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Freshfields Transactions

| 4 minutes read

The CMA’s revised Phase 2 process – more than old wine in a new bottle?

This article was first published by Global Competition Review on 25 April 2024

Following a public consultation launched in November 2023, the UK Competition and Markets Authority (CMA) has finalised proposed changes to its process for Phase 2 deal reviews.

All of these changes are procedural rather than substantive – they affect the way that a CMA investigation will be run, rather than the standards by which competition concerns and remedies are assessed. 

But, if implemented properly, the new regime has the potential to open up valuable opportunities to merging parties who adopt proactive and thoughtful action plans. 

It’s still all about the evidence

Allowing more opportunities for oral advocacy by merging parties doesn’t mean that the CMA is about to throw its existing playbook out of the window. A host of recent cases (such as Adobe/Figma and Microsoft/Activision) highlight that the CMA is unconvinced by uncorroborated oral evidence, even from the most senior leaders within a business.

Instead, cases will continue to be decided by a broader range of evidence, with a particularly heavy focus on internal documents. 

The new opportunities to engage in-person with the CMA Inquiry Group on the substance of the case (at the “Initial Meeting” and the revamped “Main Parties Hearing”) can be used to shape the course of the investigation, and to frame the underlying evidence in the most effective way. 

But the CMA’s Inquiry Groups are well accustomed to scratching under the surface of even the most compelling business testimony. So, simply “talking at” the CMA won’t make or break the case, unless the parties can back it up.

A broader runway on remedies – but only if used wisely

The new regime provides more opportunities to talk about possible remedies throughout the process (with further opportunities to be provided by the Digital Markets, Competition and Consumers Bill currently making its way through Parliament – see our DMCC podcast and latest blog on progress of the Bill). 

It is also intended to remove the “taboo” of talking about possible remedies while the Inquiry Group is still considering whether competition concerns arise at all.

The CMA has been keen to make clear that these new opportunities shouldn’t be used by merging parties to take a chance on a “low ball” remedy – and the new guidance says that the CMA might well say no to engaging at all where the proposed remedy is clearly well short of the mark. 

The CMA’s track record also shows that submitting a “low ball” first offer isn’t a negotiating tactic likely to make the CMA look at subsequent offers in a more favourable light – and by contrast can undermine the credibility of the merging parties.

Instead, the new regime offers better opportunities to pursue a range of remedies strategies. In cases with multiple competition concerns, there might be benefits to starting early remedies discussions on obvious competition problems while continuing to fight on more “grey area” concerns. 

In complex markets, early remedies discussions can provide a “hedge” if arguments on the substance ultimately don’t succeed (where there wouldn’t be enough time, in practice, to work through the issues involved in a complex remedy if discussions only began after substantive issues had been considered, so prohibition would be the only option). 

This increases the importance of thinking about remedies strategies at the earliest stage – and how these should be reflected in merger agreements.

Third parties get more time with the CMA too

The merging businesses aren’t the only parties involved in a merger investigation, and the CMA has been keen to make clear that customers and competitors (and particularly smaller third parties who might struggle to have a “voice”) will also get more time with the decision-makers.

Recent cases (such as Optum/EMIS and Microsoft/Activision) show that the CMA recognises that third parties often have their own commercial incentives in play – and that they’re increasingly being pushed to substantiate their positions with underlying evidence. 

Given the scepticism likely to be attached to uncorroborated oral evidence provided by the merging parties, it will be critical for the robustness of the new regime that there’s similar scrutiny of oral submissions made by customers and competitors (and, in the continued absence of full access to file, for the “gist” of the case provided to the merging parties to make clear how third-party submissions are supported by other evidence).

The new regime also introduces the possibility of joint hearings between third parties and the merging parties. The opportunity to “get in the room” with third parties and CMA decision-makers could be a particularly useful tool for merging parties to challenge third-party evidence in some cases – such as where questionable interoperability concerns are raised in vertical or conglomerate mergers.

Looking forward

Ultimately, the success of the new reforms will depend on the CMA being able to “operationalise” these changes successfully – which may not be straightforward. 

But the benefits for businesses will only be realised by approaching deals with a smart M&A strategy to navigate a CMA investigation – as part of a coherent global approach for multi-jurisdictional cases.

In particular, it remains more important than ever to prepare for the full range of theories of harm that the CMA may consider (which are not necessarily the same as those typically considered by the US and EU agencies) – and to properly assess the strengths and weaknesses of the evidence base to support the path to clearance.

Where competition concerns arise, getting complex remedies across the line can be greatly aided by upfront planning, expert remedy design, and by early and open engagement with the CMA.

And, as regulators exchange information and enforcement strategies extensively in parallel agency reviews, a seamless global strategy that accounts for local differences is increasingly important. As part of this, it’s critical to proactively assess where divergence risks might arise, and to mitigate the potential deal impact of these risks with careful process and substantive planning.

To find out more about our thoughts on the key merger trends to be aware of in the coming year, read our Global antitrust in 2024: 10 key themes publication.


antitrust and competition, merger control, uk, mergers and acquisitions