#3276 - Mergers Crib Sheet - Mergers and Acquisitions (Private Acquisitions)

Mergers & Competition Commission

Merger Control

The merger control provisions of the EA 2002 apply to a transaction if it is

• A relevant merger situation; and

• It results, or may be expected to result, in a substantial lessening of competition

A takeover will constitute a ‘relevant merger situation’ if:

1. It is not caught by the EU Merger Regulation

   1. EU Merger Regulation will apply if the merger constitutes a concentration with a Community dimension & merger will fall within the exclusive jurisdiction of the European Commission

      1. Art 3 of EU Merger Regulation provides that a concentration can arise on

         1. The merger of 2 or more independent undertakings or

         2. The acquisition of direct or indirect control of the whole or part of an undertaking or undertakings

      2. Art 1 provides that concentration will have a community dimension if it fulfils certain turnover criteria

Aggregate worldwide turnover of all parties exceeds 5,000million Euros and

The aggregate community-wide turnover of at least 2 of the parties exceeds 250 million Euros
OR

The aggregate worldwide turnover of all parties exceeds 2,500 million Euros
The aggregate Community-wide turnover of at least two of the parties exceeds 100 million Euros and
in at least three Member States the aggregate turnover of all parties exceeds 100 million Euros and the aggregate turnover of at least 2 of the parties exceeds 25 million Euros.

3. A concentration will not have a community dimension if each of the parties achieves more than 2/3 of its Community-wide turnover within the same Member State

2. If merger is caught by Regulation then parties must notify the European Commission before completion – merger cannot complete until it has been cleared

   1. Phase I - From notification the Commission has 25 days to decide that:

      1. It does not have jurisdiction because the merger does not fall within its scope

      2. It will clear the transaction or it will investigate the transaction further

   2. Phase II – period of investigation if the Commission decides to investigate further

      1. Can last up to 90 working days

         1. It can be extended by 20 working days at the request of the parties or the Commission

         2. Automatically extended by 15 workings days where the parties offer remedies after the 54^th day of the Phase II investigation

      2. At the end the Commission can

         1. Clear the takeover

         2. Allow the takeover to proceed subject to certain conditions

         3. Block the takeover

   3. A Member State can intervene to request repatriation of a case if it can demonstrate to the Commission that a reference back to the natural authorities is necessary

      1. To protect legitimate interests; or

      2. Art 9 Because the merger threatens significantly to affect competition in a distinct market within that Member State

2. Two or more enterprises cease to be distinct

   1. 129(1) EA 2002 provides that an enterprise is the activities or part of the activities of a business. Business includes an undertaking carried on for gain or reward, or in the course of which goods or services are supplied otherwise than free of charge
      At least 1 of the enterprises must be carried on in the UK – or under control of a body corporate incorporated in the UK

   2. 26 EA 2002 Enterprises cease to be distinct if either

      1. They are brought under common ownership or control

         1. Influential control = materially influence the policy of the offeree

         2. De facto control = can control the policy of the offeree

         3. Legal control = controlling interest in the offeree (more than 50% voting rights)

      2. One of the enterprises ceases to be carried on at all pursuant to some arrangement entered into to prevent competition between enterprises

3. The time limit for a reference to the Competition Commission has not yet expired

   1. 24 EA 2002 if no more than 4 months have elapsed since the merger took place then normally no reference to the Competition Commission will be possible

4. Either

   1. The market share test/share of supply test

      1. Merger will result in at least 25% of all goods or services of a particular description which are supplied in the UK or a substantial part of it, being supplied by or to the same person

   2. The turnover test

      1. The value of the turnover in the UK of the enterprise being taken over exceeds 70 million

Are fulfilled

1. The Office of Fair Trade can refer a proposed or a completed merger to the Competition Commission which may decide to take action if it feels that the merger has resulted, or may be expected to result, in a substantial lessening of competition

   1. 33(1) EA 2002 the OFT must refer the case to the Competition Commission if it decides that

      1. The takeover constitutes a relevant merger situation; and

      2. The takeover has resulted, or may be expected to result, in a substantial lessening of competition (SLC) within any UK market for goods or services

         1. OFT v IBA Health Limited ‘or may be expected to result’ means whether the OFT itself believes that a takeover may be expected to result in an SLC. The OFT’s belief must be more than a mere suspicion and must be reasonable and objectively justified

2. If the parties consider that a referral is likely, they may seek clearance by serving a merger notice on the OFT giving it advance notice of a merger

   1. Unless the OFT refer the merger to the Competition Commission within a specified time period, it...