UK plugs post-Brexit 'enforcement gap' for merger mega-deals

11 September 2019 4:12pm

10 September 2019, by Matthew Holehouse and Simon Zekaria

A last-minute change to UK government plans will make the UK's antitrust watchdog responsible for post-Brexit oversight of merger commitments made by companies in a clutch of multibillion-dollar deals, under legislation meant to plug an "enforcement gap" in a "no deal" scenario.

The changes are set out in a statutory instrument — The Competition (Amendment etc.) (EU Exit) (No. 2) Regulations — published today under the EU (Withdrawal) Act. The Act enables ministers to make by secondary legislation corrections to the statute book that will arise after a no-deal exit.

The commitments will be preserved in domestic law and termed “retained EU commitment decisions.” The legislation specifies commitments made under 12 EU antitrust decisions and 31 merger clearance cases that will fall to the CMA, dating back to 2012.

They include historical megadeals such as Universal Music Group’s purchase of EMI Music, Glencore’s takeover of Xstrata, Takeda's acquisition of Shire, and Microsoft’s purchase of LinkedIn. Those transactions — some of the largest by value ever to pass under the eyes of regulators — were among many cited in the legislation.

The UK’s Competition and Markets Authority will take on responsibility for monitoring and enforcing commitments as far as they relate to the UK, and were given to the European Commission and made by businesses undergoing mergers pre-Brexit. Those responsibilities also extend to commitments made, and subject to companies, following antitrust enforcement decisions

The secondary legislation published on 10 September 2019 amends the original statutory instrument used to set out the government’s post-Brexit competition rules, which were published in October 2018.

This legislation “will amend the principal exit regulations to preserve, as retained EU law, commitments that ‘relate to the supply or acquisition of goods or services in the United Kingdom’ and empower the UK competition authorities to monitor and enforce those commitments,” according to an explanatory memo.

Under the legislation, monitoring trustees approved by the commission will be deemed approved by the CMA. The CMA will be able to issue enforcement orders if a company does not comply with a retained EU merger commitment, enabling it to add further monitoring obligations.

The memo states that it was “previously thought” the European Commission would continue to monitor and enforce UK-related commitments that were given pre-Brexit. But EU guidance issued in March 2019 indicated that after Brexit, parties could request the EU to waive or modify merger commitments. The CMA would not be able to retrospectively consider the merger, leading to the risk of an enforcement gap.

On antitrust, the memo said: “Whilst the UK competition authorities would not be barred from opening a new investigation, an enforcement gap would be in place for the period of time it would take a regulator to investigate the case which, depending on its complexity, could run for a number of years."

Timetable

The amendment, according to the memo, is designed to "correct deficiencies in competition legislation arising from EU Exit" and "drafted for a scenario where no withdrawal agreement is reached between the UK and the European Union."

The legislation also comes just seven weeks before the UK government intends for the country to leave the EU, with or without a deal, on Oct. 31.*

Normally, statutory instruments must be presented to both houses of the UK parliament before entering law. UK Prime Minister Boris Johnson has ordered the suspension of parliament for five weeks, starting today.

To meet the tight exit timetable, the amendment has been made under the less-common “made affirmative” procedure, which means it was signed into the law before its presentation to parliament.

The government said in the memo it "considers it important to have this instrument in place urgently so as to address a potential enforcement gap which could arise after exit."

At the end of last year, the CMA warned of staffing shortages and an enforced cutback from immediate "new, complex work” in the event of a no-deal Brexit. That “work” means immediate new antitrust and merger control responsibilities, as well as a new state-aid function. That comes a full year after it pinpointed how Brexit could increase the regulator’s antitrust and merger caseload.

The UK government has published approximately 540 statutory instruments to rewrite the statute book ahead of Brexit since July 2018. Follow-up legislation has been required in a number of fields — including pharmaceuticals, pesticides and aviation — where the original amendments were found to contain errors or omissions.

ABA 2019