The UK Government has stated that the review of mergers in the UK “should be as efficient as possible, focusing its attention on mergers most likely to be harmful to competition and consumers, without unduly hindering benign investment.”[1] To that end, the UK has a voluntary, non-suspensive system of merger control, intended to promote greater flexibility and proportionality than a suspensory regime.

Interim measures are the corollary to the UK’s voluntary merger regime, where parties are able to complete transactions without seeking clearance and the Competition and Markets Authority (CMA) can, and often does, investigate transactions that have already closed.[2] Interim measures enable the CMA to halt integration between merging firms and unwind steps that have already taken place in order to prevent pre-emptive action (i.e., to prevent steps that might affect the CMA’s ability to carry out its investigation or impose remedies if needed)[3] and to preserve a market’s pre-merger competitive structure.[4] The Competition Appeal Tribunal has largely endorsed the CMA’s approach to interim measures, finding that “[w]ithin the UK’s voluntary notification regime, interim measures play a vital role in allowing the CMA to ensure that…a merger and the actions of merging parties do not impact the pre-merger competitive structure of the market during the period of the CMA’s investigation.”[5]

Interim measures can take different forms: an Initial Enforcement Order (IEO), an Interim Order, or Interim Undertakings. At (or before) phase 1, the CMA will issue an IEO. The practical effect of these measures is the same: parties are prevented from integrating the merging businesses, from sharing confidential information, from making significant changes to either party’s business, and the merging businesses must operate independently while the CMA carries out its investigation. The CMA routinely imposes interim measures if it decides to investigate a merger that has completed or completes while the CMA’s investigation is ongoing. The CMA can also impose interim measures to prevent completion from taking place but has stated that, other than where a transaction has been referred to phase 2, it will do so only in exceptional cases, where the act of completion would itself result in pre-emptive action.[6] The CMA has powers to fine parties for breaching its interim measures and can enforce their provisions through the courts.

On 21 December 2021, the CMA published revised Guidance on its use of interim measures in merger investigations (CMA108) (the Revised Guidance). This is the third in a series of revisions to the CMA’s merger-related guidance following Brexit: first to its Guidance on Jurisdiction and Procedure published in December 2020 (CMA2revised), with further amendments in January 2022; and then to its Merger Assessment Guidelines published in March 2021 (CMA129).

Reasons for Revision

The CMA published consolidated guidance on interim measures in merger investigations as recently as June 2019.[7] Since then, the CMA has become “increasingly aware that merging parties are taking insufficient steps to ensure compliance with interim measures which is undermining the effectiveness of the UK’s voluntary, non-suspensory merger regime and has taken enforcement action where appropriate.”[8]

This has resulted in greater use of the CMA’s powers to fine companies for failing to comply with interim measures:

  • PayPal/iZettle, September The CMA fined PayPal £250,000 for breach of an IEO. PayPal had been granted a derogation relating to its non-UK business but the CMA found that PayPal’s campaigns outside the UK to promote iZettle to PayPal customers resulted in PayPal contacting potential UK customers as well. The CMA found that, in doing so, PayPal “risked impairing the ability of iZettle and PayPal to compete independently”, “risked undermining the separate sales or brand identities” of the parties It also found that the parties had failed to operate the customer lists of the two businesses separately.[9]
  • JD Sports/Footasylum, August The CMA imposed a fine of £300,000 on JD Sports for breach of an IEO. The CMA determined that Footasylum had terminated a lease on one of its stores without the CMA’s prior consent, in breach of the obligation under the IEO preventing disposals of any of the assets of the Footasylum business without the CMA’s consent. The CMA subsequently withdrew this penalty after an appeal by JD Sports. The CMA later imposed separate fines on JD Sports and Footasylum totalling close to £5 million for exchanging confidential information in breach of the IEO.
  • ION/Broadway, August 2021. The CMA fined ION a total of £325,000 for two breaches of an First, the CMA determined that ION and Broadway continued pre-existing collaboration on a draft response to a bid proposal, in breach of several provisions of the IEO. Secondly, the CMA determined that ION’s compliance reporting contained material inaccuracies and/ or omissions, leading to a further £25,000 fine.[10]
  • Facebook/GIPHY, October The CMA imposed fines totalling £50.5 million on Facebook for breaches of an IEO. The CMA fined Facebook £50 million for intentionally carving out parts of its business, activities and staff from the scope of its fortnightly compliance statements. The CMA fined Facebook a further £500,000 for changing its Chief Compliance Officer twice without seeking consent from the CMA.[11] And in February 2022, the CMA fined Facebook (Meta) a further £1.5 million for making changes to key staff without CMA consent.[12]

Amendments to the Guidance

The amendments contained in the Revised Guidance and standard-form IEO mainly clarify (1) to whom the CMA will address interim measures and (2) recommended steps to ensure compliance.

Addressees of interim measures

The CMA’s standard-form IEO states that an IEO is “normally” imposed on the target, the target’s ultimate UK parent company, the acquirer, and the acquirer’s ultimate UK parent company. It also states that, where the acquirer and/or target are overseas companies, the IEO will “typically” be imposed on both the ultimate overseas parent and (if there is one) the UK parent company of each party.

This change reflects the CMA’s recent practice to impose IEOs on both merging parties and to take a cautious approach with respect to overseas activities, i.e., to impose an IEO that applies globally in the first instance. Where obligations imposed on overseas businesses are disproportionate and could create significance compliance burdens, the CMA may be willing to grant derogations to carve out certain business activities from some of the provisions in an IEO, but will typically do so only once it is sufficiently comfortable that this will not result in pre-emptive action.[13]

Compliance with interim measures

The Revised Guidance introduces two main changes relating to compliance with interim measures.

  • Paragraph 15. In completed mergers, the acquirer is “normally additionally responsible” for ensuring compliance by the target. There is a tension between the provisions of CMA interim measures that prevent the acquirer from making changes to the target business on the one hand, and the provisions obliging the acquirer to allow the target to operate independently and preventing the target from sharing information with the acquirer on the other. The Revised Guidance recognises that the acquirer’s ability to ensure compliance may be constrained by the IEO’s “hold-separate” requirements or by the extent to which the acquirer controls the target (e.g., where the transaction involves a non-controlling minority shareholding). The CMA states that “in practice, the nature of the obligations on an acquiring business is likely to differ to that on a target business”.

These changes implicitly accept that the CMA’s standard-form IEO is not fit for all types of transactions. They also recognise that there are circumstances where it will be impossible for an acquirer to comply with some provisions of an IEO without breaching others. It is nevertheless for the parties to manage these contradictions and seek derogations from the CMA if needed.

  • Paragraph 16. The CMA expects merging parties to take a “risk-based approach” to compliance. The Revised Guidance lays out the CMA’s expectation that merging parties “undertake a thorough review” of each area of their respective businesses in order to identify compliance risks, as this “should enable merging parties to ensure that any steps taken are appropriately tailored to their respective businesses.” The Revised Guidance sets out the steps that “are likely to be, as a minimum, necessary to ensure effective compliance with Interim Measures”, namely:
  • Guidance and training for all members of staff, management, and the board, with additional training for personnel operating in “higher risk areas”;
  • Periodic internal written communications from management and the board, reiterating the importance of compliance;
  • Clear internal governance structures overseeing compliance with interim measures;
  • Delegations of authority by the acquirer to the target business; and
  • Ongoing oversight and reporting

The Revised Guidance also explains that the CMA will typically require the appointment of a monitoring trustee to monitor compliance with interim measures in cases where certain risk factors apply (such as substantial integration of the two businesses prior to the implementation of the interim measures), and where the CMA is concerned about the ability or willingness of the merging parties to comply fully with the IEO. The CMA routinely requires the appointment of a monitoring trustee where a completed transaction is referred to phase 2.

CMA Consultation Responses

The Revised Guidance also adopts a number of other changes in response to comments made in the CMA’s consultation. The Revised Guidance clarifies:

  • Interim measures imposed post-completion will not normally be addressed to the seller of the target, unless there are particular reasons to do so in the circumstances of the [14]
  • Investment vehicles and private individuals should not be responsible for compliance with interim measures unless they have oversight or control over the target.[15]
  • In circumstances where the target business does not have separate management, its parent company or a CMA-appointed hold- separate manager should take steps to ensure compliance with the obligations set out in interim measures.[16]
  • Personnel will require compliance training and guidance if “their day-to-day responsibilities could ordinarily involve them taking actions that could be affected by the applicable interim ”[17]

Conclusion

The changes introduced in the Revised Guidance are relatively minor and incremental. They do, however, underline the CMA’s determination to apply and enforce interim measures strictly. The CAT has largely endorsed the CMA’s discretion to adopt a “cautious” approach and apply global hold-separate orders on a routine basis. Even minor and inadvertent breaches of interim measures can result in significant penalties. The Revised Guidance places the burden of complying with interim measures firmly on the merging parties.

The UK’s merger regime continues to be a voluntary regime. Many transactions complete with CMA clearance, and without any interaction with the CMA at all. The CMA does, however, actively monitor for transactions that have not been notified and can call-in mergers for review if it believes they may raise competition concerns. The cost and administrative burdens of operating under interim measures is therefore becoming an increasingly important factor for companies considering the pros and cons of submitting a voluntary notification to the CMA.

[1] UK Department for Business, Energy & Industrial Strategy, Reforming Competition and Consumer Policy Consultation (July 2021), para. 1.90.

[2] Interim measures comprise (i) an initial enforcement order, (ii) an interim order, or (iii) interim undertakings.

[3] Pre-emptive action refers to “action which might prejudice the reference concerned or impede the taking of any action under [Part 3 of the Act] which may be justified by the CMA’s decisions on the reference”. See s. 72(8) of the Enterprise Act 2002.

[4] The Revised Guidance explains that “[t]he CMA’s ability to impose Interim Measures on merging parties, and to impose penalties where these have not been complied with, are the necessary corollary of having a voluntary regime.” See para. 1.6.

[5] Facebook v Competition and Markets Authority [2020] CAT 23, para. 21.

[6] Revised Guidance, paragraph 2.22.

[7] Previously, CMA guidance on this topic was divided between Guidance on initial enforcement orders and derogations in merger investigations (CMA60) and Guidance on the CMA’s Jurisdiction and Procedure (CMA2).

[8] Interim measures in merger investigations, Consultation document, 7 April 2021, para.1.6.

[9] PayPal/iZettle, Notice of penalty pursuant to section 94A of the Enterprise Act 2002, 24 September 2019.

[10] Decision to impose a penalty on ION Investment Group Limited and ION Trading Technologies Limited under section 94A of the Enterprise Act 2002, 7 August 2021.

[11] Decision to impose a penalty on Facebook, Inc., Tabby Acquisition Sub Inc., and Facebook UK Limited under section 94A of the Enterprise Act 2002, 20 October 2021.

[12] Decision to impose a penalty on Meta Platforms, Inc., Tabby Acquisition Sub Inc., and Facebook UK Limited under section 94A of the Enterprise Act 2002, 4 February 2022.

[13] Revised Guidance, para. 3.40.

[14] Interim Measures in merger investigations, Summary of responses to the consultation (Consultation Response Summary), para. 2.6(a). Revised Guidance, fn. 22.

[15] Consultation Response Summary, para. 2.8(a).

[16] Revised Guidance, para. 2.17. Consultation Response Summary, para. 2.8(c).

[17] Revised Guidance, para. 2.16(a). Consultation Response Summary, para. 2.8(f ).