The Competition and Markets Authority (CMA) has adopted a revised phase 2 investigation process and published updated Guidance on the CMA’s Jurisdiction and Procedure and Exceptions to the Duty to Refer.  The changes come after a period of extensive consultation and stakeholder engagement.  The new rules will apply to all investigations formally opened on or after 25 April 2024 that are subsequently referred to phase 2.

In implementing these changes, the CMA is responding to concerns raised by stakeholders in response to its call for information of June 2023, that there were insufficient opportunities for merging parties to engage with phase 2 Inquiry Group (the phase 2 decision makers).  Respondents had raised particular concerns that there were insufficient opportunities to understand the Inquiry Group’s emerging thinking and, if appropriate, engage meaningfully on remedy proposals. Through the revised procedure, the CMA aims to streamline the phase 2 process to create space in the timetable to address these concerns.

Martin Coleman, Chair of the CMA’s Independent Panel of Experts, said that the “new process will facilitate early engagement with the merging businesses” and that “there will be clear opportunities for the businesses to tell us in person why they believe the merger should be cleared and to discuss potential remedies at an early stage.”

The principal revisions to the process can be summarized as follows.

1. Streamlined start to the phase 2 process with additional early-stage engagement on substance

  • The phase 1 decision will become the starting point for the substantive assessment at phase 2, replacing the current issues statement. Merging parties and interested third parties will be invited to make written submissions on the phase 1 decision.
  • The current practice of holding a “teach-in” briefing to inform the Inquiry Group about the markets at issue (sometimes combined with a site visit), will be formalised and held at the outset of the phase 2 inquiry as standard.
  • A new “initial substantive meeting” will provide merging parties (and in some cases also third parties) with an early opportunity to present their substantive case in person to the Inquiry Group.
  • The CMA may seek the parties’ early views on specific evidence or analysis but an annotated issues statement and working papers will no longer be issued.

2. A new interim report and revamped main party hearing

  • A new interim report will be published at an earlier stage than the current provisional findings report.  This is intended to allow merging parties and interested third parties more time to engage.  The interim report will set out the Inquiry Group’s provisional assessment on the statutory questions. It will be a less definitive statement of the case than the current provisional findings report. This change is intended to ensure that merging parties have an opportunity to engage meaningfully on the substance of the Inquiry Group’s analysis earlier in process.
  • The revamped main party hearing will provide the merging parties with the opportunity to respond directly to the Inquiry Group’s provisional assessment, as set out in the interim report. The hearing will be less focused on information gathering by the Inquiry Group and more interactive, akin to an issues meeting at phase 1.
  • There will be greater scope for evidence gathering and analysis after the interim report has been issued than today.  It is also more likely that the Inquiry Group will change its views after issuing an interim report than following provisional findings today.  
  • The CMA will be able to issue supplemental interim reports and/or disclose further evidence to merging parties if needed.

3. Enhanced engagement on potential remedies

  • There will be increased transparency around “without prejudice” remedies discussions.  There will be specific prompts in the process for merging parties to consider whether to open remedies discussions, and additional opportunities to obtain feedback on remedies that are proposed sufficiently early in the investigation
  • The CMA has introduced a standard Phase 2 Remedies Form (similar to the current phase 1 remedies form) to submit remedies proposals.  This is intended to provide greater clarity around what information will is required for the CMA to assess parties’ remedy proposals.
  • The Inquiry Group will provide feedback on remedies proposals to facilitate revised offers before Inquiry Group issues an interim report on remedies.
  • A final remedies call will typically be held to clarify any outstanding issues following the parties’ response to the CMA’s interim report on remedies.

4. Other opportunities for engagement

  • The CMA is keen to make greater use of informal update calls throughout its phase 2 inquiries.  As well as for administrative matters, these calls may be used for the CMA to explain matters of substance.  For example, the CMA may use regular update calls to indicate areas where the Inquiry Group would benefit from further evidence, or to confirm that the Inquiry Group is no longer minded to pursue certain theories of harm.
  • Update calls will not replace the formal stages of the process at which the CMA shares its substantive thinking.  They should, however, provide more visibility into the Inquiry Group’s emerging thinking and facilitate more targeted submissions.
  • The CMA will consider holding economist-to-economist calls, where there are novel or complex theories of harm or where complex quantitative analysis is needed.

In parallel to publishing its new phase 2 procedural guidance, the CMA has also updated its merger notice forms and template waiver.

De Minimis threshold

Separately, the CMA has increased its de minimis threshold from £15 million to £30 million.  The threshold is not binding but indicates the target turnover below which the CMA will typically conclude that a merger is of insufficient importance to merit a phase 2 investigation.  The CMA hopes that this will allow it to allocate its staff and resources more effectively.  The CMA has stated, however, that it is less likely to apply the de minimis exception in nascent markets or in markets where there has been significant M&A activity.

A new, binding, de minimis threshold has been proposed under the Digital Markets, Competition and Consumers Bill.  

Outlook

The CMA hopes that these reforms will foster constructive engagement between the merger parties and decision makers and, where appropriate, facilitate early remedies discussions.  In November 2023, Martin Coleman sought to reassure parties that Inquiry Groups would not pursue remedies as a matter of course, where the competition concerns were borderline, nor would inquiry Groups prejudge their decisions on the substance of an investigation.  He nevertheless encouraged merging parties to engage constructively on possible remedies, stating: “It is through this combination of fair and efficient processes and effective engagement with merger parties, other businesses and consumers that we are best able to identify competition concerns and prevent or mitigate them where necessary.”

CMA Chief Executive, Sarah Cardell, also made clear that the CMA was keen to avoid a repeat of issues that arose in Microsoft/Activision where the CMA felt that suitable remedies only came to light after the merger had been prohibited at phase 2.