4 September 2019
Although UK politics continue to surprise, a “no deal” Brexit on 31 October 2019 now appears to be a likely – possibly the most likely – outcome of two and a half years of Brexit negotiations. A no-deal Brexit – or any exit without arrangements for the continued application of EU law in the UK during a transition period – raises significant practical questions for merging parties about the application of the EU and UK merger control regimes, in particular for transactions which have started (or are about to start) the review process in the EU.
In such a scenario, the one-stop-shop provided by the EU Merger Regulation (EUMR) will cease to apply to the UK on 31 October 2019 (or other effective date (the Withdrawal Date)),. In other words, European Commission (EC) merger approvals will no longer cover the UK, which may have jurisdiction to review the same transactions in parallel.
In time, the UK’s position will be no different than that of any other non-EU Member State. But in the near to medium term, merging parties must carefully consider Brexit’s implications for their transactions – especially as the EU and UK approaches to determining jurisdiction are not the same.
These implications can be divided based on the status of the transaction on the Withdrawal Date: (i) approved under the EUMR; (ii) notified but not approved; or (iii) not notified under the EUMR. The discussion below is based in part on guidance published by the EC and the UK’s Competition and Markets Authority (the CMA).
A. Transactions Approved under the EUMR by the Withdrawal Date
EC approval decisions adopted on or before the Withdrawal Date cover the UK, and Brexit will not affect the status of those decisions. Thus, the CMA will normally have no jurisdiction to review such decisions or to investigate the related transactions, whether or not the transaction has closed by the Withdrawal Date. If an EC approval decision is wholly or partially annulled on appeal, however, and the transaction is re-notified to the EC, it will be treated as a new transaction that had not been notified as of the Withdrawal Date. In that case, a transaction approved by the Withdrawal Date could still potentially be subject to parallel EC and CMA reviews (see below). Fortunately, it is unlikely that any such cases will arise in practice.
For transactions approved under the EUMR subject to commitments affecting UK markets, the EC will retain jurisdiction for EU law purposes to enforce those commitments and to agree to their potential modification, waiver or substitution. In doing so, however, the EC can be expected to work closely with the CMA, and would require the CMA’s agreement to exercise its powers in certain cases (for example, dawn raids of UK premises of companies suspected of not complying with a commitment under the EUMR).
B. Transactions Notified but Not Approved Under the EUMR by the Withdrawal Date
Brexit will not affect the EC’s jurisdiction over transactions notified to it but not yet approved on the Withdrawal Date, even if the parties’ UK activities were essential to establishing such jurisdiction (for example, if UK turnover was required for the transaction to meet the EUMR jurisdictional thresholds or the parties requested the referral of the transaction to the EC under Article 4(5) EUMR on the basis that three Member States had jurisdiction to review it, and one of those was the UK). However, practical aspects of the EC’s investigation of the parties’ UK activities will likely change. For example, while the EC will still have the power to issue formal requests for information covering UK activities, it will no longer have the right to conduct on-site inspections in the UK without the CMA’s consent.
Brexit may also affect the EC’s substantive analysis in some cases, for example where a question arises whether a relevant geographic market should be defined excluding the UK from an otherwise EEA-wide (or regional) geographic market. Brexit may result in narrower geographic markets being defined than in past cases, for instance where Brexit results in tariffs or non-tariff barriers being imposed. The EC will also no longer be competent to find that a transaction would (or would not) significantly impede competition in UK national or subnational markets.
Most importantly, EC decisions adopted after the Withdrawal Date will not constitute approval in the UK. Such transactions may therefore also be reviewed in parallel by the CMA if the CMA’s jurisdictional criteria are met. The UK’s position is that the CMA can review any transaction meeting its jurisdictional criteria if the EC has not approved (or prohibited) the transaction before the Withdrawal Date. The CMA can open an investigation on its own initiative, though after the deal completes it will have only fourth months from the date on which it has material facts or the Withdrawal Date, if later, to decide whether to enter an in-depth Phase 2 investigation. This has potentially significant implications for deal timetables.
The CMA’s dedicated mergers intelligence function is already working to identify transactions raising potential UK competition concerns that may be heading for review in Brussels but could qualify for parallel review in the UK. A particular concern in this respect is whether CMA will have the resources to manage a large number of reviews prompted by parallel jurisdiction with the EC. The CMA plan to reallocate resource to the mergers function , but the high volume of relevant transactions (in part driven by the fall in Sterling, which makes UK companies more attractive to non-UK purchasers) will make this a challenge.
Thus, transactions notified but not yet approved under the EUMR may be subject to parallel review by the CMA. Parties to transactions in this situation should seek advice about how best to proceed and consider consulting the CMA to avoid any surprises.
As mentioned above, Brexit may also affect the EC’s substantive analysis, including whether the EEA (or regional) geographic market continues to include the UK.
Both immediately post-Brexit, and thereafter, it seems likely that the EC and CMA will cooperate closely in cases reviewed by both, for example sharing information and coordinating information requests, but no formal arrangements for such cooperation have so far been adopted. Given the close integration of UK markets with Europe, the EC would likely seek a closer degree of cooperation than it currently enjoys with other non-Member States. Unless and until such arrangements are formalized, however, case teams and transaction parties will need to be flexible. In this respect, it should be noted that the EC has for some time been seeking waivers from notifying parties to be able to cooperate and share information with the CMA in preparation for a post-Brexit world, and in general it is likely to be in parties’ interests to agree to this.
C. Transactions Not Notified on the Withdrawal Date
For transactions that have not been notified under the EUMR by the Withdrawal Date, whether or not the EUMR applies must be determined, as always, based on the global and EEA-wide turnover of the parties concerned in the prior financial year. While Brexit will of course not affect the parties’ global turnover, the EEA-wide turnover of parties with UK activities may be reduced.
According to the EC, if signing of the transaction documents, announcement of a public bid or acquisition of a controlling interest occur before the Withdrawal Date, the notifying parties’ EEA-wide turnover includes any UK turnover. Transaction parties analysing notification requirements after the Withdrawal Date must therefore take care to avoid missing an EC filing requirement where the relevant trigger event occurred before the Withdrawal Date. Otherwise, should these key events take place after the Withdrawal Date, the parties’ EEA-wide turnover should be calculated excluding the UK. In either case, the parties will no longer be able to count the UK as one of the three Member States with jurisdiction for purposes of requesting a referral of the case to the EC.
Thus, transactions not notified on the Withdrawal Date may be subject to parallel review by the EC and the CMA.Brexit may affect merging parties’ transaction planning, in particular where EC jurisdiction turns on the inclusion of their UK turnover. Delaying signing until after the Withdrawal Date may result in no EUMR filing being required (although the alternative may be national filings in multiple EU Member States). Conversely, bringing signing forward to ensure EUMR jurisdiction may be advisable if an EU level review would be preferable to two Member State reviews. (If three or more Member State reviews would be required even without the UK, the parties will continue to have the option to request referral of the transaction to the EC.)
Conclusions
While much Brexit uncertainty remains, parties in the process of negotiating or notifying transactions in the coming months need to give careful thought to Brexit’s implications for EU and UK merger control. The authorities themselves will also be in new territory, and so some bumps in the road should be expected.
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Jay Modrall, Partner Norton Rose Fulbright LLP, Brussels James R. Modrall is an antitrust and competition lawyer based in Brussels. He joined Norton Rose Fulbright LLP in September 2013 as partner, having been a resident partner in a major US law firm since 1986. A US-qualified lawyer by background, he is a member of the bar in New York, Washington, D.C. and Belgium. With 27 years of experience, he is a leading advisor for EU and international competition work, in particular the review and clearance of international mergers and acquisitions. Mr Modrall also has extensive experience with EU financial regulatory reform, advising the world’s leading private equity groups in connection with the new EU directive on alternative investment fund managers and leading banks and investment firms on EU initiatives including EU regulation of derivatives, EU reforms in financial market regulation and the creation of a new EU framework for crisis management, among others. Mr. Modrall’s native language is English, and he is fluent in Italian and proficient in Dutch and French. | Ian Giles, Partner, Norton Rose Fulbright LLP, London Ian is an antitrust and competition lawyer based in London. He focuses in advising on all aspects of competition law with a particular focus on competition and cartel investigations and merger control. Ian has been involved in numerous significant cases in recent years, including acting for Asda in the UK Tobacco investigation and successful appeal; acting for PwC in the UK Audit market investigation; securing EU and other global merger control clearances in Delta/Virgin Atlantic and the $13.6 billion Thermo Fisher/Life Technologies transaction; and representing Stena in securing unconditional clearance before the Competition Commission in Stena/DFDS. Ian has also acted for parties in cartel investigations in the air passenger, air freight; groceries and freight forwarding sectors before UK, EU and other global regulators. Ian was Assistant Director of Competition Policy at the UK Office of Fair Trading (OFT) in 2008-9, which gives him particular insights as to the regulatory approach and perspective. Ian is a frequent speaker and author on competition issues, has been an Editor of Butterworth’s Competition Law and is an active member of the UK International Chamber of Commerce Competition Group. Ian is also a regular media commentator, including with the BBC, CNBC, the Wall Street Journal, the Financial Times, and the Guardian. |
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