Read the piece below or download the PDF.

How to face the music in 2023

Every December, Spotify Wrapped crunches the data on the music you’ve listened to all year to generate a few interesting stats, including a list of your top tracks by number of listens.

Since 2022 was a bumper year for interesting merger remedy decisions, we thought we would ‘wrap’ the UK Competition and Markets Authority (CMA)’s policy in this area; boiling the key developments down into four main themes, while referencing music by analogy with the decisions (an indulgence for which we apologise in advance).

Our goal with this series is two-fold:

• To give legal and economic advisors that are in the cut and thrust of CMA engagement a bird’s-eye view of the recent evolution of remedy policy, and some practical takeaways that flow from it; and
• To help businesses that are planning transformative mergers to better understand how they can lean into the CMA process to their advantage.

Each article in this series covers a different theme and an emblematic tune (not necessarily representative of Fingleton’s tastes).

Theme #1: I fought the law and the law won - lessons from the Competition Appeal Tribunal (CAT)

The law on remedies certainly evolved last year, with Meta v CMA generating new risks and opportunities for merging parties. So, we start our series by exploring findings in that judgement with inspiration from The Clash.

The CMA can order you to revive a dying remedy asset with a dowry

Traditionally, the extent of the required remedy is determined by its ability to restore the market to pre-merger conditions of competition. Prohibition may seem like a straightforward way to meet this threshold - but what if a completed merger causes the target asset to deteriorate to a shadow of its former self before or during the CMA’s investigation? Is the CMA entitled to require the acquirer to restore the target to its pre-merger state?

These questions were answered in Meta v CMA where Meta challenged the CMA’s prohibition of its acquisition of Giphy. The deal was added to the CMA’s docket as a completed merger but the integration process (including the dismissal of key Giphy employees) had started before the CMA imposed an interim enforcement order (IEO) preventing further integration.  

The CMA ultimately blocked the deal and, to restore Giphy to its pre-merger condition, it ordered Meta to provide US$75 million in cash to Giphy - an unprecedented move. 

The reasoning behind this requirement was that under Meta’s ownership - particularly after Giphy executives were dismissed - Giphy had withered on the vine over the course of the investigation. Accordingly, the CMA argued, a post-prohibition divestment of a previously robust independent competitor that was now “holding its head above water but no more” would not meet the threshold of restoring the market to its pre-merger state. The CAT agreed - it ruled that an appropriate prohibition remedy requires “not the replication of an entity that might go under…but the establishment of an entity capable of bringing about the dynamic competition that the Decision identifies”.

For merging parties, this judgement adds another potentially strong downside to the strategy of completing a deal without engaging with the CMA and - at the very least - shows that preemptive integration can have extremely expensive consequences under the UK regime. 

CMA disclosure redux - an opportunity for strongly worded disclosure requests?

The 2020 Ecolab v CMA judgement strengthened the CMA’s confidence in the ‘wall’ protecting the detail of how it conducts an investigation from prying parties. The CAT had affirmed that the CMA has a wide margin of appreciation in evaluating what evidence is necessary to collect in order “to acquaint itself with the relevant information to enable it to answer each statutory question”.

The judgement also touched on remedies, with the CMA appearing to have taken that part to mean it is free to decide which third parties to engage with and how to do so, without disclosing the details of its market test to the merging parties. So, Ecolab v CMA sent a clear message to advisors and businesses that asking for such detail - with a view to then telling the CMA how to run its market test better - is unlikely to be productive.

However, in the CAT’s judgement on disclosure in Meta v CMA, it found that the CMA’s failure to disclose certain facts to the parties was a bridge too far. The CMA argued that it had given the gist of its reasoning and was not obliged to provide more. The information it redacted, said the CMA, was overkill anyway. The CAT disagreed:

“If a point is considered worthy of inclusion in the provisional findings, the decision-maker cannot be heard to say that it is redundant, mere surplusage or not part of the gist. The point is either a part of the decision-maker’s reasoning, on which it is consulting; or it is not – in which case it should be removed from the provisional findings altogether.”

The CAT found that there was no justification for the CMA not disclosing material that it redacted, at the very least in an advisor-only confidentiality ring:   

“Disclosure to Meta was necessary to facilitate the exercise of the CMA’s functions, because consultation with an affected party is a necessary part of due process.”

What does the CAT’s judgement on disclosure in Meta v CMA mean for merging parties and their advisors? It might open up a new strategy for advisors to explore when it comes to guiding the CMA’s consultation with third parties on remedies.

This judgement rolls back the Ecolab v CMA tide. The CMA is likely to be more inclined to disclose proactively and so the previous flow of procedural letters from advisors requesting disclosure within a confidentiality ring may not be necessary  (just don't expect an ‘EC-style’ access to file regime to come into play). 

When the CMA consults on remedies and shares its thinking with the parties through the remedies working paper, there now seems to be a stronger basis for the parties’ advisors to interrogate the evidence gathered from third parties. This presents an opportunity for the parties to lay bare some of the motivated reasoning that may underlie the submissions of third parties.

In summary, on both the substantive and procedural sides, the law developed in interesting ways last year, redefining what it means to optimally navigate the remedies process and introducing  fresh opportunities and potential pitfalls for CMA engagement strategies.

If you’d like to explore these ideas further with us, we would be happy to continue the conversation.