The UK's departure from the EU on 31 January has initiated an 11 month transition period, during which the application of EU competition law in the UK will remain largely unchanged.  Thus the EU rules governing mergers will continue to apply during this transition period.

by Suyong Kim, Mark Jones and Matt Giles

However, in the run up to 31 December 2020 and thereafter, the ending of the one-stop-shop principle as it has applied to the UK aspects of European merger reviews could create jurisdictional uncertainties and complications for merging parties.

Particular care will need to be taken in relation to ongoing EU reviews straddling the period at the end of the year when the UK moves from being inside to outside the EU rules.

Key points:

  • The EU competition rules applicable to larger cross-border mergers will continue to apply to such mergers with an impact on the UK until the end of 2020
  • In particular, the one-stop-shop under the EU Merger Regulation will continue to operate during this period:
    • The European Commission will retain exclusive jurisdiction to review deals formally notified in Brussels before the end of 2020 (no possibility for parallel UK review in such situations)
  • But from the start of 2021, when the UK will be outside the EU rules, the European Commission will not have jurisdiction over UK aspects of such mergers:
    • Instead the UK authorities will be able to vet them (potentially in parallel with review by the European Commission for the EU 27)
  • EU/UK jurisdiction for deals agreed but not notified before the end of 2020 will need careful checking

Little change during 2020

Under the EU Merger Regulation (EUMR), a merger that meets the EUMR jurisdictional thresholds, which are based on the size and geographic spread of the parties' revenues, must be notified to the European Commission (Commission) to the exclusion of any EU Member State merger control rules that might otherwise apply. This is known as the one-stop-shop principle which, subject to certain narrow exceptions, obviates the need for parties to make (potentially multiple) national notifications in the EU.1

The Withdrawal Agreement confirms that the EU rules governing mergers will continue to apply during the transition period that runs to the end of 2020. Thus the division of jurisdiction, as currently governed by the EUMR and the UK Enterprise Act 2002, between the Commission and the UK's Competition and Markets Authority (CMA) will remain unchanged for the most part during this period – such that:

  • The merging parties’ UK revenues must still be taken into account when assessing whether the EUMR jurisdictional thresholds are met.
  • Where a deal triggers EUMR jurisdiction and is notified before the end of this year, the Commission will continue to have exclusive jurisdiction to review it, including in relation to the UK aspects. The Commission will retain jurisdiction over these cases until it reaches a final decision, whether after an initial Phase 1 review or after an in-depth Phase 2 investigation (even if that review runs beyond the transition period).
  • The existing limited exceptions to the one-stop-shop principle will continue to operate: the CMA will be able to review UK aspects of EUMR mergers where the Commission has agreed to a request by either the merging parties or the CMA (under Article 4(4) and Article 9 EUMR respectively) for a reference back to the UK.

During the transition period, for EUMR cases where the Commission has exclusive jurisdiction, the CMA remains a part of the system of cooperation between national competition authorities which provides the Commission with support. As such, the CMA continues to share and receive information related to EUMR cases until the Commission reaches a final decision. The only change during this period is that the CMA is not able to attend, as of right, the EU Member State advisory committee meetings which assist the Commission's review. UK representatives may still be invited to participate in these meetings where specific matters under consideration relate to UK markets (or, in the words of the Withdrawal Agreement, "the presence of the UK is necessary and in the interest of the European Union"), but they are not entitled to vote.

In this period the Court of Justice of the European Union (CJEU) retains jurisdiction to adjudicate an appeal regarding an EUMR merger decision, including one which has effects in UK markets, so long as the appeal application is formally lodged with the CJEU before the end of the transition period.

From 2021 onwards, potential parallel review in the EU and the UK

From the start of 2021 onwards, parties involved in a transaction which falls within the EUMR and affects UK markets will no longer benefit from the one-stop-shop principle – insofar as this mechanism would previously have precluded the CMA from reviewing such deals in parallel with the Commission.

In addition, the merging parties’ UK revenues must, from this point forward, be excluded when assessing whether the EUMR jurisdictional thresholds are met.

The CMA may exercise jurisdiction to review transactions where the UK thresholds are met, even when the EUMR applies. Parties may therefore have the burden of an additional review in parallel with that undertaken in the EU.

Further, the exclusion of UK revenues from the EUMR analysis may affect jurisdiction in the EU. In particular, where the parties' UK revenues constitute a substantial part of their overall EU revenues, the exclusion of the UK revenues from the EUMR analysis may mean that, whereas the transaction would have fallen under the EUMR while the UK was still part of the EU, it does not do so post-transition. In such circumstances, the deal would no longer be subject to the exclusive jurisdiction of the Commission and, instead, one or more mandatory filings under the national rules of EU Member States may be required.

It is even possible that the exclusion of UK revenues from the analysis could lead to a transaction that previously would have fallen outside the EUMR now being subject to it. This would be as a result of the operation of the so-called 'two-thirds rule' in the EUMR jurisdictional thresholds. Under this rule a merger will fall outside the EUMR, notwithstanding the parties having sizeable EU revenues, if over two-thirds of the EU revenues of each and every party are achieved in the same single EU Member State. Where the merging parties had substantial UK revenues which would have triggered the two-thirds rule, their removal from the calculation could deactivate the rule, with the consequence that the Commission gains exclusive jurisdiction.

Treatment of deals ongoing at the end of 2020

Prior to the Withdrawal Agreement there had been questions about the jurisdictional status of transactions ongoing, or about to commence, in front of the Commission under the EUMR at the moment the UK becomes fully detached from EU law – and what precisely would be the date or event around which the determination of jurisdiction should be made. This is likely to be an important consideration for parties to such deals who are concerned about the risk of losing one-stop-shop EUMR jurisdiction with the Commission – in circumstances where (as explained above) their UK revenues no longer count towards meeting the EU jurisdictional thresholds and, consequently, they are exposed to concurrent UK review and (if the EUMR also ceases to apply) potentially multiple EU Member State authority reviews under their national competition rules.

The Commission published a 'no deal' guidance notice in March 2019 which indicated that its jurisdiction to review a deal under the EUMR would be based on the date the merging parties struck a binding agreement – in line with its existing practice as set out in paragraph 156 of its Consolidated Jurisdictional Notice. This gave merging parties the assurance that, provided their deal was signed before Brexit, there would be no risk of the Commission losing jurisdiction as a result of their UK revenues being excluded from the EUMR jurisdictional calculation and potentially being exposed to one or more national reviews by EU Member States.

This approach was no doubt taken in part to reflect the initial Withdrawal Agreement Bill (Theresa May’s deal) and with the possibility of a no deal Brexit scenario in mind – ie the UK moving abruptly from being an EU Member State to being a country outside the EU without any agreement in place covering future relations between it and the EU bloc (and no transition period).

The position has moved on with the Withdrawal Agreement, which includes specific legal provisions managing the UK's separation from the EU and its ongoing relationship with the bloc during the transition period. However, the Withdrawal Agreement contains an important change regarding the Commission's ability to retain exclusive jurisdictional competence over an ongoing transaction. Whereas the previous Commission and CMA guidance noted that the date of the merger agreement was the point at which any Commission jurisdiction under the EUMR crystallised, the Withdrawal Agreement states that the Commission "shall continue to be competent" if formal notification has taken place before the end of the transition period (see Article 92(1) in Chapter 2). In other words, the date of notification rather than the date of the agreement is now set as the point in time at which the application of the EUMR will be determined.

The CMA subsequently issued guidance confirming this change, noting that the Commission will retain "exclusive jurisdiction" to review any merger "in which the administrative procedure has been initiated before the end of the Transition Period" – with "initiated", as per the Withdrawal Agreement, meaning formal notification to the Commission (see Article 92(3)(c)(i) in Chapter 2).

On this basis, for deals with jurisdiction potentially affected by Brexit, the EUMR one-stop-shop will remain intact in relation to any transaction that has been formally notified to the Commission before the expiry of the transition period at the end of 2020. The only possible exceptions to this rule might be where:

  • an EUMR notification submitted to the Commission before the end of the transition period is subsequently rejected as incomplete and needs to be re-notified to the Commission after the end of the transition period;
  • a Commission decision (regarding a merger formally notified before the end of the transition period) is successfully annulled on appeal before the CJEU.

In these cases, the merger would then effectively be treated under the post-transition rules: the CMA could undertake a parallel review if the UK jurisdictional tests are met, and the exclusion of UK revenues from the EUMR jurisdictional calculation might also mean that, within the EU, the EUMR no longer applies and instead the national merger control regimes of EU Member States are engaged.

Impact on enforcement of remedies

Before the Withdrawal Agreement there was some uncertainty about the status (and future enforcement) of pre-existing EUMR remedy commitments impacting UK markets – ie remedies agreed as part of conditional merger clearances by the Commission. The Withdrawal Agreement confirms that the Commission will continue to monitor and enforce such commitments (Article 95(2) in Chapter 2). This will also include remedial arrangements confirmed after the end of the transition period but in respect of merger reviews initiated before the end of the transition period.

However, the CMA will preserve its involvement in such cases, including through its participation in relevant advisory committee meetings and the sharing of information via the network of European competition authorities. The Withdrawal Agreement also foresees the Commission and CMA agreeing to transfer responsibility for the monitoring and enforcement of these UK-focused EUMR remedies from the Commission to the CMA, but this still needs to be accounted for in UK domestic legislation.

Another potential post-transition scenario is where there is a successful appeal to the CJEU regarding remedies in relation to an EUMR review that was completed before the transition period expired, or which was still ongoing at 31 December 2020. With the EUMR remedies overturned, the CMA could (in principle) gain jurisdiction to intervene and potentially re-examine the question of whether new remedies under the UK merger control rules might be required to alleviate UK concerns.

CMA already actively engaged

A transaction subject to the UK rules does not have to be notified to the CMA, because the UK operates a voluntary rather than mandatory filing regime. However, the CMA has powers to call in non-notified deals for review on its own initiative, even where the transaction has closed, and potentially then to block the deal or impose remedies to address competition concerns.

Given the scope post-transition for there to be UK reviews conducted by the CMA alongside Commission reviews under the EUMR, the CMA has already been recommending that parties engage with it at the earliest possible opportunity – in particular, where the transaction throws up substantive competition issues in the UK. Further, the CMA has specifically noted in its recent guidance that, where there is a material likelihood that an EUMR merger will not be formally notified to the Commission before the end of the transition period, merging parties should be ready for the possibility of the CMA exercising its jurisdiction to review the deal, and should therefore engage with the CMA well in advance of the year's end.

The CMA has been actively monitoring merger cases falling under the EUMR over the past 18 months in order to be ready to deal with them, if necessary, post-Brexit. For transactions where the parties have commenced pre-notification contact with the Commission, the CMA has indicated in its recent guidance that it may take "preparatory steps" to determine whether its intervention will be necessary if it turns out that the deal is not formally notified to the Commission before the end of the transition period. This may involve the CMA issuing information requests to merging and interested third parties, publishing public invitations to comment and/or contacting other competition authorities to "advance its understanding" of transactions and their implications for UK markets.

If there is uncertainty about potential CMA jurisdiction in connection with EUMR mergers as the end of the year approaches, the parties may consider making use of the existing EUMR procedures which allow exceptions to the one-stop-shop. Specifically, the parties may wish to request that the Commission make a referral of the UK aspects to the CMA under Article 4(4) EUMR – or the CMA may decide that it is prudent to request that the UK aspects be referred to it under Article 9 EUMR. Successful use of the mechanisms for referral back to the UK under the existing EU system would thus secure the parties the benefit of early jurisdictional clarity in that it would then be certain the UK aspects of the deal will be reviewed by the CMA in any event.

Jurisdictional uncertainties remain

Despite the provisions in the Withdrawal Agreement and the CMA's subsequent guidance, some jurisdictional uncertainty persists as regards the Commission's approach to the application of the EUMR for deals which are ongoing at the end of 2020. It remains to be seen whether the Commission will adopt the same approach as that indicated by the CMA in relation to the relevant point in time for determining jurisdiction – whether the Commission will now take this to be the date of notification or instead apply its normal rule that the date of the merger agreement is the salient event.

This will be significant for parties with deals where the merger agreement is struck in 2020 but not formally notified to the Commission until 2021. In particular, it is not absolutely clear for these deals whether: •the Commission will lose "exclusive jurisdiction" only vis-à-vis the UK, ie the CMA could open its own review in parallel, but the Commission's exclusive competence to review under the EUMR is not otherwise affected (because EUMR jurisdiction is taken to crystallise at the date of the agreement, which was before the end of 2020); or •the Commission's exclusive competence to review could be lost more generally, with the possibility of national reviews by one or more EU Member States, owing to the removal of the parties' UK revenues causing the merger to fall below the EUMR jurisdictional thresholds (because EUMR jurisdiction is taken to crystallise only upon notification, and a notification was not made in time before the end of 2020).

Implications for deal planning

Merging parties and their advisers would be well advised to consider the various jurisdictional possibilities when conducting their initial jurisdictional assessments. Indeed, given the lead-in time for major transactions (which will normally include a period for pre-notification contact with the authorities, even for the most straight-forward of deals), it would be prudent for parties to begin factoring this issue into their transaction planning sooner rather than later.

Where the merging companies’ revenue figures indicate that jurisdiction shifting as a result of Brexit might be an issue, the point will need to be accounted for in transactional documents and the parties made aware not only of the potential implications in terms of deal conditionality, timing, logistical issues and costs, but also of any implications for the substantive competition assessment of the deal – eg where EU Member State reviews might be more stringent or problematic for them than an EU-wide review by the Commission.

During the transition period merging parties may well have incentives to have their deal reviewed exclusively by the Commission under the EUMR, in order to take advantage of the one-stop-shop system that it offers. Not least of these is that the cost and logistical implications of a parallel UK review could be significant – with UK filing fees alone potentially adding £160,000 to the transactional bill (depending on the size of the parties concerned).

Weighed against this, however, is the fact that the timing of formal notification is not always solely in the parties' control as it depends, in practice, on the relevant competition authority accepting that the filing is complete and ready for submission. There may also be risks in rushing the process in front of the Commission during the transition period with the aim of avoiding the possibility of a UK parallel review, only to have the notification rejected as incomplete without time to resubmit before the end of the year.

1. The merger control system described in this briefing applies to European Free Trade Area (EFTA) states as well to those in the EU, ie to the whole European Economic Area (EEA) consisting of the EU and EFTA, but for convenience reference is made just to the EU rather than to the EEA.