Merger scrutiny sharpens as UK issues first fine for 'standstill' breach

26 June 2018 12:44pm

12 June 2018. By Nicholas Hirst.

Today's UK sanction against Electro Rent Corporation for breaching a “standstill” merger order confirms a wider European crackdown on companies and advisers playing fast and loose with EU merger rules.

The fine of 100,000 pounds ($133,000) stems from the Competition and Markets Authority's examination of Electro Rent's acquisition of Microlease for an undisclosed sum. The two companies rent out specialist equipment for testing and measuring the performance of electronic devices.

Under UK merger rules, companies aren’t required to notify a deal even though it may meet the criteria for review by the CMA. But the authority can call the deal in, which it did in this case in October last year.

That is a particularity of the UK system. And with the country on its way out of the EU, any move that establishes a precedent is garnering attention from M&A lawyers.

Since Electro Rent's acquisition of Microlease had already closed, UK investigators issued an initial enforcement order, effectively telling the two companies to stop any further integration. Electro Rent's subsequent decision to terminate the lease for its UK premises prompted today's fine.

Today’s decision was a first, in that it was the first time a company has been sanctioned for breaching a standstill order. While UK antitrust officials appear to be tightening the screws on companies that flout merger-control rules, the CMA stopped far short of imposing the maximum possible sanction of 5 percent of the companies’ combined global sales.

— Wider trend —

Competition regulators at both national and European levels are cracking down on perceived abuses of merger laws.

The CMA last year fined Hungryhouse 20,000 pounds for failing to provide documents requested during a merger review, while the Danish authority charged Ernst & Young with implementing a merger without prior authorization, although the fine is expected to be overturned.

In April, the European Commission fined Altice 125 million euros ($147 million) for closing its deal with PT Portugal before receiving EU merger approval. That followed on the heels of other procedural sanctions against Facebook and the opening of cases against Canon, GE, Merck and others.

— CMA procedure —

The CMA relies on an internal Mergers Intelligence Committee that monitors merger activity for non-notified deals that could lead to a "significant lessening" of competition in the UK.

It reviewed almost 700 deals in 2016 and 2017 and called in 13, according to the CMA's own figures. Of those, the regulator's investigations identified a significant risk to competition in four, and two were referred for an in-depth inquiry.

Mergers called in by the MIC are often completed, prompting the CMA to issue an initial enforcement order. Its latest came just today, on the Northern Ireland company Nicholls’ (Fuel Oils) over its completed acquisition of local oil-distribution rival DCC Energy.

An initial enforcement order puts a hold on further integration between the parties, including restrictions on the exchange of confidential or proprietary information.

The CMA can require the companies involved to obtain its consent before taking any major decision and the appointment of a trustee to ensure the order is respected, which it did when reviewing Electro Rent's acquisition of Microlease.

The regulator also has the power to order the parties to unwind any integration that might prejudice the CMA's inquiry or could undermine any future remedies, although it has yet to do so in practice.

The CMA eventually cleared Electro Rent's acquisition of Microlease subject to the former selling its UK business.

In its decision today, the CMA makes clear that Electro Rent's senior management was aware, prior to terminating the lease, that it could be part of a remedy package, citing their participating in a hearing on possible remedies on March 1 this year.

The company's action was "a flagrant breach and was committed in large part by the senior management of Electro Rent," it said in a penalty notice published today. "Although Electro Rent has taken steps to remedy the breach by entering into a new lease, this is on worse terms."

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