Competition Markets Authority
Introduction
Thank you for the opportunity to open todays conference.
Since taking over as Chief Executive of the CMA, I have been having conversations across the UK and internationally about how the CMA can best help people, businesses and the UK economy through our role in promoting competitive markets and tackling unfair behaviour.
Some of my most informative and thought-provoking conversations have been with businesses and investors. I have heard first-hand how crucial competitive markets are to enable talented British entrepreneurs to challenge incumbents, innovate and grow. And I have heard how Britains open and competitive markets make us an attractive destination for overseas investors, providing capital which helps our economy to grow productively.
But I have also heard questions, including in the field of merger control. Is the CMA too interventionist in its approach to mergers? Has it over-stepped its jurisdictional reach by reviewing and blocking global deals with limited impact on the UK? Has it acted with insufficient regard for consistent outcomes internationally? And, as a consequence, is there a risk that the benefits to consumers and, indeed, businesses from robust merger control are outweighed by greater uncertainty and unpredictability?
For the reasons I will explain today, I believe these concerns are misplaced. But they deserve a direct and open response. Having spent many years of my previous professional life advising on the merger control risks of major M&A activity, I understand the desire for clarity and transparency, particularly in the context of the CMAs expanded role post-Brexit. And I think the CMA can and should be taking the opportunity to explain the approach that we take to assessing mergers and how that approach is evolving over time. We do this through individual case decisions and formal guidance, but we should also be ready to have a wider discussion with businesses, investors and their advisors. And we should be open to feedback on our approach.
Today I will set out my reflections on 5 aspects of UK merger control:
- First, I will briefly recap the fundamental benefits and purpose of merger control.
- Second, I will address the concerns that the CMA has taken an overly interventionist approach to merger control, including the question of alleged jurisdictional overreach as well as our approach to identifying and remedying competition concerns.
- Third, I will reflect on our approach to international alignment.
- Fourth, I will draw out some key aspects of the UK regime that underpin our commitment to an objective and evidence-based merger control assessment.
- Finally, I will return to the themes of certainty and predictability and offer some closing reflections.
I do not expect every practitioner or business person to agree with every decision that the CMA takes. But the clearer we can be about the UKs approach to merger control, particularly in our expanded role post-Brexit, the more we help ensure competitive businesses can innovate and grow both organically and through acquisitions in a way that benefits people, businesses and the whole UK economy.
Purpose and benefits of merger control
First of all, I want to take a step back and remind ourselves why merger control matters.
The purpose of our UK merger control regime is to prevent mergers between businesses that substantially weaken competition.[1]
Competition matters because it helps to ensure that markets deliver benefits to people, including through lower prices and higher quality goods and services, as well as enabling businesses to enter new markets and grow. CMA estimates show that during the past 3 financial years, the merger regime saved consumers more than 2 billion around a third of the CMAs overall impact.[2]
Of course, the vast majority of acquisitions will not impede competition, and some may well enhance it. In a competitive market, M&A activity can enable firms to accelerate innovation, broaden their product offering and reduce their prices as well as enabling a new competitor to grow more quickly to challenge incumbents. And competition for corporate control can also improve governance and hasten the spread of innovation in management.
But in a minority of cases, mergers can provide a route to create or consolidate market power in a way that is not readily reversed. This may occur most obviously where 2 direct competitors merge. But it may also result, for example, from the acquisition of a potential future competitor or a business active in an upstream or adjacent market. The CMAs duty, when discharging its statutory merger control responsibilities, is to consider the potential impact of such an acquisition on competition.
Mergers assessments are, by definition, forward-looking. The CMA has to judge how market conditions will develop absent the merger and weigh that against the likely competitive impact of the deal. This carries the risk of blocking a pro-competitive deal or allowing an anti-competitive one. Neither outcome is cost free but the risks from the latter should not be understated.[3] The CMAs postbag is full of complaints about competition and consumer problems arising in markets that have become too concentrated. Even if some of these problems can be tackled retrospectively using other tools, that takes longer, competes for priority with other matters, and the harm that arises in the meantime can never be undone.
Is the CMA overly interventionist in its approach to merger control?
So, is it correct that the CMA is intervening too often, or in the wrong cases?
There have been 2 elements to this claim: first, that we have been too expansive in relation to jurisdiction; and second, that having obtained jurisdiction, we have been overly interventionist in blocking deals. Ill take each in turn.
Has the CMA exceeded its jurisdictional reach?
Turning first to the question of jurisdiction.
The starting point is to remind ourselves that the role of the CMA is to protect UK consumers and businesses from anti-competitive mergers. UK merger control gives the CMA jurisdiction to review a transaction either where the UK turnover of the company being acquired exceeds 70 million or where the merging companies will together supply more than 25 per cent of a particular good or service in the UK or a substantial part of it (and where the merger results in an increment to that share of supply).
Following Brexit, the CMA has become more actively involved in the consideration of a wider range of global deals: we review international transactions that would have previously been reviewed by the European Commission where they meet our jurisdictional thresholds and we consider that they may harm consumers or businesses in the UK.
And the deals over which we have jurisdiction are not limited to mergers involving a UK company or ones which principally impact the UK. Sometimes, a deal between 2 non-UK companies that has its centre of gravity elsewhere can still have a material effect on the UK market. The jurisdictional tests in the UK legislation clearly contemplate this broader reach.
In many cases, large international deals will comfortably meet the UK turnover threshold. But some global deals may come within our jurisdiction because they satisfy the share of supply test. This test is not new it is a long-standing feature of the UK regime. By design it carries a degree of flexibility. And it goes hand in hand with the voluntary nature of the UK regime which can accommodate jurisdictional tests that arent bright line in nature. But our application of the share of supply test is not arbitrary: we have provided a detailed explanation of our approach in published guidance and the approach we have adopted has been upheld when challenged.[4]
Additionally, there are important mechanisms that parties can use to help manage any concerns they have about whether the UK has jurisdiction to review their deal.
This includes the option of engaging our Mergers Intelligence Committee (MIC) essentially, a quick clearing house for an early view on jurisdiction and whether we think a deal needs to be called in for a phase 1 review. Some time ago, we instituted a practice where parties could submit a short briefing paper to us and receive a quick response that enables most deals we look at in the MIC to proceed without any further inquiry from the CMA quickly and easily a core strength of our voluntary regime. While we have seen a very substantial increase in the number of briefing papers submitted to MIC, this has not led to an increase in the number of cases called in by MIC which has been on average around 13 cases in each of the past 5 years.
So, on jurisdiction, I do not think that the CMA has exceeded the jurisdictional mandate set down in legislation and while our approach rightly has a degree of flex, to ensure that we can properly assess the impact of deals that may be detrimental for UK consumers and businesses, it is not arbitrary or unpredictable. The CMA only looks at deals where there is an impact on UK markets and if parties are unsure whether there is a UK nexus, there is a clear path open to merging parties to achieve certainty.