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The CMA’s merger remedies guidance plays a key role in determining whether transactions that raise antitrust concerns can be allowed to proceed on the basis of commitments offered by the merging parties. As such, the consultation and Draft Guidance is an important step in wide-ranging ongoing reforms to the UK merger control process, to implement the CMA’s “4Ps” agenda.  This seeks to encourage “pace, predictability, proportionality and process” across the CMA’s portfolio of work.

The overall message of the consultation will be welcome to parties involved in M&A activity. The CMA stresses that, in transactions raising antitrust concerns, it wants to work constructively with businesses to identify as quickly as possible whether there is an effective and proportionate remedy that will enable them to get on with implementing the transaction and running their businesses. 

The consultation and Draft Guidance include a number of changes that should contribute to this objective.  However, much will depend on how any final revised guidance is applied in practice, as well as the outcome of future consideration of the CMA’s approach to efficiencies. 

We contributed to the earlier review (our response is here) and will be submitting a response to the current consultation.  In the meantime, we summarise below five key (provisional) takeaways for merging parties.

1. Behavioural remedies are more likely to make the grade 

The CMA retains its current position that structural divestments are more likely to be effective in addressing concerns than behavioural remedies (under which merger parties make commitments as to their future behaviour, rather than selling a business).   However, the Draft Guidance shows a clear softening in the CMA’s stance towards behavioural remedies.

Under the proposals, the CMA is now more likely to accept behavioural fixes in wider range of circumstances. Previously, the CMA’s guidance envisaged accepting such remedies only where: antitrust concerns had a limited duration; the remedies would preserve substantial “relevant customer benefits” (see below); and/or a structural remedy is not feasible. Now, the CMA proposes that it is more likely to accept such remedies where:

• The remedy has a limited duration.
• There is an industry regulator that can monitor and enforce the commitments, or the parties appoint a monitoring trustee to fulfil this role.
• The market is transparent (enabling customers, rivals and suppliers to identify and report non-compliance) or sufficiently mature and stable (meaning less risk that the remedy becomes ineffective).
• The remedy aligns with existing commercial practices/norms.

In a further welcome move, the CMA will remove its presumption against behavioural remedies being accepted at phase 1.  However, this comes with the important qualification that they will still need to meet a demanding “clear-cut” standard, which the CMA considers is more likely to be met by structural remedies.

2. Remedies can be used to lock-in pro-competitive efficiencies 

The CMA acknowledges that some parties may claim that a merger will result in efficiencies that strengthen competition in the relevant market. However, there may be doubts as to whether they will deliver these efficiencies in full. The Draft Guidance describes how remedies can be used to secure the parties’ efficiency commitments. 

This proposed change reflects the CMA’s experience in Vodafone/Three, where the central plank of the remedies it accepted was a commitment by the merging parties to deliver their network investment plans (which the CMA considered could enhance competition but doubted would be delivered in full).   

It signals a thawing of the authority’s approach to assessing rivalry-enhancing efficiency claims in merger reviews. However, the Draft Guidance only covers the interaction between merger remedies and efficiency claims—the CMA says it will consider its substantive approach to efficiencies more generally in due course. 

3. Customer benefits may impact remedy choice and design

Relevant customer benefits take the form of lower prices, higher quality, greater choice or increased innovation. They can result from a merger but do not necessarily need to be achieved through increased competition in the markets where the antitrust concerns arise. The bar for proving them is high, and they have been rarely accepted by the CMA. 

While not proposing to lower the evidentiary burden, the CMA aims to clarify how remedies can be selected (or even modified) to ensure that any customer benefits are preserved.

4. Complex divestments might be possible with clear evidence and risk mitigation measures

Divestment of an existing business will remain preferable to a carve-out divestment (i.e., the sale of part of a business or collection of assets) or other complex structural remedies such as an IP divestiture. 

But the Draft Guidance gives parties more clarity around the types of evidence it will take into account when assessing carve-out remedies and the ways in which the risks of complex divestments can be mitigated. These include use of upfront buyers, divestiture/monitoring trustees, or a “fall-back remedy” for situations where the complex divestment is unsuccessful.

In another significant move, the CMA is proposing to clarify its stance on divestments in transactions involving local markets at phase 1.

In these cases, the CMA often sets a threshold or “decision rule” for when antitrust concerns arise, e.g., by using a “filter” to assess competition around specific locations and an appropriate intervention threshold (such as market share).

The CMA is clarifying that, at phase 1, it may be enough for the merged entity to divest sites to bring it below the intervention threshold—even if this does not eliminate the entire local overlap (which was an approach that could lead to a far higher number of local divestments at phase 1). The CMA will require robust evidence to show that such divestments will be effective but, if demonstrated, this could bridge the often-significant delta in number of local divestments required to solve antitrust concerns at phase 1, saving parties from a lengthy phase 2 process.

5. Early engagement with the CMA increases the chance of acceptance (and a monitoring trustee/industry expert might help)

The CMA has already proposed and is currently finalising improvements to its merger review processes to implement its 4Ps framework. But it plans to do more—especially at phase 1—to enhance the remedies process. 

Most of these changes are designed to encourage and facilitate early discussion of remedies, with the CMA explicitly noting that the earlier parties start engaging with the CMA on remedies, the more likely it is that the phase 1 standard for acceptance of remedies will be met. The CMA signals that it will be open to early “without prejudice” discussions during phase 1 (even in pre-notification) and at the early stages of phase 2.   

The CMA also encourages (but notes it cannot require) merging parties to consider appointing a monitoring trustee or industry expert to assist with remedy discussions. Parties would need to balance the cost of this against the possible benefits—the CMA suggests it could help its assessment of the remedy proposal, give additional comfort that the commitments will be effective, and enable a quicker decision. 

Other changes are afoot 

As noted above, the proposed changes form part of a wider programme of work. This arguably involves the most significant shift in UK merger control policy since the CMA was created. Some other key developments:   

• New timing KPIs for pre-notification and straightforward phase 1 reviews, as well as other proposed changes to the phase 1 process, aimed at increasing pace and boosting engagement between the CMA and merging parties.
• Proposals to clarify aspects of how the CMA will apply the “material influence” and “share of supply” jurisdictional tests. These concepts are notoriously expansive, giving the CMA very broad jurisdictional reach, and have faced heavy criticism. Government proposals on possible legislative revisions are also expected.
• A push—following the Government’s “strategic steer” to the CMA—to  de-prioritise global deals that concern global markets (with no UK-specific impact) and where action by non-UK regulators can be expected to address any issues arising in markets in the UK.
• A discussion paper on “scale-ups”, exploring how competition policy can help (and not hinder) UK start-ups from becoming “superstar firms” competing in global markets (a focus of UK government industrial strategy). This raises a number of potential ideas, ranging from relatively straightforward measures the CMA itself could take (like further guidance on beneficial collaboration between businesses in compliance with competition law) through to radical measures requiring government intervention (such as factoring the nationality of an acquirer into a review in certain circumstances and/or allowing the government to trigger a review screening deals for their impact on the UK’s strategic resilience).

Beyond the UK: a similar shift?

The CMA does not stand alone in signalling a more permissive approach to merger remedies.   

As we discussed in our recent alert, the U.S. antitrust agencies are also embracing a more pragmatic, transparent and flexible stance, moving away from the de facto “no remedies” approach under the Biden administration.

The merger remedies landscape is evolving rapidly.  We can help you navigate it and will keep you updated as approaches crystalise in the UK and elsewhere.  

The governor of the Bank of England, Andrew Bailey, has warned recent events in US private credit markets have worrying echoes of the sub-prime mortgage crisis that kicked off the global financial crash of 2008.

Appearing before a House of Lords committee, the governor said it was important to have the “drains up” and analyse the collapse of two leveraged US firms, First Brands and Tricolor, in case they are not isolated events but “the canary in the coalmine”.

“Are they telling us something more fundamental about the private finance, private asset, private credit, private equity sector, or are they telling us that in any of these worlds there will be idiosyncratic cases that go wrong?” he asked.

“I think that is still a very open question; it’s an open question in the US.”

He added: “I don’t want to sound too foreboding, but the added reason this question is important is if you go back to before the financial crisis when we were having this debate about sub-prime mortgages in the US, people were telling us, ‘No it’s too small to be systemic, it’s idiosyncratic’… That was the wrong call.”

Bailey said the complex nature of some of the financial engineering in use in the private credit markets gave cause for concern.

“We certainly are beginning to see, for instance what used to be called slicing and dicing and tranching of loan structures going on, and if you were involved before the financial crisis and during it, alarm bells start going off at that point,” he told peers.

“That stuff was a feature of the financial crisis, so that’s another reason why we’ve got to use these cases as another reason to have more drains up, frankly.”

Deputy Bank governor Sarah Breeden, appearing alongside Bailey, said the Bank would be carrying out a war game exercise in these markets, to test the linkages between private credit and other sectors.

She underlined some of the concerns about the private credit sector. “It’s about high leverage, it’s about opacity, it’s about complexity and it’s about weak underwriting standards.

“Those are things that we were talking about in the abstract as a source of vulnerability in this bit of the financial system, and those appear to have been at play in the context of these two defaults.”

The collapse of car parts firm First Brands and auto lender Tricolor prompted concern on Wall Street, with the JP Morgan chief executive, Jamie Dimon, comparing them to “cockroaches”, and saying that more could emerge.

The International Monetary Fund’s global financial stability review last week highlighted concerns about the close connections between private credit markets and mainstream banks – and the IMF’s managing director, Kristalina Georgieva, said it was the issue that kept her awake at night.