The next step in the CMA’s evolving approach to M&A

On 12 March, the Competition & Markets Authority (CMA) kicked off the next round of outreach in its “evolving approach to merger investigations”, launching a new “Mergers Charter” for businesses, along with a “call for evidence” for the review of its approach to merger remedies. 

These come a month after the government issued its draft strategic steer to the CMA (see our previous blog, The UK Government’s Strategic Steer to the CMA: Impact on UK M&A), calling on it to support the overriding national priority of economic growth.  While the CMA had previously flagged that these developments were in the pipeline, both provide further insight into the CMA’s “new” approach to M&A.

The “Mergers Charter”

The new “Mergers Charter” is aimed at businesses and the investor community. The document is billed as a “statement of intent” setting out the “clear principles and overarching expectations” for how the CMA intends to engage with businesses and their advisors during merger investigations and, in return, how it expects business to engage with the CMA. The document sets out an obvious (but worthy) goal – that the CMA should reach the right decisions as quickly as possible, while minimising the burden on businesses – although no real insight is given into how the CMA will bring this about.  Notwithstanding its grand title, the document has no legal status, so is probably best characterised as further signalling to the business community (and, in turn, to government) that the CMA is fully aboard the growth train. But, with the CMA having been perceived as an especially burdensome agency in the recent past, the new approach signalled in the Mergers Charter should at least immediately “hardwire” the CMA’s commitment to more proportionate and reasonable processes for evidence-gathering.

Merger Remedies Review

The “call for evidence” marks the first step in the CMA’s review of its approach to remedies.  In recent years, the CMA has become one of the strictest and most inflexible antitrust agencies globally in discussing remedies.  In that context, there has been widespread market interest in whether the CMA’s willingness to accept novel remedies to clear the Vodafone/Three UK joint venture at the end of last year is a sign of a wider change of approach to the assessment of remedies more generally. 

While the overall purpose of the document is to raise questions and seek input, some interesting indications of the potential direction of travel emerge.

• Tired of being alone.  For the first time, the CMA notes that the fact that the European Commission has accepted remedies in cases that the CMA has prohibited (namely Cargotec/Konecranes and Microsoft/Activision) is one factor that could prompt a “reconsideration” of its existing approach.  This is a marked change from the CMA’s previous (strident) position – that all competition authorities reach decisions independently, within their different legal frameworks.  With the call for evidence also asking respondents for input on how the CMA can “effectively take account of the parallel actions of other competition authorities”, regulatory alignment (particularly with the European Commission) seems likely to be more important in future.
• More (and more complex) remedies at Phase 1.  In principle, the CMA’s Phase 1 process is relatively well-suited to facilitating remedies outcomes – over the last five years, an average of over 11 Phase 1 cases each year (out of a total annual average of 50 cases) ended up with remedies being agreed at the end of Phase 1.  It’s also not clear that there’s a large number of viable remedies being “left on the table” at the end of a Phase 1 investigation – over the same five-year period, on average only three cases each year that went to Phase 2 ended up with remedies (so, in other words, around 80% of all remedies outcomes over that period were already able to be achieved within a Phase 1 investigation). The call for evidence makes clear, however, that the CMA is keen to do more to avoid the time and cost of a Phase 2 investigation, by lowering the bar for Phase 1 remedies.  In particular, the call for evidence indicates that the CMA is considering relaxing the long-standing requirements that Phase 1 remedies should be both “clear-cut” and “capable of ready implementation”.  This clearly signals a higher appetite for risk, opening the door for remedies that are more complex than the divestitures (typically of businesses that are already operating on a largely stand-alone basis) that account for the vast majority of Phase 1 remedies today.
• A relaxation in the legal standard?  Historically, the CMA has considered that a remedy is only acceptable where it “fully” remedies or prevents the competition concern and its adverse effects.  Now, it signals a possible relaxation of this approach, with the call for evidence explicitly noting that the underlying legislation states that “mitigation” of the competition problem may be sufficient, and that the CMA only has to “have regard” to as comprehensive a solution as is “reasonable and practicable”.  While it remains to be seen whether the CMA follows through on this (which, as a note of caution, might be difficult, given that the underlying law isn’t changing and the CMA’s previous interpretation has some support from the UK Courts), this would be a very significant change in approach, opening the door to a wider range of remedies (including, in particular, behavioural remedies).
• Open to views on behavioural remedies.  While much has been said about the remedies review signalling an increased receptiveness on the part of the CMA to accept behavioural remedies, particularly in light of the draft strategic steer and the government’s call for the CMA to be more proportionate in its decision-making, the call for evidence is less candid.  The CMA takes some time to “defend” its existing approach to behavioural remedies (noting, in particular, that the CMA has used behavioural remedies where suitable on the facts – most notably in Vodafone/Three – and that other authorities don’t use them much either).  Nevertheless, with the call for evidence setting out a wide range of questions that invite respondents to explain when and how behavioural remedies could be used, it’s clear that the CMA’s door is open on this front (particularly if facilitated by a relaxation of its view on the legal standard).
• Efficiencies – the next front of the “growth agenda”?  The call for evidence highlights the role that deals with pro-competitive efficiencies can play in addressing the government’s steer to support growth and investment.  The CMA highlights the role that efficiencies can play in preventing competition concerns but, recognising the position recently expressed (more colourfully) by the CMA’s chief economist that antitrust agencies have been “absolutely rubbish” at taking efficiency defences seriously during merger reviews, looks for input on how to measure and substantiate efficiencies claims.  The CMA also seems keen to build on the approach recently adopted in Vodafone/Three by finding ways to “lock in” merger efficiencies (to address the long-standing concern that merging parties might lack the incentive, after the deal completes, to pass on those benefits to customers).  In practice, careful preparation of efficiency arguments and evidence is likely to become a more important aspect of successful deal execution strategy for consolidation transactions.

While the CMA intends to move at pace, change will not be immediate.  The CMA has committed to implementing its change in approach by the end of 2025, with draft updated guidance issued for consultation in June before final guidance is published by the end of the year.  While, formally speaking, this means that it will be some time before these changes are reflected in new guidance, the strong pressure on the CMA to reform its previous approach, along with a degree of internal recognition within the CMA that it can and should be more flexible, mean that parties should be taking these issues into account now.  This is especially important in relation to thoughtful consideration of potential remedy design and detailed efficiency evidence at the earliest possible stage.

In the meantime, the remedies consultation runs until 12 May 2025 and provides a real opportunity for businesses to have their say, not only in relation to the future of remedy design in the UK, but also how the CMA’s remedies process can be further improved. Don’t hesitate to speak to your usual Freshfields contact to discuss what these recent announcements mean for you and how we can help you put forward your views to the CMA.

To read more about our thoughts on the key global merger control trends to be aware of in the coming year, request access to our Navigating antitrust in 2025: 10 key themes publication.