Whether it is 'hard' or 'soft', a UK exit from the EU will mean a very different dynamic in terms of merger control
There has been much debate about whether there will be a 'hard' Brexit or 'soft' Brexit and the impact that each of these outcomes might have on the UK's future relationship with the rest of the European Union (EU), especially in areas such as financial services and as regards the extent to which 'passporting' rights will continue.
However, when it comes to merger control, the type of Brexit that ultimately occurs is irrelevant. Once the UK leaves the EU, mergers and acquisitions that meet relevant thresholds will be subject to review by both the European Commission (EC) and the UK's antitrust body, the Competition and Markets Authority (CMA). Post-Brexit, larger deals that previously met the EU's turnover thresholds and were reviewed under the 'one-stop-shop' principle will be subject to review by both the EC and the CMA. While the UK's merger control system will remain voluntary, many cases reviewed by the EC will no doubt also be notified in the UK (or called in for review by the CMA if parties decide, often for very good reasons, not to notify in the UK).
The CMA has reviewed an average of 70 merger and acquisition deals per annum over the last three years and Andrea Coscelli, the CMA's chief executive, says he expects that post-Brexit that number could jump by between 30 and 50 per year.
Leaving the EU will give the UK power to intervene in cases on non-competition grounds in respect of mergers that would otherwise have been subject to review only by the EC
Further, Coscelli expects that around half a dozen of these will likely be subject to an in-depth Phase II investigation (i.e., akin to a second request in the US). With its workload set to rise by around 50 per cent, the CMA is already planning how to cope with the additional burden on its resources, including seeking additional funding from the UK Government.
In terms of substance, the way in which mergers are reviewed will not be affected by Brexit, and economic-based assessment will continue. Procedurally, the CMA can be expected to continue to work closely with the EC and the national competition authorities (NCAs) of the remaining Member States. However, as the CMA will no longer be a member of the European Competition Network––a forum in which the EC and Member State NCAs cooperate––Brexit may hamper efficient dialogue between the CMA and EC/NCAs, especially when each or several of these bodies are assessing the same merger. It may become more difficult to exchange information about a case without seeking and obtaining specific waivers from the merging parties involved.
Inevitably, some cases will raise competition concerns in the UK and in other jurisdictions and so discussion about the competitive effects of a case, and coordination of effective remedies, will be important.
From a policy perspective, leaving the EU will give the UK power to intervene in cases on non-competition grounds in respect of mergers that would otherwise have been subject to review only by the EC. That is because the EC's rules limit the ability for Member States to intervene in mergers subject to the EC's exclusive jurisdiction to specified grounds (public security, media plurality and prudential rules).
With its workload set to rise by around 50 per cent, the UK's Competition and Markets Authority is already planning how to cope with the additional burden on its resources
Post-Brexit, these limitations will not apply to mergers that fall within the CMA's jurisdiction. With the UK currently consulting on amendments to its merger rules to cover a wider range of foreign direct investment issues, certain mergers reviewable by the CMA may be subject to both a competition test and a wider public interest-style test. For example, MPs have urged the government to intervene in Melrose's bid for GKN. Whether there is a 'hard' or 'soft' Brexit, companies and their advisers –– as well as the CMA––will have to get used to a different dynamic in terms of merger control once the UK leaves the EU. While the voluntary system of UK merger control is expected to remain, should parties decide to notify a deal in the UK, this will inevitably add to the time and cost of securing clearance.
Post-Brexit, merger control will stay the same only if the UK becomes a member of the European Economic Area (following in the footsteps of Iceland, Lichtenstein and Norway), because the EC's exclusive jurisdiction to review mergers that meet its thresholds extends to cover EEA Member States.