Regulation of Mergers and joint ventures- overviewMergers

The UK merger control regime is governed by Part 3 of the Enterprise Act 2002.

Parties contemplating a merger, joint venture or acquisition, must at the outset consider both merger control regulations and other competition-related issues.

Merger control can apply even if there is no overlap between the parties’ business activities or interests. The practical implications of competition rules for each party may differ. Early consideration can help to:

• ensure the deal progresses more effectively

• avoid unexpected delays in the corporate timetable in obtaining any identified merger clearances

• reduce the risk of the deal failing

A merger control review is vital to establish whether any merger notification and clearances have, or are advisable, to be obtained prior to the transaction taking place. If there are potentially significant competition issues, it is also important to evaluate the risk of a merger clearance not being forthcoming or only with significant divestment requirements.

The corporate documentation and timetable will need to reflect the merger control analysis. There are other competition law aspects to be taken into account in the documentation, such as liability issues for past or current infringements and any non-compete arrangements. In the eagerness to do the deal, the fact that general competition law principles still apply to the parties, since they belong to separate corporate groups until legal completion, can sometimes be forgotten.

When contemplating a merger, the coordination of behaviour and the exchange of commercially sensitive information between competitors risks infringing general competition law against collusive anti-competitive activities. Particular care needs to be taken:

• when exchanging any commercially sensitive information. This should only occur as part of a legitimate due diligence exercise

• when preparing for completion to avoid the risk of breaching any suspensory obligations as well as general competition law. Early press statements and Board reports can sometimes cause difficulties when merger clearances are subsequently being sought.

Joint Ventures

Joint ventures may be contractual, or structural using a corporate vehicle specifically set up for this purpose. There will be many different commercial factors affecting the actual nature of the joint venture arrangement. One consideration is competition law.

Merger control rules may apply to some joint ventures which create a structural change in the market place. There may be an advantage in that the merger clearance process will bring more certainty than is available for joint ventures which escape the merger control rules.

The EC Merger Regulation and the UK’s merger regime under the Enterprise Act 2002 have certain differences in their assessment of qualifying joint ventures. In addition, any restrictions or other provisions, which are ancillary to the joint venture itself, will be approved as part of the merger clearance process. Any other arrangements will still be subject to the EU and UK prohibitions on anti-competitive agreements e.g. Article 101 of the Treaty on the Functioning of the European Union (TFEU) (formerly Article 81 of the EC Treaty) and Chapter I (s 2) of the Competition Act 1998.

The creation of non-structural, or more co-operative, joint ventures which avoid the merger control rules will still be subject to these general competition law controls on collusive arrangements. This means that the parties, with assistance from their legal advisors, will need to conduct a self-assessment exercise to ensure that the joint venture does not infringe Article 101 TFEU (ex Article 81 EC) and/or Chapter I or, if applicable, it satisfies the exemption criteria. As there is no notification and clearance process available, this self-assessment exercise does not provide the same level of certainty, although the European Commission block exemptions, may provide a level of comfort.

EU Merger Control: Jurisdiction and Implications

If a transaction is caught by Regulation (EC) 139/2004 (the 'Merger Regulation'), the basic principle is that, within the EU (or EEA), the European Commission has exclusive jurisdiction. But consideration should still be given to any applicable merger regimes outside the EU/EEA.

Council Regulation on the control of concentrations between undertakings (the EC Merger Regulation) (139/2004/EC)

Notification is mandatory under the Merger Regulation. Clearance must be obtained from the European Commission prior to implementation (a derogation may be obtained in limited circumstances and there are certain exceptions for public bids). Notification is a major undertaking. The clearance process will have implications for the transaction timetable and possibly for the scope and viability of the actual transaction itself.

A transaction is caught by the Merger Regulation if:

• it constitutes a ‘concentration’ and

• has Community or EU dimension

The relevant thresholds are entirely financial ones. If these are satisfied, notification is required even if there is no overlap between the parties’ activities, although the simplified procedure may be used. It is vital to consider the turnover of the whole corporate group (to be identified under the Merger Regulation rules) to which the merging or acquiring parties belong. An apparently small transaction may be caught if the parties are actually the subsidiaries of much larger players.

There are some exceptions to the ‘one-stop shop’ principle and scope for seeking the reallocation of jurisdiction. In certain circumstances, it is possible for the relevant parties to seek the European Commission to have jurisdiction over their transaction, even though it does not meet the financial thresholds.