DMCC Act: Key changes to the UK's merger control regime
18 June 2024
The Digital Markets, Competition and Consumers Act (DMCC Act), which received Royal Assent on 24 May 2024 (see our May 2024 update), includes significant changes to the UK's voluntary merger control regime. The reforms enhance the CMA's jurisdiction to review transactions, in particular so-called "killer acquisitions", while also giving the CMA and merger parties more flexibility during the investigative process. The DMCC Act also significantly increases the CMA's ability to fine undertakings for failures to comply with statutory requests, undertakings or enforcement orders.
While much of the commentary on the DMCC Act has focused on the CMA's new digital markets and consumer enforcement powers, the Act also makes significant changes to the UK merger control regime.
The CMA currently has jurisdiction to review mergers if: (i) the target's UK turnover is more than GBP 70 million or (ii) the merger creates or enhances a share of 25% or more in the supply or consumption of goods or services in the UK (or in a substantial part of the UK).
The new Act gives the CMA broader powers to review transactions that may affect the UK, by:
The new jurisdictional threshold will allow the CMA to review transactions where the standard turnover and share of supply tests are not met, for example, because there is no overlap or increment in the parties' UK activities. The CMA will be able to review transactions where at least one party (most likely the acquirer):
While the highly (and some would say unpredictably) flexible share of supply test has not been changed, the Act creates a new safe-harbour from review for transactions where each of the parties have UK turnover of less than GBP 10 million.
The DMCC Act also introduces a number of sector specific merger control regimes for:
Firms designated as having SMS will be required to report mergers involving targets with a UK presence where:
Successive transactions between the same parties may trigger the duty to report more than once. The notification obligation does not apply if the transaction has already been notified to the CMA under the standard merger control process.
The CMA has five working days from receiving a notification to confirm whether the notification is sufficient (the waiting period) and then a further five days to review the transaction (the review period). The transaction must not be closed until the review period has ended.
The Act creates a new regime for mergers involving newspapers and foreign enterprises. The Secretary of State must give the CMA a foreign state intervention notice if:
Foreign power is defined broadly: it includes the head of state (in their public or private capacity), foreign governments, senior members of a foreign government in their private capacity, foreign government agencies and governing political parties and their members in a private capacity.
These provisions, which were introduced in response to the proposed acquisition of the Telegraph Group by the UAE-backed investment group RedBird IMI entered into force on 24 May 2024 and the new regime applies to all transactions that completed on or after 13 March 2024. The regime will apply alongside the existing power for the Secretary of State to intervene on the basis of the media plurality public interest ground.
The energy network enterprise mergers regime was introduced to give the CMA the ability to assess whether such transactions would prejudice Ofgem's ability to carry out its functions regulating gas and electricity supply in the UK.
The DMCC Act makes clear that the CMA is able to refer a transaction for an in-depth assessment on competition grounds, even if the transaction has been separately referred to assess whether it may prejudice Ofgem's ability to regulate gas and electricity supply. Following a reference, the CMA can publish a report concluding that there is:
These amendments will apply from 23 July 2024.
The question of whether the CMA's compulsory information gathering powers are extra-territorial arose in the CMA's Competition Act 1998 (CA98) investigation into suspected anti-competitive conduct relating to end-of-life vehicles. At first instance, the Competition Appeal Tribunal (CAT) concluded that the CMA's powers were not extra-territorial. While the CAT's decision was overturned by the Court of Appeal (see our January 2024 update), the decision has been appealed to the UK Supreme Court.
In light of the uncertainty, the DMCC Act expressly confirms that the CMA's information gathering powers (including in the exercise of its merger functions) are extra-territorial in effect.
Where the parties accept that a Phase 2 reference will very likely be made, they can request the CMA to "fast track" the case during pre-notification or at any point in the Phase 1 process. To request a fast track to Phase 2, parties must accept (in writing) that there is sufficient evidence available to meet the statutory threshold for a reference (e.g., there is a realistic prospect the transaction may be expected to result in a substantial lessening of competition). In a notable change from the current 'fast track' process, the DMCC Act will remove the need to concede that the merger may give rise to competition concerns.
Where a case is fast-tracked to Phase 2, the CMA can extend the statutory Phase 2 review period of 24 weeks by up to 11 weeks if it considers there are special reasons to do so. This is in contrast to the CMA's ability to extend Phase 2 investigations by up to 8 weeks if it considers there are special reasons to do so.
In addition, the DMCC Act allows a Phase 2 review to be extended beyond the statutory time period where the parties and the CMA agree to do so.
Currently, the CMA has the power to issue fines to companies that fail to respond to a statutory request for information or provide false and misleading information: however, the maximum penalties are GBP 30,000, a daily sum of GBP 15,000 or both a fixed and daily sum.
While these amounts remain unchanged for individuals, the new Act gives the CMA the power to levy significantly greater fines for undertakings, with companies facing potential fines of:
Prior to issuing a penalty notice, the CMA is required to issue a provisional penalty notice and provide an opportunity for the company to make representations.
Under the Enterprise Act 2002 (EA02), the CMA can impose penalties of up to 5% of a company's global turnover for failing to comply with interim enforcement orders (IEOs) and interim undertakings or orders. However, the CMA cannot currently fine companies for failing to comply with final orders, undertakings in lieu of a reference (UILs) or final undertakings.
The DMCC Act (once in force) will give the CMA the power to fine companies for breaches of enforcement undertakings (including UILs and final undertakings) and enforcement orders (including final orders and orders issued to companies to comply with undertakings). The CMA will be able to impose:
The DMCC Act creates a framework allowing the CMA to respond to requests from overseas regulators for assistance with foreign mergers: for example, an overseas regulator could ask the CMA to use its information gathering powers under the EA02. The CMA may only assist if the request is made pursuant to a qualifying cooperation arrangement (or otherwise approved by the Secretary of State) and the CMA considers it appropriate to assist in the particular case.
The CMA is currently consulting on its draft guidance on the use of its new powers and the factors it will take into account when exercising these powers.
The DMCC Act also amends Part 9 of the EA02, which gives the CMA more flexibility to share information with overseas regulators in certain circumstances.
With thanks to Isabella Hunt for her contribution.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.