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This section is extracted from part 3 of the guidance document
CC4:
General Advice and Information (pdf, 295kb). Please consult
the published version of CC4 for the complete and current
version.
Mergers
Most merger references are referred to the Commission by
the Office of Fair Trading. The mergers may be either completed
(that is, may have taken place already), or anticipated. The
OFT must normally make a reference to the Commission if it
believes that there is or may be a relevant merger situation
that has resulted or may be expected to result in a substantial
lessening of competition.
Reference questions and decisions
The group of Commission members selected to decide on a reference
is required to consider a set of up to five questions for
completed mergers and anticipated mergers. The Commissions
approach to these questions is set out in the merger guidelines.
The questions are:
For completed mergers:
- whether a relevant merger situation has been created;
and
- if so, whether the creation of that situation has resulted,
or may be expected to result, in a substantial lessening
of competition within any market or markets in the UK for
goods or services.
For anticipated mergers:
- whether arrangements are in progress or in contemplation
which, if carried into effect, will result in the creation
of a relevant merger situation; and
- if so, whether the creation of that situation may be expected
to result in a substantial lessening of competition within
any market or markets in the UK for goods or services.
A relevant merger situation is created if one of the following
thresholds is met:
- the value of the UK turnover of the enterprise acquired
(or to be acquired) exceeds 70m (the turnover test); or
- the share of supply of goods or services in the UK or
in a substantial part of the UK held (or to be held) by
the merged enterprise is at least 25 per cent (the share
of supply test).
If at least two-thirds of the group decide both questions
in the affirmative, there is an anti-competitive outcome from
the merger and the Commission must go on to consider remedies.
The remedies questions are:
For both completed and anticipated mergers:
- whether action should be taken by [the Commission]...
for the purpose of remedying, mitigating or preventing the
substantial lessening of competition concerned or any adverse
effect which has resulted from, or may be expected to result
from, the substantial lessening of competition;
- whether [the Commission] should recommend the taking of
action by others for the purpose of remedying, mitigating
or preventing the substantial lessening of competition concerned
or any adverse effect which has resulted from, or may be
expected to result from, the substantial lessening of competition;
and
- in either case, if action should be taken, what action
should be taken and what is to be remedied, mitigated or
prevented.
If the Commission finds that there is no anti-competitive
outcome resulting from the merger, no question of considering
remedies arises.
In respect of some decisions the Commission is obliged, so
far as practicable, to consult the relevant parties when
it considers that the decision it proposes to make is likely
to be adverse to their interests. The obligation applies to
decisions on the competition and remedies questions. The Commission
will formally consult the parties on its proposed decisions
on the competition questions through provisional findings,
which will be published. Consultation on its proposed decisions
on remedies may take place at that stage or subsequently.
Those proposed decisions will be published.
When making its decisions on remedial action, the Commission
must have regard to the need to achieve as comprehensive a
solution as is reasonable and practicable. It may also have
regard to the effect of any remedial action on any relevant
customer benefits arising from the merger. If the benefits
are significant the Commission may decide to take lesser action,
or even no action, so as not to jeopardise them. Relevant
customer benefits may take the form of lower prices, higher
quality or greater choice of goods or services, or greater
innovation. More detail about the consideration and selection
of remedies and the circumstances in which consumer benefits
may be balanced against remedies appears in Part 4 of the
merger guidelines.
Following consultation on its provisional findings and proposed
remedies the Commission will publish its report.
Merger public interest cases
So far this text has described normal merger cases. The
Enterprise Act also provides for the Secretary of State to
intervene in the consideration of a merger that she thinks
might raise one or more public interest considerations. Such
considerations must be specified in statute and the only one
so far specified is national security, which includes public
security.
The Secretary of State intervenes by serving an intervention
notice on the OFT. The OFT then makes a report to the Secretary
of State giving its advice on a number of matters. They include
whether a relevant merger situation has been or will be created,
whether a substantial lessening of competition has resulted
or may be expected to result, whether any relevant customer
benefits outweigh the substantial lessening of competition
and any resulting adverse effect, whether the matter might
appropriately be dealt with (disregarding any public interest
consideration) by way of undertakings, and the importance
of the market. The OFT also provides a summary of the representations
it has received about the public interest consideration in
the intervention notice. The Secretary of State then decides
whether or not the merger should be referred to the Commission
because it may be against the public interest. A reference
may be made on grounds of substantial lessening of competition
and grounds of public interest, or on grounds of public interest
alone. If the Secretary of State decides not to refer a merger
on public interest grounds, consideration of further action
falls to the OFT.
The Commissions consideration then follows broadly the same
pattern as for mergers. The two significant variations are
that the Commission must consider:
- depending on the terms of the reference, either
- (if the terms of the reference include the substantial
lessening of competition question) the substantial lessening
of competition test and the public interest test, ie whether
the merger operates, or may be expected to operate, against
the public interest, taking account of the public interest
consideration and any substantial lessening of competition;
or
- (if the terms of the reference do not include the substantial
lessening of competition question) only the public interest
test (ie whether the merger operates, or may be expected
to operate, against the public interest, taking account
of any public interest consideration);
- if there is an adverse finding on either or both the public
interest test or the substantial lessening of competition
test, what action should be taken by the Secretary of State
(and others, including the Commission itself) to remedy
the effects adverse to the public interest which have resulted
or may be expected to result from the relevant merger situation.
It is for the Secretary of State to decide whether to make
an adverse public interest finding or whether to make no finding
at all, though she may only decide not to make a finding if
she thinks that no public interest consideration is relevant
to the case. She must accept the Commissions findings on
whether there is or will be a relevant merger situation and
on the substantial lessening of competition test. Once she
has published an adverse finding on the public interest test,
she may take such action as she thinks appropriate to remedy
any adverse effects arising from the merger taking account
of the Commissions report. If, after receiving the Commissions
report, the Secretary of State decides that no public interest
consideration arises, the Commission assumes its normal role
of implementing and enforcing remedies in relation to the
adverse effects resulting from the substantial lessening of
competition as set out in its report.
Merger special public interest cases
The Act provides for an exceptional category of mergers which
can be referred on public interest consideration grounds only.
These are mergers involving a government contractor (past
or present) who holds confidential material related to defence
so triggering the consideration of national security but
who does not meet the normal qualifying thresholds relating
to turnover or the share of supply. Where this type of merger
(called a special merger situation) is referred, the question
of whether the merger will result in a substantial lessening
of competition is not an issue that can be considered. Similar
procedures to those in public interest cases apply. The Secretary
of State must issue an intervention notice; the OFT makes
a report as to whether a special merger situation has been
or will be created, including any other relevant advice, recommendations
on the public interest consideration and a summary of any
representations about the case. The Secretary of State may
refer the case to the Commission if she believes that a special
merger situation has been created or is in progress or contemplated,
that a public interest consideration is relevant and that
taking account of that consideration the merger operates or
may be expected to operate against the public interest.
The Commission considers these points and, if it considers
that the merger operates or may be expected to operate against
the public interest, makes recommendations as to the action
the Secretary of State or others should take to remedy any
adverse effects. It reports on those matters to the Secretary
of State. The Secretary of State will make the final decision
on the public interest test and take whatever remedial steps
she considers necessary.
European mergers
Generally, a merger reference will not be made to the Commission
if the case has a European Community dimension and falls to
be dealt with under the EC Merger Regulation (the ECMR) (See
Part 9 of General
Advice and Information). There are two exceptions:
- Under Article 9 of the ECMR a Member State may ask for
a merger to be referred to it in certain situations and
in this case the OFT will consider whether to refer the
merger to the Commission.
- Under Article 21(3) the Secretary of State may intervene
to protect legitimate interests - see below.
Intervention to protect legitimate interests under Article
21(3) of the ECMR
The Enterprise Act provides for the Secretary of State to
serve a European intervention notice in cases where the competition
issues have a Community dimension thus falling to be determined
under the ECMR and the Secretary of State is considering whether
to take appropriate measures to protect legitimate interests
under Article 21(3) of the ECMR. These may include, for example,
public security, plurality of the media or the maintenance
of an adequate number of water comparators in the UK water
regulatory regime. The Secretary of State may take action
when he believes that a specified public interest consideration
is relevant to the case. Only national security has been
specified in the Act so far. A statutory instrument, The Enterprise
Act 2002 (Protection of Legitimate Interests) Order 2003,
makes provision: to require the OFT to produce a report where
such a notice has been given; to enable the Secretary of State
to refer the matter to the Competition Commission for a report
within 24 weeks on whether, taking account only of the public
interest consideration, the creation of the European relevant
merger situation would operate against the public interest;
and to enable the Secretary of State to provide for the taking
of action to remedy, mitigate or prevent any effects that
arise which are adverse to the public interest. This procedure
is similar to the procedure applying to merger public interest
cases.
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