The Competition and Markets Authority (CMA) is becoming more active in enforcing interim measures on mergers. Craig Reed and Katy Mattingley consider recent developments relating to the implementation of interim measures.
The interim measures that the Competition Markets Authority can bring into play on mergers include initial enforcement orders (IEO) and interim orders (IO). These can be imposed on completed, and in some cases, anticipated mergers that require the merging businesses to be held separate while the CMA carries out its investigation.
The underlying principle of the hold-separate requirement is to prevent merging parties from taking ‘pre-emptive action’. These might prejudice the outcome of the reference or impede the CMA from taking any appropriate remedial action.
Competition Markets Authority derogation
In recent months, numerous parties involved in mergers have asked for a blanket derogation on interim measures. This would give them consent to undertake measures that are normally prohibited under an IEO, in order to deal with the operational challenges brought about by COVID-19.
However, the Competition Markets Authority issued guidance in April stating that it will continue to assess each merger and request for derogation on a case-by-case basis. Furthermore, this guidance advised that, should the Competition Markets Authority decide to investigate a merger, it will continue to impose interim measures on mergers in line with its usual policy, regardless of the current circumstances. As such, the CMA is unlikely to lift interim measures that are already in place during the course of its review.
A history of Competition Markets Authority fines
The Competition Markets Authority has many tools in its armoury for ensuring interim measures on mergers are met, including the power to impose fines. Until relatively recently the CMA had not used these powers, but following the Electro Rent fine in June 2018, this has been increasingly used as a deterrent.
Most recently, the CMA fined PayPal/iZettle in September 2019. This latest fine was imposed for a breach of interim measures regarding the cross-selling of pilot campaigns to UK customers of iZettle.
This follows fines imposed on the mergers of Ausurus/Metal & Waste, Vanilla Group/Washstation and Nicholls (Fuels Oils)/DCC Energy. In the latter case, for three breaches of interim measures on mergers in respect of:
the relocation of staff
using its own assets to service the target business
failing to provide compliance statements.
The Competition Markets Authority’s June 2019 guidance for interim measures on mergers noted it had not yet made use of its full fining powers as fines had been less than the 5% of worldwide turnover, but that it would not hesitate to use these should this prove necessary to act as a deterrent.
Monitoring Trustees and Hold Separate Managers
Another tool in the Competition Markets Authority’s armoury is the use of a Monitoring Trustee (MT) or, occasionally, a Hold Separate Manager (HSM). While MTs are a familiar tool used by the CMA and its predecessors, the Office of Fair Trading and the Competition Commission, HSMs are less common and most-frequently used in conjunction with an MT.
The Monitoring Trustee’s role is to assess the hold-separate and ring-fencing structure put in place by the organisation, and to provide recommendations to improve the structure, whereas the Hold Separate Manager is a day-to-day operational role guided by the MT. This is commonplace for European Commission merger cases with divestment remedies.
The MT and HSM model has been used for:
Vanilla Group/Washstation (2018)
Nicholl Fuels/DCC Energy (2018)
Bottomline Technologies/Experian (2019)
ION Investments/Broadway (2020)
Our advice for supervising Hold Separate Managers
We've been appointed as a Monitoring Trustee in over 80 cases, reporting to more than 20 regulators, including the Competition Markets Authority, and have often supervised Hold Separate Managers. In our experience, it's important for MTs to ensure there is an appropriate derogation of authority in place, including appropriate expenditure limits, and the Hold Separate Manager has a clear understanding of:
the role, including interactions with the MT
the independence requirements, including any restrictions in place on their ability to return to the acquiror
what constitutes confidential information in order to ensure appropriate ring-fencing measures are put in place
any agreed derogations and the limitations of those derogations
For more information on the role of the Monitoring Trustee and/or using Hold Separate Managers, contact Craig Reed.