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The CMA publishes new guidance on merger control in a time of COVID-19: Business as usual?

For further information, please visit the White & Case Coronavirus Resource Center.

The CMA has published new guidance on its approach to merger assessments during the Coronavirus pandemic, confirming that it does not intend to change either merger control assessments or deadlines, despite the outbreak.

The guidance acknowledges that merging parties may have difficulty complying with information requests due to the outbreak, and in such circumstances, the CMA has indicated that it will not be penalising parties under its statutory powers. The CMA will, however, still 'stop the clock' until such requests have been complied with.

The CMA has also issued a dedicated reference guide to use of the failing firm defence, which indicates no change to the standards for successful use of the defence.

On 22 April 2020, the CMA published new guidance on its conduct of merger control assessments during the Coronavirus pandemic, as well as a dedicated reference guide to the use of the failing firm defence in the context of the outbreak.

 

Key takeaways

  • The CMA intends to operate on a business-as-usual basis when it comes to merger control, despite the outbreak: There will no change to merger assessments or statutory deadlines.
  • Merging parties are not being asked to delay notification, but can expect potential delays during the pre-notification period.
  • The CMA will not impose penalties on parties unable to comply with information requests due to the outbreak, but will still 'stop the clock' on those transactions.
  • The CMA will hold meetings and hearings remotely.
  • The "failing firm" defence will operate as usual.

 

Merger assessments

Assessments and deadlines

The CMA has stressed that the Coronavirus pandemic will not result in lower standards to merger assessments or investigations, nor in the altering of statutory deadlines.

In spite of this, it is possible that pre-notification processes (i.e., the 40-working-day clock) will take longer than usual, particularly where the CMA has difficulty in securing relevant information from the merging parties.

The CMA is not requesting that merging parties delay merger notifications. However, it is encouraging that parties:

(a) consider the postponement of some filings (for example where the merger is not well advanced);

(b) provide as much information as possible on case team allocation forms; and

(c) be realistic about the likely timings.

Merging parties are requested to update the CMA on a regular basis, particularly if there are changes to either a merger's timing or the likelihood that it will proceed.

Compliance with information requests

Substantiated claims that a business is facing Coronavirus-related difficulties will generally constitute a reasonable excuse for not providing information by the deadline in a statutory information request under s.109 of the Enterprise Act.

Businesses can be reassured that where they can make such a claim, penalties for missing the deadline are unlikely to be imposed.

However, where deadlines are missed, the CMA may continue to 'stop the clock' on its 40-working-day review period which could pose a substantial risk to the timelines for transactions.

Meetings and hearings

The CMA will conduct all meetings and hearings, including those relating to formal investigation processes, remotely. Additionally, Phase II investigation 'site visits' will not take place. Instead, meetings of key staff will be organised remotely during the early stages of the investigation. In the event that the Government restrictions on in-person meetings are relaxed in the near future, visits will not be rearranged at a later stage of an investigation.

Interim measures in completed mergers

The CMA will assess any requests for changes to interim measures (i.e., initial enforcement orders and interim orders) on a case-by-case basis. Parties should note, however, that in line with the CMA's policy pre-Coronavirus, and in order to preserve the pre-merger competitive structure of the market for the duration of its review, the CMA is unlikely to lift interim measures.

Derogations can be granted where merging parties demonstrate that such steps are necessary to ensure the viability of their businesses. Merging parties should inform the CMA of an intention to request derogations as early as possible, and are reminded that fully specified, reasoned and evidenced requests will be granted sooner.

 

Failing firm defence

Despite the CMA's awareness that the Coronavirus pandemic may result in an increase to mergers involving failing firm claims, an annex to the published guidance stresses that the failing firm defence remains a high threshold to meet and that unsupported assertions of financial distress are highly unlikely to be successful.

Merging parties will still need to demonstrate not only that the target would have failed, but that the transaction in question is the most competitive option for saving it. The CMA will therefore continue to consider whether there were any other substantially less anti-competitive purchasers and weigh-up the competitive impacts of the acquisition against those of the target failing.

Parties are reminded that events which occur during the CMA's review of a transaction (such as the business impact of Coronavirus), can be incorporated into the counterfactual or, if insufficiently certain or foreseeable, into the assessment of competitive effect. As before, the defence will be granted on a case-by-case basis.

Notwithstanding its assurance that it is 'business as usual' in terms of the failing firm defence, an increase in the number of firms facing liquidity issues due to the outbreak is inevitable. This could not be better exemplified than in the CMA's recent (provisional) decision in the Amazon/Deliveroo transaction, where the liquidity issues that Deliveroo was facing due to the outbreak seem to have precipitated the CMA's willingness to accept the extent of the outbreak's ability to endanger companies' viability. The case, whilst not indicative of a change to the CMA's approach on accepting failing firm defences, is at least indicative of the CMA's ability to react quickly where the pandemic has changed companies' circumstances even within the context of an existing notification.

Partners and Counsel in the UK Competition practice of White & Case:

 

Luc Rosenberg (White & Case, Trainee Solicitor, London) contributed to the development of this publication.

 

Find out more about business response to the Coronavirus outbreak:
Coronavirus: Managing business impact and legal risks

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