DMCC Bill in focus: part five

Merger Control

In Part Five of our DMCC Bill in Focus series, we will consider the impact of the Bill on the UK merger control regime.

Since its introduction to Parliament in April 2023, the Digital Markets, Competition and Consumers Bill (the Bill) continues to attract a lot of attention. With the Competition and Markets Authority (CMA) investigating significantly more mergers following Brexit, the merger control reform aspects of the Bill refocus the CMA’s efforts in ensuring scrutiny of transactions with the most potential to harm UK competition.

The Bill aims to achieve this refocus through a combination of deregulation of general merger control requirements (to capture fewer benign deals) as well as new regulatory measures which aim to address gaps in current jurisdictional thresholds. The perceived gaps concern potentially problematic mergers between current non-direct competitors operating in different supply chain segments or adjacent markets (vertical and conglomerate mergers).

What are the key principles of the current UK merger control regime?

The current UK merger control regime is voluntary and non-suspensory, meaning that there is no legal requirement to notify a merger to the CMA prior to completion and parties are not prevented from completing and implementing a transaction in advance of receiving merger clearance from the CMA. The voluntary aspect of the regime is a key factor in ensuring that the CMA only investigates a small portion of mergers so as to allow minimum interference with UK businesses and less costs for the CMA.

Except in respect of mergers with national security considerations or other narrow public interest dimensions, for the CMA to have jurisdiction under current merger control rules, it must be anticipated that two enterprises will cease to be distinct (typically, this is because one business acquires another) and, either:

(a) The business that is being acquired must have a UK turnover of more than £70m (the Turnover Test); or

(b) The merger would result in the creation or enhancement of at least a 25% share of the supply of particular goods or services in the UK, or a substantial part of the UK (the Share of Supply Test).

As regards the Share of Supply Test, to qualify, the merger must result in some increment to the share of supply, however widely or narrowly the relevant frame of reference is drawn; it is not enough, currently, for one party to have a share of 25% or more, if the other party has none.

Target turnover threshold increases

The Bill will amend the general jurisdictional thresholds for mergers so that the threshold for the Turnover Test will increase from £70m to £100m.

This is an effort to bring fewer benign cases within the CMA’s jurisdiction and reduce unnecessary burdens for businesses when carrying out mergers which are unlikely to impact competition. It is reflective of a much-needed update to allow for inflation (noting the £70m turnover threshold has been in place since it was introduced in 2003).

The Share of Supply Test will remain unchanged by the Bill save in respect of “killer acquisitions” (see below).

Safe harbour

A new “safe harbour” will also be introduced by the Bill, meaning that mergers will be exempt (regardless of share of supply) where no party to the merger has more than a £10m UK turnover.

This change is aimed strengthening the CMA’s ability to reliably capture potentially problematic transactions whilst reducing the burden on (smaller sized) mergers which are considered less likely to be harmful. This measure will no doubt offer welcome certainty to smaller businesses seeking to merge.

What about public interest interventions in media mergers?

Public interest interventions in media mergers are not affected by the increase in the Turnover Test and the introduction of a small merger safe harbour.

The Secretary of State will retain the ability to intervene in mergers where at least one of the enterprises concerned is a media or newspaper enterprise and where the target’s turnover is over £70m as well as where at least one of the enterprises concerned is a media enterprise or a newspaper enterprise and the Share of Supply Test has been met, even if none of the enterprises has UK turnover of over £10m.

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