The United Kingdom’s Office of Fair Trading (“OFT”), the primary UK government agency for enforcing laws protecting competition and consumer welfare, will no longer provide confidential guidance and informal advice on potential mergers not yet made public, it announced last November.1 Previously, competition counsel representing merging parties could obtain, free of charge, a view from the OFT, before the merger was made public, on whether a transaction presented competition issues and whether it would be referred to the UK’s Competition Commission for a second stage, in-depth investigation. The announcement cited scarcity of resources due to heightened expectations at a time of increased caseload as the primary reason for the change.

In the UK, unlike in many other countries, there is no mandatory requirement that parties notify sizeable or potentially problematic transactions prior to closing.1 Voluntary notification in one of two alternate forms prescribed in the Enterprise Act reduces the wait period for the OFT’s decision to clear the transaction or refer it to the Competition Commission. The OFT must, under the Enterprise Act, refer a transaction to the Competition Commission where the transaction has resulted or may be expected to result in a substantial lessening of competition.

Notification to the OFT and review by the UK’s Competition Commission would not come into play, however, when a transaction falls within the scope of the EC Merger Regulation. That regulation preempts a national filing requirement and the European Commission will have exclusive jurisdiction to consider the transaction.

Significantly, for merger and acquisition transactions that do not fall within the scope of the EC Merger Regulation, unless the parties publicly announce the transaction, they will now have to rely on the advice of competition counsel, without the aid of the OFT’s informal or confidential input, to determine the likelihood of a reference to the Competition Commission. The change could thus have a chilling effect on mergers and acquisitions in cases where there is uncertainty, and purchasers may now face greater risk. The greater reliance on external counsel’s advice and the additional risk involved in mergers and acquisitions heighten the need for merging parties to involve competition counsel at the earliest stages of a potential merger or acquisition.

The prior availability of these free services made the UK’s merger system nearly unique. No such services are available in the United States, for example. The OFT cited resource issues as a principal reason for its abandonment of the free services but did not, in its announcement of the change, indicate whether it had considered charging a fee, as Canada or other jurisdictions may do, in lieu of disposing almost entirely of the services.3

Further explaining its reasons for adopting the measure, the OFT said that circumstances had changed. The duty to refer merger cases to the Competition Commission imposed on the OFT under the Enterprise Act, along with judicial guidance on this, has made it “more difficult to give helpful advice on whether the OFT is likely to refer a case” to the Competition Commission. The OFT added that the value of such advice was inherently limited by dependence on inquiring parties’ submissions without any ability to test arguments with or gather evidence from other market participants. Despite these limitations, the OFT had found that parties would rely too heavily on its advice without due regard for the qualifications and caveats laden in it. Another reason why the measure was adopted was to relieve the OFT of the substantial increase in and complexity of the caseload that results from the duties imposed on the OFT under the Enterprise Act. The cutback on the provision of confidential guidance and informal advice will allow the OFT, it says, to prevent diversion of resources from the OFT’s duty to review public-domain merger case.

The change was characterized as interim and the OFT says it will publish its long-term position on the provision of these services as early as practicable in the new financial year 2006-2007. In addition, the OFT made a limited exception to the termination of the availability of informal advice. No exception was made to its abandonment of its confidential guidance services. Mergers involving public bodies or private enterprises unable to afford external competition counsel, and other “exceptional cases” may be afforded informal advice. The OFT has not specified what could qualify as an “exceptional case”.

  1. Office of Fair Trading, Provision of Confidential Guidance and Informal Advice, November 2005 News Release, available online: http://www.oft.gov.uk/NR/rdonlyres/AA1711C5-41BB-4551-B27B-5A858E3E0417/0/mergersinformal.pdf
  2. A merger or acquisition is subject to an investigation by the UK Competition authorities when two firms’ enterprises cease to be distinct, and the transaction will result in an increase to market share of greater than 25% or the value of the company being taken over exceeds ? 70 million.
  3. Canada’s competition authority, for example, offers a form of pre-merger advice known as the Advanced Ruling Certificate. An ARC application costs $50,000 CAN and will be issued where the Competition Commissioner is satisfied that she would not have sufficient grounds on which to challenge a proposed transaction in the Competition Tribunal.. If issued, an ARC (1) exempts the transaction from application of the notifiable transactions provisions of the Competition Act, when the transaction is completed within one year of the date of issuance; (2) precludes the Commissioner from challenging the merger on substantially the same information as that on which the ARC was issued; and (3) preempts the Commissioner from exercising her authority to apply for a remedial order in respect of the transaction.

    4. Authored by:
    Heather M. Cooper
    213-617-5457
    hcooper@sheppardmullin.com