law reforms, as well as provides for a new updated system to enforce consumer laws.
The new reforms proposed to the U.K. merger control regime in the Bill will increase the Competition & Markets Authority’s (CMA) powers, sharpen up enforcement and expand the CMA’s jurisdiction to look at a wide range of vertical mergers.
The provisions in the Bill represent the first review of the U.K. competition regime since the competition law landscape reforms in the Enterprise and Regulatory Reform Act 2013 (ERRA) and the first since Brexit.
The proposed reforms in the Bill are drawn from the proposals of Lord Tyrie, then-Chair of the CMA, which were published in February 2019; the recommendations of an investigation into U.K. competition policy led by John Penrose MP published in February 2021; and the Government’s review of the competition law reforms introduced by ERRA required by the legislation itself.
Following these reviews, the Government’s proposals for competition law reform were put out to public consultation on 20 July 2021 in a paper entitled “Reforming Competition & Consumer Policy”. The consultation closed on 1 October 2021. On 20 April 2022, the Government finally published its response to the July 2021 consultation (Consultation Paper Response), and it has now published in the Bill the proposals it wants to take forward and which are reviewed below.
Expanded Merger Control Regime
The Bill retains the U.K.’s voluntary notification regime and raises the turnover test threshold. However, the key element of the merger control reforms is the introduction of a vertical mergers threshold. This was primarily designed to extend the CMA’s jurisdiction to catch “killer acquisitions”. Killer acquisitions are those where large companies acquire smaller or nascent competitors with market-changing potential to remove the competitive threat and protect the purchasing companies’ leading market position or allow them to leverage their powerful market position in one market into another neighbouring market. This has been a particular trend with “Big Tech” companies in recent years. However, the way the thresholds are structured means that this reform will catch a whole range of vertical transactions, not just in the Big Tech arena.
All in all, this is not the wholesale radical revision which was expected in the first substantive changes to the merger control regime since Brexit. So, it was an opportunity lost. As the recent Microsoft Activision case clearly shows, there are very real issues and concerns which relate to a separation of EU and U.K. merger jurisdictions.
The Bill proposes the following reforms to the U.K. merger regime:
- Voluntary Regime Retained: The voluntary and non-suspensory merger control regime is retained.
- Turnover Threshold Raised: The Bill increases the thresholds for the CMA’s jurisdiction to better target the mergers most likely to cause harm and ensure the regime remains proportionate by raising the turnover threshold in line with inflation from £70 million to £100 million.
- New Jurisdictional Thresholds: This flagship proposal creates an additional basis for establishing jurisdiction to enable review of so-called “killer acquisitions” and other mergers which do not involve direct competitors (“vertical mergers”). Jurisdiction would be established where at least one of the merging businesses has: (a) an existing share of supply of goods or services of 33% in the U.K. or a substantial part of the U.K.; and (b) a U.K. turnover of £350 million or more.
- Share-of-Supply Test: The share-of-supply test is retained, at least for the moment. However, the Bill does include powers to amend the share-of-supply test supplemental to existing powers in Section 123 of Enterprise Act 2002. This betrays that whilst the Government recognises that the share-of-supply test lacks the certainty of a blue line test, they are unsure what test should or could replace the share-of-supply test.
- Small Merger Safe Harbour: The Bill introduces a small merger safe harbour, exempting mergers from review where each party’s U.K. turnover is less than £10 million, to reduce the burden on small and micro enterprises.
- More Effective Procedures: Schedule 5 of the Bill introduces a procedure whereby parties can request, during the Phase I investigation or before it has begun, to fast track a merger proposal (which the parties agree does present potential competition issues) to a Phase II investigation, thereby enhancing and streamlining the merger process. Parties would also be able to give commitments to the CMA at any time during the Phase II investigation process. This is clearly an attempt to allow parties to align merger clearance timetables with other international regulators, primarily the EU Commission. The EU has an initial consideration period of 25 working days. On the other hand, the U.K. has a Phase I consideration period of up to 40 working days which is one of the longest initial consideration periods of all developed merger control systems.
- Greater Cooperation between International Regulators: Although not in the Bill itself, the EU Commission announced in June that they are to negotiate a detailed Competition Law Cooperation Agreement pursuant to the EU/U.K. Trade & Cooperation Agreement (the agreement which defines the U.K.’s post Brexit trading relationship with the EU) to allow closer cooperation in merger control and competition cases. The renewed impetus for this was the contradictory decisions at a U.K. and EU level in the Microsoft Activision merger case in April/May this year. Closer cooperation will help minimise the possibility of contradictory rulings which are seen as highly damaging. The U.K. recognises that it cannot be seen to be a regulatory outlier as this will damage investment in the U.K. economy.
The flagship proposal in the Bill is expanding the jurisdiction of the U.K. merger control regime to allow for the scrutiny of killer acquisitions and a broad range of other vertical mergers. There are, in addition, a number of tinkering reforms, but they fall short of a widespread reform of the system you would expect to reflect the post-Brexit landscape.
As the Microsoft Activision case makes clear, there are significant challenges about separating the EU and the U.K. into stand-alone jurisdictions with each considering potential remedies on different time scales in their respective merger control processes. It is imperative to improve cooperation between U.K. and international regulators. Recent announcements by the EU Commission show that the prospect of closer cooperation between the CMA and the EU Commission on merger control issues is being fast tracked given the adverse fall-out of the contradictory decisions in the Microsoft Activision case.