The Competition and Markets Authority has just completed its fourth year.
One particular development stands out, looking at the pattern of outcomes among the 250+ CMA merger decisions since 2014….
More Phase 1 remedies: Fewer Phase 2 investigations
On average, the Competition and Markets Authority (CMA) has accepted between 3 and 4 more remedy outcomes each year at Phase 1 than the Office of Fair Trading (OFT) which had responsibility for Phase 1 mergers until 2014.
At first glance that increase doesn’t look significant…. until one considers that:
- the average number of Phase 1 remedies under the OFT was only 5 in the first place and that
- the CMA has been formally considering 30% fewer cases than did the OFT.
The number of references to Phase 2 is on average just over 3 lower each year than it was before the CMA took over responsibility for Phase 2 mergers from the Competition Commission.
While there is not be a direct one-for-one relationship between the increased average number of remedies and the lower average number of references, a link would not be too surprising given the CMA’s stated policy of resolving more cases at Phase 1.
Overall, the percentage of problematic Phase 1 cases resolved through Phase 1 remedies, rather than reference to Phase 2, has been more that a third higher in the CMA’s first four years than for any four-year period under the OFT.
What has been the change in the pattern of outcomes at Phase 2?
The reduction in the average number of Phase 2 cases under the CMA reflects, in order of scale of change:
- fewer mergers being abandoned on reference to Phase 2
- fewer Phase 2 clearances
- the near elimination of Phase 2 prohibitions and
- a lower number of Phase 2 remedy outcomes.
This is consistent with the notion that, if there is some link between more Phase 1 remedies and fewer references to Phase 2, it is the more ‘marginal’ and more ‘fragile’ that may have been most affected.
If so it means that some cases that might have been cleared at Phase 2 are undergoing merger remedies at Phase 1.
This may be one reason why the proportion of cases being unconditionally cleared at Phase 1 or at Phase 2 is sharply lower under the CMA than it was under the OFT. (Another is the CMA’s greater selectivity in which cases formally to investigate.)
How Are Companies Responding?
Judging from conversations during some of my recent merger briefing sessions ,some companies considering or implementing mergers are already paying much closer attention to the potential for a Phase 1 remedy outcome than used to be the case.
This includes thinking harder about the more expansive types of Phase 1 remedy that the CMA has shown itself prepared to consider and accept.
For some it also means attending more to how they shape and scope their transactions and how they measure the degree of merger control risk they are taking on.
There are plenty of lessons merging companies can learn from the CMA’s 34 Phase 1 remedy cases so far – the subject of one of my recent briefings.
In recent months the rate of remedied cases has come back somewhat from its peak. Looking ahead, it will be interesting to see, therefore, whether we have already reached ‘peak Phase 1 remedy’.