The UK Competition & Markets Authority ("CMA") issued its first order requiring parties to a completed merger to reverse pre-closing integration that the CMA believes prejudiced its ability to assess the deal's impact on competition in the UK. This case is a reminder that parties who integrate or close a transaction prior to UK merger clearance risk an unwinding order in complex merger reviews. 

Background

In October 2018, Tobii acquired Smartbox Assistive Technology and affiliate Sensory Software International (together "Smartbox"). The parties supply eye tracking technology, including hardware and software products and services. To assist with integration prior to closing:

• the parties signed a reseller agreement in which Smartbox sells the combined portfolio in the UK and Ireland, and Tobii sells outside the UK;
• Smartbox discontinued certain products; and
• Smartbox halted research and development projects.   

The CMA opened a post-completion review and, as is usual, imposed initial enforcement orders ("IEOs") to stop further integration pending its decision on the merits. The CMA also appointed monitoring trustees to oversee compliance with the IEOs.

In January 2019, the CMA found that the merger may give rise to serious competition concerns and referred the deal to an in-depth Phase 2 investigation.

The Unwinding Order

The "unwinding order" reversed pre-closing acts that the CMA deemed to have prejudiced its investigation. The CMA order requires that:

• the parties not accept any new UK product orders under their reseller agreement;
• the parties terminate their reseller agreement once they fulfill open orders; 
• Smartbox accept orders for its discontinued products;
• Smartbox reinstate its development projects; and
• Smartbox cooperate with the monitoring trustee to implement the order.

Implications

Even though the UK’s voluntary merger control regime does not per se prohibit premerger integration or require pre-closing clearance, the CMA can order parties to restore premerger conditions if it determines those actions prejudiced its review. Both the CMA and its predecessor agency have unwound consummated mergers following Phase 2 merger reviews, as detailed in this April 2012 Alert and more recently, ICE’s acquisition of Trayport. This is the first time that the CMA issued an unwinding order during a pending merger investigation. Merging parties must weigh the risk of an unwinding order against the desire to integrate or consummate a transaction prior to UK clearance.