Publication
Publication
Should auld acquaintance be forgot… And ne'er brought to mind? The CMA is far from being forgot and as Platypus welcomes in the New Year with open arms, so it also welcomes the CMA’s draft revised guidance on jurisdiction and procedure in relation to mergers (“Draft Guidance”). Eagle eyed readers will not have forgotten that the CMA launched a call for information on the Phase 2 process in June last year, inviting views from practitioners and other stakeholders on whether there are aspects of the regime that could work better.
At the back end of last year, the CMA published its Draft Guidance and asked parties for further comment. Pleasingly, the Draft Guidance largely incorporates the recommendations Platypus and others made last year. The reforms have the potential to herald a new era of a more robust and effective process for all parties.
Below, we recap four of the key changes in the Draft Guidance, designed to improve access to decision makers and streamline the process. In the spirit of setting ambitious, but achievable New Year’s resolutions(!), we set out four additional items on the wish list that Platypus has for the CMA as it finalises the Draft Guidance and begins 2024.
Out with the auld. The Draft Guidance proposes a radically new start to the Phase 2 process. The CMA no longer intends to publish an Issues Statement and will instead expect merger parties to respond to the CMA’s Phase 1 decision. Getting rid of the issues statement, which largely mirrored the Phase 1 decision anyway, seems like a helpful streamlining of the process.
The Site Visit has also now been split into two separate meetings: (i) a ‘teach-in’ held within the first two weeks of the Phase 2 process, where the merger parties present their businesses and the broader industry context to the Inquiry Group; and (ii) an initial substantive meeting with the Inquiry Group, where the merger parties present their case for clearance and respond to the CMA’s Phase 1 decision. The rationale for these changes – like many of the CMA’s reforms – is to provide the merger parties with a greater opportunity to engage with the Inquiry Group at an earlier stage of the Phase 2 process and put across their side of the story. This is a welcome development, as merger parties often feel that they do not have a chance to put across their story until it is too late.
And in with the new(ish). The most consequential changes in the Draft Guidance are with respect to Provisional Findings and Main Party Hearing. Provisional Findings have been replaced by an Interim Report which the CMA has indicated it will publish earlier in Phase 2. This will be a shorter document but will still provide the merger parties with the details of the case against them. The hope is that Interim Report will provide a truly provisional indication of the CMA’s position at the outset. With a fair wind, this could grant the merger parties a much more meaningful opportunity than exists currently to engage with and influence the CMA’s SLC analysis before the writing is on the wall.
The Interim Report will also be the centrepiece of a revamped Main Party Hearing – which the CMA envisages being a more interactive session that gives the parties sufficient time to respond to the case against them, rather than the existing format which focusses on questions from the Inquiry Group.
We’ll take a cup o’ kindness yet. The Draft Guidance indicates the CMA’s intention to increase engagement between the case team and external advisors via informal discussions. Specifically, the Draft Guidance notes that in certain scenarios, an open dialogue between merger parties’ economic advisors and the CMA economist team may be particularly helpful e.g. for complex or novel theories of harm.
Getting ahead of the game. The CMA is open to commencing discussions on remedies earlier in the Phase 2 process via, for example, more regular state of play calls during the early stages of a Phase 2 investigation. The Draft Guidance further sets out a revised remedy process that is envisaged to take place after the Interim Report has been issued. But as discussed below, we think that the CMA could further on reforming the remedy process.
UK merger control has no general right of full and unfiltered ‘access to file’ in merger control cases and that when deciding whether to disclose third-party evidence the CMA must under their statutory framework balance competing priorities, including protecting confidentiality. However, Platypus remains of the view that both due process and the quality of decision making could be improved by changes to the scope and timing of the CMA’s existing approach to disclosure of information:
(a) It is common ground that the CMA must disclose the gist of the information it relies upon for its decision - it is on the question of what the "gist" requires that we respectfully diverge from the CMA's current practice. Under the current regime, the CMA often only discloses limited summaries of third-party information which often provide the merger parties with only a superficial understanding of the key issues. To enable merger parties to engage fully with the substance of the case against them, they need to understand what evidence the CMA has gathered, how it has gone about it, and what that evidence has shown. In practice, Platypus would argue this should translate into providing the merger parties with anonymised and/or non-confidential versions of third-party questionnaire responses, written third-party submissions and transcripts of calls which are used by the CMA when preparing the interim report. While we recognise the CMA’s feedback is necessarily more textured than a “tick box” exercise, there should be a route of providing the (real) gist of third-party feedback while respecting the CMA's strict obligations to keep third-party information confidential.
(b) In addition to being too limited in its scope, disclosure of critical third-party evidence often comes too late in the Phase 2 process. Platypus would encourage the CMA to create confidentiality rings at the outset of Phase 2 and to disclose key third-party evidence (which will clearly feature in the CMA’s Interim Decision and Final Report) on a rolling (early) basis.
These changes are not only important for the merger parties’ rights of defence, but would also benefit the CMA, because they would allow for a more informed and timely challenge of the evidence in front of the CMA, which would lead to more robust decision-making in everyone’s interest. Otherwise the CMA is ultimately undermining the ability of merging parties to respond fully to any putative “case for SLC” and in turn hampering the integrity and robustness of its Phase 2 merger review process.
Platypus notes that some have argued that more fulsome disclosure could potentially hinder the CMA’s ability to collect valuable evidence from third parties (i.e. because they’re concerned about extensive disclosure to the merger parties and commercial retaliation). Platypus is unconvinced. There is a long practice of using confidentiality rings in CMA processes (in a regulatory and litigation context) and this should provide third parties with adequate comfort that their information will be protected. Furthermore, the CMA has statutory powers to compel the production of evidence and documents – there is no reason why a revised approach to disclosure will undermine these powers. If Platypus had just one wish for a change to the Draft Guidance, it would be this.
The Draft Guidance provides no indication or guidance on the proposed duration of either the teach-in or initial substantive meeting, or the level of exposure and engagement that merger parties will have with the Inquiry Group during these meetings. As noted above, Platypus welcome these changes and considers them important opportunities for the merger parties to engage with the Inquiry Group. However, the benefit of these set pieces risks being undermined if they are unduly short or do not allow enough time for active engagement.
Whilst every case is different and requires varying levels of engagement, Platypus would strongly favour a working assumption that each merger party will have at least one day (split across both the teach in and initial substantive meeting) with the Inquiry Group, with the ability to opt for less time if not required or to request more time (with reasons) if required (e.g. if significant travel is required or the complexity of the case requires more time).
While Platypus is supportive of the revised remedy process discussed above and we appreciate that the Inquiry Group’s is able to engage in remedy discussions that are without prejudice to its substantive findings, this egg-laying mammal remains of the view that it would be beneficial for both the CMA and the Parties if separate CMA team members were available to engage in remedy discussions. The Phase 1 approach set out in the Draft Guidance - whereby the decision maker will not be involved in any discussions concerning “undertakings in lieu” until the decision on the existence and scope of SLC(s) has been made (other than in exceptional circumstances) - should also be applied in Phase 2.
As we noted in our comments on the CMA’s initial request for inputs, alternative options could be (i) to have resource from the Remedies, Business and Financial Analysis Group assigned to each Phase 2 case soon after reference, or (ii) appointing a Director from the CMA Mergers team to be available to any remedies workstream. The inclusion of team members for the specific purpose of discussing potential remedies at the outset would also alleviate the resource constraint that inevitably exists in any attempt to informally "dual track" SLC and remedy discussions.
As noted above, Platypus agrees with CMA’s proposal to more frequently organise meetings between the case team and merger parties throughout the Phase 2 process. However, there is scope to take this one step further. The CMA should formalise in guidance the positive working practice of discussing scope of draft RFIs with the merger parties and their advisors prior to issuing material RFIs. The purpose of these meeting would be to review the reasoning and rationale of the CMA’s requests so they can be as targeted as possible.
Merger parties would also have an opportunity to identify and flag relevant sources of information to help inform the CMA’s questions and potentially narrow the scope of the questions to focus on the most relevant content.
The Draft Revised Guidance if positively implemented and adhered to has the potential to improve the current Phase 2 process to the benefit of all stakeholders. However, we wait to see how this will play out in practice and there remain areas where the CMA could go a step further. Platypus would encourage the CMA to grasp these opportunities. New year? New Phase 2.
