The Twelve Days of Platy’mas
Before Platypus kicks back and puts its flippers up for a year-end break, there’s time for CMA-followers near and far to join us in a reflective rendition of a beloved Christmas carol to recap the year that was.
On the first day of Platy’mas, the CMA sent to me…
ONE DMCCA
We kick off the festive season by unwrapping the biggest gift of all (to the CMA) - the Digital Markets Competition and Consumers Act 2024 (the DMCCA).
On 1 January 2025, the DMCCA will usher in the most consequential changes to the merger control regime in 20 years (discussed in detail in our blog from earlier this year). Most notably, it introduces a new ‘no increment’ share of supply threshold, aimed at capturing so-called ‘killer acquisitions’ and other mergers which do not involve direct competitors. Jurisdiction will be established where at least one merging business has: (i) an existing share of supply of 33% in the UK; and (ii) a UK turnover of at least £350m – provided the target has a UK nexus. While hardly a Christmas Miracle for the CMA given how broad its jurisdiction is already (as discussed in this previous blog), it gives the CMA an easier route to establishing jurisdiction in small-target cases.
Other changes to the CMA’s jurisdiction include an increase to the turnover thresholds to reflect inflation from £70m to £100m and the introduction of new safe harbour provisions, pursuant to which mergers where each party’s UK turnover is less than £10 million will be exempt from the CMA’s jurisdiction.
The DMCC also introduces a number of changes to the CMA’s procedure, most notably allowing a fast-track Phase 2 reference on request from the merging parties (bypassing Phase 1 all together) and extending the Phase 2 timetable by consent of the CMA and the merging parties. It also grants the CMA stronger powers to gather information extraterritorially and to impose stronger penalties for procedural infringements, including for breaches of its evidence gathering powers and breaches of merger undertakings or orders.
TWO de minimis cases
In April 2024, the CMA granted merger parties an early Christmas gift by updating its guidance on exceptions to the duty to refer. In particular, it increased the threshold above which the value of areas where the merger may result in concerns will generally be of sufficient importance to justify a reference from £15 million to £30 million (subject to certain considerations, including notably whether the merger relates to areas of priority for the CMA).
The CMA had the opportunity to apply this new guidance in two cases later in 2024: XSYS / MGS: where there was only one overlap between the parties and the CMA was able to sleigh through its investigation in record time, and Arla Foods / Volac where there were multiple overlaps between the parties.
These cases highlight the difficulties that parties can face in deciding whether to notify the CMA of a merger which may fall within the scope of de minimis - although query whether these cases (or at least XSYS / MGS) could have been considered by Father Christmas’s little helpers…. aka the CMA’s Mergers Intelligence Unit!
THREE different merger control regimes?
The CMA’s Christmas gifts a year ago included the introduction of a special merger regime applicable to certain mergers involving two or more ‘energy network’ companies (i.e. companies licensed to transmit or supply electricity and/or gas). This followed the existing special regime for water mergers – making three regimes in total.
2024 saw the first outings for this shiny new toy (Macquarie Asset Management / Last Mile Infrastructure), which is intended to prevent mergers that might prejudice Ofgem’s ability to make comparisons between licensed companies, as part of its regular price control reviews.
FOUR Parallel CMA / EC reviews
In 2024, the EC and CMA were carolling to the same tune (“All I want for Christmas is EU”), reaching similar conclusions in the majority of the four cases subject to parallel reviews in both jurisdictions, although the road has not aways been smooth.
Ultimately, the same outcome was reached in Arçelik / Whirlpool EMEA but through different routes, with the EC delivering a Phase 1 unconditional clearance two weeks after the CMA launched its Phase 2 probe. Similarly, in Hewlett Packard Enterprise Company / Juniper Networks, Inc., the CMA and EC sleighed together with the CMA’s clearance, arriving just one week after the EC’s unconditional approval. It's not known if Qualcomm Incorporated / Autotalks Ltd were set to be on the naughty or nice list, as the parties abandoned the deal a month before the CMA was due to publish its Phase 1 findings and before the EC issued any findings, while there was a technical divergence in Vodafone / CK Hutchison (understandably given the UK only aspect of substance of this deal).
FIVE AI Cases
Move aside gold rings, generative AI is the must-have on agencies’ lists for 2024. In April, the CMA outlined its growing concerns regarding competition in the sector in an Update Paper on AI Foundation Models (FMs), highlighting a growing web of partnerships between generative AI providers and incumbent digital players. Hot on the heels of the report, it opened four cases relating to AI partnerships (Microsoft / Mistral, Microsoft / Inflection, Amazon / Anthropic, Alphabet / Anthropic), as discussed in this blog (it had already opened an investigation into Microsoft / OpenAI in late 2023). The CMA found that it did not have jurisdiction over three of the cases, providing a useful insight into the outer bounds of the CMA’s elastic jurisdictional thresholds:
- In Microsoft / Mistral and Alphabet / Anthropic, the CMA explored whether the acquirers’ interest in Mistral and Anthropic respectively were sufficient to confer the ability to exercise material influence. In Microsoft / Mistral, Microsoft was acquiring <1% shareholding in Mistral, whereas in Alphabet / Anthropic, Alphabet was only acquiring non-voting shares. However, in both cases, the parties had entered into complex financing and commercial arrangements (and in the case of Alphabet, it also had the right to be consulted in respect of important Board decisions). After testing issues around governance, and the arrangements between the parties, the CMA ultimately concluded that both partnerships did not confer material influence, and thus that the deals did not qualify for investigation under the CMA’s merger powers.
- Interestingly, in Amazon / Anthropic, the CMA came to the same conclusion but not on the basis that Amazon did not have the ability to exercise material influence. It did not reach any conclusion on that limb, rather finding that the deal did not qualify for review under the CMA’s merger control powers because the jurisdictional thresholds were not met (in other words, neither did the target generate a turnover of £70m or more, nor was the share of supply test met). It is usually rare for the CMA to reach a conclusion on this basis, typically because it wants to retain as much flexibility as possible over the scope of the share of supply test.
The CMA did assert jurisdiction in Microsoft / Inflection (demonstrating that it is determined to find out if this sector is naughty or nice and is not afraid to use its flexible jurisdictional tools to have a closer look at atypical ‘merger’ arrangements) but cleared it unconditionally based on the absence of competition concerns. It remains to be seen if Father Christmas will leave as a present under the competition tree what all regulatory commentators (and presumably the parties) are eagerly awaiting - the launch of the Microsoft / Open AI investigation (which has been lingering under the pre-notification mistletoe for a year now).
SIX(teen) weeks for a new Phase 2 Main Party Hearing
The CMA’s regulatory elves delivered a golden gift to merger parties earlier this year in the form of a revised Phase 2 investigation process, with its tree topper being a reworked main party hearing and a new format for its provisional findings.
As Platypus wrote about previously, the revised main party hearing now comes earlier in the Phase 2 process (at / around week 16) and is intended to be a more interactive and substantive session. The CMA has also rebranded its provisional findings, which are now called the ‘Interim Report’. This report also arrives earlier in the Phase 2 timeline with the expectation that this will be a truly provisional viewpoint, rather than a draft version of the final report.
The proof will be in the (Christmas) pudding, of whether these reforms will deliver tangible benefits for merger parties. The first Phase 2 cases to be considered under this new approach are already underway, with the debut Interim Report published in November.
A new government in the SEVENth month
In July this year, the UK changed government and the first item on Keir Starmer’s letter to Santa was “growth”. In response, the festive season got off to an early start this year for merger control enthusiasts, as discussed in our recent blog, with the CMA’s CEO, Sarah Cardell announcing a review of the CMA’s approach to remedies against the objective of optimising growth and innovation, noting that “every deal that is capable of being cleared either unconditionally or with effective remedies should be.” In particular, the review will consider when behavioural remedies may be appropriate (and any distinction in regulated industries), with a view to locking in genuine rivalry-enhancing efficiencies.
Does this mean a softer approach? Whilst the CMA is putting a cheerier Christmas sweater on its enforcement strategy and it has appeared more willing to accept behavioural remedies in recent cases, as demonstrated in the clearance of Barratt / Redrow and, more notably, Vodafone / Three (subject in both cases to a novel behavioural remedy), it remains to be seen if the wool is still itchy on the inside. As with the updated approach to the Phase 2 process, Platypus is eagerly waiting to see how this all plays out in 2025.
EIGHT Phase 2 referrals
Spanning a range of markets more diverse than gold, frankincense and myrrh, the CMA found that eight transactions needed to prove their place on the regulator’s “nice” list before getting that all-important present – clearance.
With three more Phase 2 referrals than in 2023, readers may be inclined to think that the CMA decided to embrace its inner Grinch this year. However, Platypus’ Deal Mortality-meter suggests a different story: Since 2019, 55% of deals referred to Phase 2 have ended up with nothing but a bag of coal, but more recently (since 2022), the meter has dropped to 43%. Within the Phase 1 pool itself, these eight phase 2 referrals account for less than 30% of all 2024 Phase 1 outcomes.
In fact, this year the CMA served up only two dead ducks (AlphaTheta / Serato, Spreadex / Sporting Index), two fewer than last year's prohibition / abandonment tally and jingling far fewer bells than in 2022 (7 cases) and 2020 (10 cases).
(NINE lives) CAT confirms CMA approach to information disclosure
On 25 October 2024, the UK Competition Appeal Tribunal (“CAT”) handed the CMA an early Christmas present, by confirming that the CMA benefits from a wide margin of discretion in balancing what information it considers necessary to disclose publicly and the risk of disclosure significantly harming a company’s legitimate business interests; a judgment which is sure to leave the lords and ladies of the CMA dancing and leaping!
Earlier this year, the CMA jingled its investigative bells at the anticipated acquisition of Tereos by T&L Sugars. As discussed in this blog, Tereos, feeling frosty about the whole affair, appealed to the CAT to argue that it was an un-merry move of the CMA to publish its consideration of a failing firm defence on the basis that any mention of Tereos exiting the market could harm its business interests. The CMA played Scrooge, disagreeing with Tereos, and insisting that redacting such information would jingle all the way to impairing the effectiveness of its Phase 2 investigation.
The CAT judgment, while grounded in the particular facts of this case, will likely make challenges against CMA decisions on disclosure an incrementally steeper uphill battle for merging parties going forward.
TEN years of the CMA
Ten pipers piping a well-known tune of Happy Birthday to the CMA… This year marked the CMA’s tenth birthday! Over the past decade it has launched over 1,400 cases, projects and investigations, received over 200,000 pieces of information and enquiries from members of the public, and claims to have returned over £15 billion in consumer savings (a merry stat indeed!).
An ELEVEN-day Phase 1 clearance
On the eleventh day of Christmas Platy’mas Phase 1, the CMA sent to me…rger parties Eurofins and Cellmark its decision to unconditionally clear their transaction.
As discussed in a recent blog, Father Christmas granted Platypus some rare sightings in 2024, in the form of two successful failing firm defences (i.e. where the CMA clears a transaction that would have been blocked on the basis that, absent the transaction, the target would have exited the market), namely in Eurofins / Cellmark (as mentioned above) and in T&L / Tereos (where the failing firm defence was rejected at Phase 1, but ultimately accepted at Phase 2). While not treated as a formal “failing firm” defence, earlier in the year the CMA had also cleared a joint venture in Daily Mail / News Corp on the basis that Daily Mail would have closed one of its printing sites absent the transaction.
But beware, merry revellers, for two platypuses do not make a paddle. In the same year, the CMA rejected a failing firm defence in Roche / LumiraDx, despite LumiraDx being in administration. This demonstrates that the bar remains high for parties to satisfy the CMA to accept this defence, especially at Phase 1. These two cases suggest, however, that evidence of systemic industry concerns may be just the Ghost of Christmas Past needed to convince the CMA.
TWELVE holiday / Christmas wishes from the Platypus Team
All that’s left is for Platypus to wish readers (and regulators) not one, two, three, four (etc. – you get the picture) but twelve holiday cheers for swimming with us this year. The CMA’s New Year Resolutions are already drafted, and the Platypus Team is looking forward to monotreming their success in 2025 – with the commencement of the DMCCA, a review of behavioural remedies, and the first cases under the new Phase 2 procedure reaching their conclusion, there’s sure to be plenty to write about!
