Three years of Platypus, and five suggestions to improve Phase 2

This week, Platypus reached the ripe old age of three. A birthday is a good chance for reflection, and this one comes at a time when Platypus' wonderful little world of UK merger control is generating significant interest, not just in this strange corner of the internet, but in the mainstream media. A birthday and the spotlight is a heady combination and it has led to Platypus asking some big questions – it’s never too early for a mid-life crisis. 

As 2023 rolls on, Platypus finds itself questioning if UK merger control could be at an inflexion point and even if we might have now passed "peak intervention". Platypus' official deal mortality meter for Phase 2 reviews has dropped below 60% for the first time in its history reflecting the fact that, leaving the sui generis case of Microsoft / Activision to one side, the CMA has only prohibited one merger so far this year (Cérélia / Jus-Rol) and has issued four (provisional or final) unconditional Phase 2 clearances plus one conditional clearance. What's more, there have been unprecedented procedural developments. To highlight just one, the CMA has revised its provisional findings to drop a proposed substantial lessening of competition (SLC) finding in no fewer than three cases, one of which resulted in a flip from an SLC finding to an unconditional clearance (until this year, this had never happened in the CMA era¹).

Against this backdrop, the CMA leadership is taking a fresh look at its Phase 2 processes: in June, the CMA issued a “call for information” on its Phase 2 merger control process, inviting views on whether there are aspects of the process that could work better. Platypus’ raison d’être is to think and write about UK merger control, so needless to say the invitation to reflect on recent (and not so recent) Phase 2 experiences, and consider how they might have been improved is as good a birthday present as a Platypus could have wished for. 

We submitted a formal response to the CMA today and summarise below our top five suggestions. 

#1 Engagement with the CMA Panel: The outcomes of CMA Phase 2 reviews are decided by a panel of independent experts – a process designed to ensure a “fresh pair of eyes”, facilitating robust and independent decision making. This makes time with the Panel precious – landing a point with the Panel is the holy grail of CMA engagement. While access to the Panel is rightly managed through a structured process, we think there is scope to allow more direct engagement between merging parties and the decision makers on the competitive assessment. We strongly believe this would be a win-win, assisting the CMA in reaching more robust decisions, but also ensuring merging parties feel their views have been heard.  

We have a few tangible suggestions for how this could be achieved:

• A teach-in with the CMA Panel should be a standard part of the process, to ensure the Panel hear not only the views of the Phase 1 case team, but also those of the merging parties, facilitating a more balanced starting point.  
• At present, merging parties are given an Annotated Issues Statement (AIS) and Working Papers (WPs) in advance of the biggest set piece of Phase 2 – the Main Party Hearing (MPH). While these documents outline the theories of harm the CMA is considering and the evidence it has gathered, they stop short of explicitly stating the emerging view. We don’t see any reason why the case for SLC needs to be treated as a state secret, and think making it clear at this stage would enhance transparency of the process and reduce what can become shadow boxing, as merging parties and their advisors make educated guesses at how the evidence translates into a theory of harm. 

We believe that if the AIS, rather than being a “neutral” presentation of theories and evidence, set out the “case for SLC” at its highest (as the Issues Letter does in Phase 1), this would allow more direct and meaningful engagement with the CMA, both in writing and at the MPH. Our response also suggests some changes to the format of the MPH to facilitate this. 

• Response hearings, which occur after Provisional Findings (PFs), tend to focus primarily – sometimes exclusively – on remedies. Remedies discussions are obviously critical after adverse PFs, but we believe sufficient time and resource should also be allowed to ensure merging parties have an adequate opportunity to engage on the competitive assessment. 

#2 Ongoing engagement with the CMA case team: There are huge benefits to collaborative interaction and ongoing engagement with the CMA case team throughout Phase 2. Direct discussion with the CMA’s economists, for example, can allow for timely and constructive engagement on economic evidence like tender data. Similarly, discussions around the types of documents and data in the merging parties’ possession can shape or reduce the need / scope of requests for information, an efficiency benefit shared by the merging parties and the CMA. Our experience is this kind of engagement is highly valuable but not offered in all cases – we think it should be, and again, that it would be a win-win. 

#3 Access to file: The CMA increasingly collects, and relies on, evidence from third parties. As the CMA has rightly recognised, such evidence is  particularly important in fast-evolving markets in which the competitive strategies of rivals is often critical to a full and accurate competitive assessment. It follows that it is also critical that merging parties – though their advisors – are able to see and respond to this evidence. 

A welcome development following Meta / Giphy is that the merging parties’ advisors are given access to certain third-party evidence within a confidentiality ring, but we believe greater access to file would facilitate merging parties making more informed submissions and engaging with (and where appropriate, challenging) the CMA’s thinking in a timely fashion. This upside would, in our view, be sufficient to merit the additional administrative burden it would impose on the CMA. We recommend that the CMA consider additional changes to its process so that:

• merging parties are given full access to file (i.e., copies of all documents that the CMA relies on, and a detailed index of all documents on file);
• access is provided earlier in Phase 2 (no later than with the AIS and WPs, and well in advance of the MPHs) to allow engagement and response;
• the CMA considers on a case-by-case basis whether it is appropriate to disclose key Phase 1 evidence early in the Phase 2 process; and
• in certain circumstances, in-house counsel are given access to at least some confidentiality ring information.  

#4 Early engagement on remedies: We believe that merging parties should be able to engage constructively with the CMA on remedies in parallel to engaging on the question of SLC. Under the current process, there is no formal route to do this without conceding an SLC, and this leads to the remedies process becoming highly compressed and in some cases simply timing out, especially in more complex cases. 

In addition, merging parties can be reticent to bring remedy proposals forward because of a concern it will bias consideration of the SLC question. Even where merging parties do attempt to informally “dual-track” SLC and remedy discussions, there is an inevitable resource constraint because case teams are not resourced to be able to consider SLC and remedy questions in parallel.

While some time compression is inevitable in the statutory timetable, we believe this could be significantly lessened if the CMA assigned dedicated remedy experts to every Phase 2 case from the outset. These individuals would be available for remedies discussions that could be kept confidential from the core case team and the Panel, unless and until the merging parties ask them to be brought into the know.   

#5 Institutionalising internal challenge: In recent years, it has become common for many, if not most, of key members of the Phase 1 case team to move to Phase 2. This is in stark contrast to the pre-CMA system where the Phase 2 case team was entirely new. There are significant efficiencies in this continuity, but it unavoidably increases the risk of (Phase 1 decision) confirmation bias. We believe institutionalising internal challenge in the Phase 2 process would help ameliorate this risk while maintaining the continuity efficiency.

The CMA’s own Phase 1 process offers a blueprint for how this could be done, with the “devil’s advocate” role. The role of the devil’s advocate is to argue the opposite case to the case team before the decision maker in key internal meetings – whether for or against clearance. We believe introducing a devil’s advocate into Phase 2 – adequately resourced at a senior level so as to be able to put the contrary case strongly – would help to ameliorate the risk of confirmation bias, and ultimately assist the CMA to make more robust decisions.

¹ Indeed, there is only one other example in the CMA era of an SLC finding at PFs being dropped, being Bauer Media, in which a local SLC provisional finding was dropped but other SLC findings were maintained.