Tag Archives: prohibition

Merging Storytime And Fairytales

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Has the CMA become too tough on mergers?

There’s been an outbreak of commentary on this question in the aftermath of the CMA’s decision to prohibit the Microsoft/Activision merger.

Not only by those with direct skin in the game – but also by those using the controversy to lobby for a different UK approach to mergers, those drumming up business and those wishing to make wider political points.

But, as always, statistics can support competing narratives.

Which of the following stories is most insightful?…….

Story 1

From between 2015 and 2018 the CMA blocked 34% of mergers that were subject to an in-depth investigation.

From 2019 to 2022 – it blocked 58%.

Headline: How about – ‘The CMA is out of control and needs to be reined in’?

Story 2

Comparing the two periods the percentage of investigated mergers that the CMA blocked went up by fewer than four percentage points.

Headline: How about – ‘Move along. Little to see here’?

Story 3

The CMA considered around 4000 merger cases between 2015 and 2022. It prohibited 13 of these. Fewer than one third of one per cent.

Headline: How about – ‘The CMA is very light touch – It needs to be a lot tougher’?

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Each of these narratives uses correct information but presents it very differently.

When reading articles about UK merger trends – especially when written on the back of an individual case outcome – here are three key questions well worth asking:

  1. What’s in the picture? And – often more to the point – what’s not?
  2. Who’s saying it? And what’s their interest?
  3. To what extent does the conclusion put forward actually follow from the statistics presented?

UK Merger Insights: 2023 No.4

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Here’s a selection of some of the best articles I have read recently that are relevant to UK merger control………….

Unsurprisingly – a number of these are about the CMA’s much-discussed decision regarding the Microsoft/Activision deal………..

To date, it’s been rare to come across commentary about this deal that a) accurately describes the CMA process, b) gives a balanced portrayal of the CMA’s decision and c) transparently describes the authors’ involvement with, or interest in, the case. If you know of any – please feel free to comment below.

1. Changes to UK Merger Control

Bill Batchelor and colleagues summarise here the planned forthcoming changes to CMA jurisdictional thresholds and investigation procedures.

2. Setting Out The Stall

Alex Hern presents the logic behind the CMA’s prohibition of the Microsoft/Activision deal. Link here

3. War Of The Words

In this piece, Reece Goodall looks at the war of words that broke out following the CMA’s announcement prohibiting the Microsoft/Activision deal

4. Vive La Difference

Here Jacob Parry examines why the CMA and the EC came to different decisions regarding the Microsoft/Activision merger.

5. A Very Costly CMA Merger Prohibition

Paul Sawers looks at the Meta/Giphy case and how costly a CMA merger prohibition can be. Link here.

The Great Bake … Off

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Cérélia/Jus-Rol

On January 20th the CMA announced its first merger prohibition of the new year by concluding that merger between Cérélia andJus-Rol is likely to reduce competition substantially and that Jus-Rol needs to be sold to an independent buyer.

It is unusual to see a case in the food manufacturing sector referred to a Phase 2 inquiry. In fact it’s only the second time for the CMA, out of 29 cases to date.

And this is the first to be prohibited.

According to the CMA, Jus-Rol is by far the largest supplier of branded ready-to-bake products in the UK, while Cérélia is the largest supplier of own-label ready-to-bake products, making these items on behalf of some of the nation’s largest grocery retailers.

Key to the CMA’s Phase 2 conclusion were the following findings:

  • the merger brings together the 2 leading suppliers in the market by a considerable margin – ready-to-bake items supplied by Cérélia and Jus-Rol account for nearly two-thirds of all such products sold to grocery retailers in the UK.
  • Jus-Rol items compete with supermarkets’ own-label products supplied by Cérélia for the same space on many supermarket shelves.
  • grocery customers regard the companies’ products to be important alternatives to one another – particularly because there are few credible alternative suppliers of either branded or own-label products.
  • the merging businesses face limited competition, with all other suppliers being far smaller and many of them lacking the capabilities held by Cérélia and Jus-Rol.

So is this food sector prohibition as unusual as it might seem?

Not if you look more widely than this particular sector.

According to my analysis there have been 10 previous deals with the same pattern of key evidence, across all sectors. Only two have raised no significant competition problems and none have so far survived the Phase 2 process.

The link to the CMA’s Phase 2 report is here.

More Mergers Going Nowhere?

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There’s been a lot of attention recently on a flurry of merger transactions that have been abandoned at Phase 2 of the Competition and Market Authority (CMA) merger control process.

Some say that this is because the CMA has got tougher on mergers, especially under the leadership of Andrew Tyrie.

Overall, however, the proportion of investigated transactions that do not proceed – either because they are abandoned by the parties or prohibited by the CMA – has been almost identical under the CMA to the proportion under its predecessor body, the Competition Commission (CC).

However, the CMA allows certain deals to proceed without formal investigation that would once have been reviewed under its predecessor agencies.

If the figures were adjusted to allow like-for-like comparison it is arguable that a lower proportion of deals are abandoned or prohibited following CMA scrutiny than was previously the case.

Nevertheless, it is also the case that the percentage of investigated deals abandoned or prohibited has been at record high levels over the past couple of years, contrasting with very low levels in the CMA’s first four years.

The key question is the extent to which recent figures represent normal annual variation, a sign of tougher CMA policy or a sign that companies have attempted riskier transactions.

My own analysis suggests that the profile of cases has played an important part.

In particular, compared to previous years, there have been notable increases in the percentage of cases involving:

  • high shares of supply – and/or
  • few remaining competitors – and/or
  • close competition between the merging parties.

In 2019, for example, nearly 10% of cases involved all three features – much higher than previously.

At the same time a sharp fall in the proportion of cases involving assets with potential for divestment to solve competition problems fed directly through to:

  • more reference cases
  • more Phase 2 prohibitions
  • more companies deciding to abandon their merger.

Looking ahead, a big question is whether the fall out from the Covid-19 crisis will further embolden firms to undertake deals with significant levels of merger control risk.

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What proportion of deals investigated by the CMA has been prohibited or abandoned?Click below on the figure you think is closest to the answer: