The Competition Commission (CC) published its new merger remedy guidelines on 26 November 2008, following an earlier public consultation. The Competition Commission (CC) published its new merger remedy guidelines on 26 November 2008, following an earlier public consultation. These guidelines address the types of remedy which the CC will find acceptable to deal with a "substantial lessening of competition" which its merger review has identified.
The new guidelines replace previous guidance which focused mainly on divestment remedies. The new guidelines include guidance on behavioural remedies and on remedies involving intellectual property rights, as well as more details on divestment remedies e.g. criteria for suitable purchasers.
Overall, the CC appears to have toughened its stance on merger remedies. Under the new guidelines it now seems more likely:
- to consider requiring an upfront buyer for divestments;
- to recommend the use of trustees for overseeing the remedy process and for monitoring how parties implement remedies;
- for completed mergers, to require interim undertakings, preventing the acquirer from taking further steps to integrate the merging businesses and possibly other supplementary requirements – these could even involve requiring some unwinding measures on occasion (the Office of Fair Trading has similarly hardened its stance on non-integration over recent months);
- to require merging parties to give ‘hold-separate’ undertakings (requiring the divestiture package to be held and managed separately from the retained business);
- to review the progress of divestitures or have a third party monitor this.
Although the CC maintains its view that structural remedies are likely to be preferred to behavioural remedies, the new guidance does provide further analysis of how the CC will analyse behavioural remedies. It considers behavioural remedies as being split into two types:
- enabling measures – these seek to remove obstacles to competition or to stimulate competition e.g. supply commitments;
- measures that control outcomes – these seek to restrict the adverse effects of an identified significant lessening of competition e.g. price regulation.
These two types of behavioural remedy are not mutually exclusive and an acceptable remedy package could involve both types. The CC goes into a lot of detail on behavioural remedies. It is interesting that the CC notes that it will only accept remedy measures which control outcomes where other, more effective remedies are not feasible or appropriate. In addition, the CC states that “when this class of remedy is employed, it is most likely to be used on a temporary basis unless there is no alternative to a continuing regulatory solution.”
In terms of suitable purchasers, the new CC guidelines add to the previous guidance in a number of ways, including:
- purchaser’s independence – the CC clarifies that the purchaser should have no significant connection to the merger parties which may compromise the purchaser’s incentives to compete with the merged entity, for example an equity interest, shared directors, reciprocal trading relationships or continuing financial assistance;
- purchaser’s capability – highly leveraged acquisitions of divestiture packages which leave little scope for competitive levels of capital expenditure or product development are unlikely to satisfy this criterion;
- where there are competing buyers for the divestment package, the CC will generally wish to evaluate whether prospective purchasers fulfil the criteria before any purchaser is granted exclusivity to undertake detailed due diligence;
- the CC confirms that it will keep the progress of a divestiture under “close scrutiny”.
Please click here for the full text of the new merger remedy guidelines.