The CMA’s Call of Duty: merger process introspection and proposed system reforms

The CMA’s Sarah Cardell (Chief Executive) and Martin Coleman (Panel Chair) gave important speeches on UK merger control today (20 November 2023) which seek to provide more engagement to merger parties in Phase 2 merger investigations and revise the CMA’s guidance in relation to deals in markets considered too small to warrant in-depth Phase 2 investigation. 

These speeches stand out for two reasons: first, it is unusual for the CMA (or any regulator) to provide such a robust defence of its practices and conduct, particularly in relation to a specific case – Microsoft / Activision; and second, the CMA outlined material reforms to its Phase 2 process which have the scope to significantly change how merger parties will interact with the CMA in complex and important cases in the future. 

These speeches come at an important juncture for the CMA and at a point at which it has faced significant scrutiny following its so called “Phase 3” decision with respect to Microsoft’s acquisition of Activision. Cardell acknowledged that the CMA’s decision had been something of a “lightning rod” for discussions about the regime. 

Whilst the speeches were wide ranging, there are four key themes which emerge: 

First, both Cardell and Coleman were at pains to emphasise that the CMA is truly independent of political interference in its decision making and that they take immense pride in the CMA’s “independent, objective and evidence based approach to merger control”, being “driven by outcomes rather than ideology”. Cardell was particularly clear on this point, noting that “any attempt to lobby for political interference in the merger control process will fail”. Specifically on Microsoft / Activision Cardell noted that there “was no attempt by any politician, political advisor, or government official to influence our decision-making in that case.”

Whilst Cardell and Coleman were unequivocal on these points, there will always be lingering doubts (which Cardell acknowledged) as to whether the media and political scrutiny which followed the CMA’s Final Report in Microsoft / Activision had an impact on its subsequent conduct in that case and importantly, will have in future cases. Cardell suggested that this was partly a result of political lobbyists reinforcing this interpretation of events and warned parties against thinking a Phase 3 process was available in the future. 

Second, the CMA spoke about the drivers and motivations for its merger decisions. Cardell noted that the CMA’s responsibility when reviewing mergers was to evaluate whether they would result in a “substantial lessening of competition” and not to consider their “wider impact on economic growth”. This follows calls for the CMA to refine its approach and be more cognisant of the impact its decisions could have on ‘UK plc’. The CMA’s stance here is unsurprising given the way in which its powers are drafted under statute, but Platypus anticipates that this could be an area of increased focus particularly as we near the next election. The CMA is at pains to say that active competition enforcement and economic growth and productivity are not at odds; however, the CMA’s more interventionist stance in relation to mergers is at odds with the de-regulatory agenda of other agencies for example in the financial services sector.

Third, both Cardell and Colman spent time discussing dynamic theories of harm which have been an area of intense focus and debate across the antitrust community. Coleman took time to specifically rebut earlier comments by Sir Marcus Smith, President of the Competition Appeal Tribunal, that analysis of certain mergers in dynamic markets amounted to “crystal ball gazing”. Specifically, Coleman noted that whilst the CMA’s analysis was “forward looking” it was not “fortune telling” and the legal test for the CMA is of course in Phase 2 whether an SLC is more likely than not. 

Whilst these comments are welcome, advisers will continue to find it difficult to predict when an ecosystem theory of harm will take hold and parties contemplating deals in dynamic markets will remain concerned that the CMA will be taking difficult, speculative decisions in markets that are nascent or fast moving and hard for their own business development teams to predict and recover investments in. 

Fourth, international alignment (i.e lack thereof). Cardell acknowledged the importance of open channels of communication between international authorities reviewing the same transaction and the benefits of this to substantive assessment. However, she reiterated that the CMA’s duty is to the protection of UK consumers, reflecting “differences in market features, evidence base, differences in our statutory duties and legal frameworks or, on occasion, differences of judgement”.

These are all themes which Platypus has previously dipped its flipper in, see our previous blogs (here, here and here) on international alignment, on dynamic theories of harm and drivers for merger decisions, including political influence. 

The CMA then unveiled a series of system reforms for its Phase 2 process and the de minimis exemption (see our previous posts on Phase 2 reforms and the broader reforms planned). The Phase 2 reforms fall into three key areas:

1 Engagement and earlier articulation of substantive issues

The CMA noted that many respondents to its earlier call for information had “expressed a desire for more opportunities to engage directly with the Inquiry Group”. With this feedback in mind the CMA is proposing to make the following changes to its Phase 2 procedure: 

• No more issues statement: the CMA is intending to abolish the annotated issues statement and its Phase 1 decision will be the starting point to identify the key issues in Phase 2. Parties will be invited to provide comments on the Phase 1 decision at the outset of Phase 2. 
• Earlier engagement with the Inquiry Group: the proposed new guidance formalises a teach-in / site visit which will give the Parties an opportunity to explain how their business works and inform the Group about the markets at issue. It’s unclear at this stage how substantively different this set piece will be from the CMA’s existing site visit. However, what is new is the opportunity merger parties will be given to present their case to the Group at an early stage. It is expected this will follow the merger parties’ response to the Phase 1 decision and will replace the letter many Platypii have written to the Panel and case team trying to pre-empt behind doors teach ins from the Phase I team; and to present a pithy summary of the reasons and evidence available to support a clearance decision.
• Greater engagement with the case team: the CMA expect there will be an increased number of informal update calls throughout the inquiry, the intention being that the merger parties will have greater visibility of the CMA’s progress and issues that are important to the Group. 

2 Interim report and redesigned main party hearing 

Respondents to the CMA’s call for information noted that provisional findings currently come too late in the process to allow the merger parties to meaningfully engage with the Inquiry Group’s concerns or assessment. Similarly, many felt that the main party hearing in its current form provided limited scope for meaningful dialogue. In response, the CMA has proposed the following changes: 

• Interim Report: the CMA will provide the merger parties an earlier and less definitive provisional decision through a new “interim report”. Parties will be invited to respond to this report through written representations and an unredacted version will be made available to advisors. 
• Revised main party hearing: the Parties will have the opportunity to make oral submissions in response to the interim report at a new main party hearing. The CMA anticipates that hearings “will be less focused on information gathering and more interactive in nature than is currently the case”. The CMA anticipates that the merger parties will still take the lead in hearings and does not expect them to become advisor led. Many merger parties have felt the MPH has had a set piece feel to it; is time bound and a more discursive engagement with the panel will be welcomed by many previous system users.
• No changes to access to file: the CMA has no intention to introduce a “full” access to file process (a la the European Commission) despite feedback from many respondents that this would help improve the Phase 2 process and allow for more informed discussion at main party hearing. The CMA noted that its existing process had been given a “clean bill of health” in the CAT and that an access to file process would be disproportionate given the short timescales in Phase 2 cases. Platypus has long been an advocate for an access to file regime at Phase 2 and is disappointed that the CMA has not used this opportunity to overhaul and reform the closed book nature of evidence on the file. When evidence has been made available to merger parties it has usually been at provisional findings stage and too late to change the outcome. 

Whilst the earlier disclosure (via confidentiality ring) in advance of the main party hearing is very welcome, as is the CMA offer in appropriate cases to provide merger parties more detail of complaints, the CMA approach is no means ‘best in class’ and many other administrative process jurisdictions (including the EU) find time in their processes to allow parties to see all relevant underlying documents such that this reasoning rings rather hollow.

3 Remedies

Respondents noted that it is challenging to have early engagement with the CMA, given the rigidity of the existing Phase 2 timeline and lack of a clear interlocutor amongst the CMA panel members to have such a discussion with and the inability to offer a “fix” when the “problem” has not been clearly identified by the ultimate decision makers at an early stage. The CMA proposes the following alterations to its existing approach: 

• A revamped remedies procedure: that seeks to remove these barriers by introducing a number of prompts for merging parties to consider “without prejudice” remedies discussions at an early stage.
• New remedies form: that the Parties will be asked to submit to the CMA following the Inquiry Group’s new interim report. This will help to ensure that remedies are considered at an early stage of the process and there will be scope for the parties to submit the form an earlier stage if appropriate.
• Greater engagement: The CMA intends to have greater discussion with parties about remedies throughout Phase 2 – including holding at least one remedy meeting and a greater number of information discussions at an earlier stage.

The CMA also outlined proposed reforms to the “de minimis” exception. The current de minimis exception allows the CMA to de-prioritise investigating certain mergers, where the costs of a Phase 2 would not be merited, focusing its resources on those mergers which will have the biggest impact on UK consumers. 

Under the reforms proposed, the thresholds (value of the UK markets concerned) beneath which it may deprioritise would be raised from £15m to over £30m and the two-tier thresholds currently in the guidance streamlined to the one market size test above. 

In deciding whether to de-minimise a merger, the CMA would consider: 

• Market size (including whether revenues are the appropriate metric) - e.g. they will not be in digital markets, which involve pre-monetisation revenues; and
• Replicability – i.e. is this one merger of a large number of mergers which could take place across the sector. This will particularly be the case in local markets; and
• The nature of potential detriment (having regard to the CMA’s objectives and priorities in its Annual Plan. So, for example, “core areas of expenditure” for households are part of the annual plan meaning that the discretionary spend markets are more likely to be focus for the CMA).

The CMA is clear it will not de-minimise small individual local market deals (vets was especially called out) as the cumulative effect of consolidation in markets may be significant notwithstanding small individual deal size. It remains to be seen how impactful these de minimis reforms will be given the plans to widen the CMA’s already expansive jurisdiction in the Digital Markets, Competition and Consumers Bill. 

Final thoughts 

Platypus is pleased with the CMA’s willingness to reconsider its processes in Phase 2; and its approach to small markets. However, access to file is an area in which Platypus would urge the CMA to re-consider its approach in the consultation on the reforms: it is an area of crucial due process in which merger parties feel they cannot fight a fair fight if they are in the dark on the evidence the CMA has been provided or gathered.