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Merger Review Benchmarking Report — Chapter 4

Senior Competition Bureau officials met with a number of their counterparts in Britain’s Office of Fair Trading, Department of Trade and Industry and Competition Commission, as well as senior representatives of two private law firms during the week of November 27, 1999. Names of officials and lawyers are included in Annex A.

Merger Review Structure

In the United Kingdom, the Secretary of State heads the Department of Trade and Industry, a non-ministerial government department, and has overall responsibility for merger control and policy. The Secretary of State appoints the Director General of Fair Trading, who is responsible for both competition policy and consumer affairs.

The aim of the Office of Fair Trading is to promote the economic interests of consumers in the United Kingdom by safeguarding effective competition, removing trading malpractices and publishing appropriate guidance¹⁸.

The Office monitors business transactions, conducts first-stage investigations and the Director General advises the Secretary of State whether he or she should refer a completed or proposed merger to the Competition Commission for an in-depth second-stage investigation. The Director General subsequently advises the Secretary of State about what action to take after the Competition Commission has produced an adverse report. The Director General can, when the Secretary of State requests it, negotiate undertakings rather than referring the case to the Commission.

The Competition Commission is an independent body of members representing industry, commerce and academia, appointed by the Secretary of State. The Commission conducts second-stage investigations of mergers referred to it by the Secretary of State and reports to the Secretary of State on whether a merger operates or might operate against the public interest. The Commission does not have any power to act against a proposed or completed merger, but recommends action to remedy adverse effects.

While most mergers do not raise issues, the U.K. merger review process is designed to provide a method for the Director General of Fair Trading to identify early those mergers with potential issues that the Competition Commission could thoroughly examine.

Definition of a Merger

The Office of Fair Trading will deem a merger to have occurred and will investigate it when it meets the following criteria:

two or more enterprises cease to be distinct or there are arrangements in progress or being contemplated that will lead to enterprises ceasing to be distinct;
at least one of these enterprises is carried on by, or is under the control of, a corporate body incorporated in the U.K. (including U.K. subsidiaries of foreign companies);
the merger has not yet taken place or has taken place within the last four months; and
the transaction meets the jurisdictional threshold described below.

Two enterprises cease to be distinct either when they are brought under common ownership or control or when one ceases to carry on business as a result of arrangements between them. A person or group of persons is also treated as having control of an enterprise when they have the ability to control or materially influence the policy of that enterprise. The Office of Fair Trading identifies three levels of control in its publications on merger review:

the ability to materially influence policy
the ability to control policy (de facto control); and
a controlling interest (de jure control): generally defined as when one enterprise holds more than 50 percent of the voting rights in the other¹⁹.

Threshold for Applying the Fair Trading Act

The Fair Trading Act 1973 identifies two alternative thresholds, one based on share of supply test and the other on assets, above which a merger qualifies for investigation.

The share of supply test is satisfied when the merger itself creates or enhances a 25 percent share of supply or acquisition of a good or a service in the U.K. (or in a substantial part of it). When one company already has a 25 percent share and the other has no share of that market, the merger will not qualify for investigation²⁰.
The asset test is satisfied when the gross value of the assets taken over exceed £70 million pounds. This is determined by adding together the book value of all the tangible and intangible assets of the target (after depreciation), including investments and current assets, whether within the U.K. or not, but with no deduction for liabilities of any kind.

The Fair Trading Act 1973 does not apply to transactions covered by the European Community Merger Regulation (see ECMR section of this chapter).

Substantive Test

The Fair Trading Act includes a test to determine whether a merger operates or might operate against the public interest. When the Secretary of State refers a particular merger to the Competition Commission, the Commission must take into account "all matters that appear to them in the particular circumstances to be relevant." Section 84 identifies five non-exhaustive points for the Commission to consider:

maintaining and promoting effective competition;
promoting the interests of consumers, purchasers and other users of goods and services in the United Kingdom with regard to the price, quality and variety of goods and services supplied;
promoting through competition the reduction of costs and the development and use of new techniques and new products, and facilitating the entry of new competitors into existing markets;
maintaining and promoting the balanced distribution of industry and employment in the United Kingdom; and
maintaining and promoting competitive activity in overseas markets on the part of United Kingdom producers and suppliers.

The Act does not contain a separate test for the Office of Fair Trading to follow when considering whether to recommend that the Secretary of State refer a case to the Competition Commission. Rather, the Office makes its assessment using the criteria listed above. Section 76 of the Act states that the "duty" of the Director General of Fair Trading is "to make recommendations to the Secretary of State as to any action under this Part of this Act which in the opinion of the Director it would be expedient for the Secretary of State to take in relation to any such arrangements or transactions."

Review Process

When reviewing a proposed merger, the Office of Fair Trading determines the relevant product and geographic markets and examines their structural characteristics:

market share, including the increase in market share occasioned by the proposed merger;
the extent and impact of any barriers to market entry, including those provided by imports;
the effectiveness of the remaining competitors;
buyer power; and
the impact of any vertical links.

While recognizing that efficiency gains are an important consideration, "generally speaking, in making an assessment of a merger, (the Office of Fair Trading) does not closely involve itself in evaluating claims for gains in efficiency, although it would like to see any information that might be available about anticipated improvements in this area. Any judgement that needs to be made about the trade off between efficiency claims and the potential detriment to competition is usually left until after a more detailed investigation. This is one of the factors that the Director General would take into account when he advised the Secretary of State whether a reference to the Competition Commission would be justified²¹."

With regard to non-competitive factors, the Office’s guide to procedures states the following:

A merger’s effect on employment or regional development, or its implications for national security, are among other issues that could have public interest implications. But since it is government policy that reference to the Competition Commission should be based primarily on competition grounds, it would only be in exceptional circumstances that such considerations might be a decisive factor. Nevertheless, the (Office of Fair Trading) notes any representations it receives on public interest issues and... the Director General takes them into account when he formulates his advice to the Secretary of State²².

Thus, the main aim of the Office of Fair Trading’s evaluation of a merger is to establish its potential effect on competition, although other possible public interest issues are also assessed. The Office does not examine any merger that falls below the legislated thresholds.

The Office publishes several guidelines and publications that it encourages merging parties to use when determining whether a merger qualifies for investigation.

Notification

There is no requirement for companies to notify the Office of mergers except in the case of those involving newspapers. However, parties regularly file with the Office to ensure that a proposed transaction is in accordance with competition law. The vast majority of qualifying mergers are brought to the Office’s attention, either through informal submission or voluntary prenotification.

There is no prescribed form for informal submission but guidance is included in a booklet entitled Merger Submissions and parties may use the common notification form developed for use in the U.K., France and Germany. However, the common form has rarely been used. The Office of Fair Trading’s administrative service standard states that merging parties can expect a response within 45 days of filing a complete submission (39 days for the Office and 6 for the Secretary of State to look at it). The parties do not pay a fee unless and until the Secretary of State refers the merger to the Competition Commission or announces the decision not to make a reference.

Voluntary prenotification is a legislated review process that applies only to a proposed merger that has already been made public. It does not apply to completed mergers or to proposed mergers that have not yet been made public. A fee is payable at the time of submission.

"The voluntary prenotification procedure (provided under the (Fair Trading Act)) makes provision for a proposed merger to be considered within 20 working days, with a maximum extension of 15 working days. Subject to some exceptions, the merger would be automatically cleared where no reference has been made by the end of that period²³."

To use this process and benefit from its legislated time frame, a company must pay the relevant fee in advance and use the prescribed Merger Notice, which specifies the information that must be provided. "The form itself has been designed to provide the Director General with sufficient information to allow him to decide, at an early stage, that there are no grounds to recommend reference²⁴."

The Office of Fair Trading has laid out very specific procedures for filing prenotifications. For example, the prenotification period begins on the first working day after the Office receives the Merger Notice, including the fee. The Office deems any Notice received after 5:00 p.m. to have been received the following day. The review period expires at 5:00 p.m. 20 working days later. The Office confirms receipt of the Notice in writing, indicating when the review period will expire (in 20 days or 35 with an extension).

On receiving the Notice, the Director General may send a written request for additional information, specifying the date by which it must be submitted. If the information is not provided within the defined period, the Director General has discretion and may reject the Notice.

The Director General may reject a Merger Notice at any time during the 20-day review period for one of four reasons:

he or she suspects the information given to be false or misleading;
he or she suspects that the parties do not propose to carry out the arrangements described in the Notice;
the parties fail to provide on time, or at all, the information specified in the Notice or any supplementary information the Office requests; or
the notified arrangements appear to be a concentration with a community dimension as set out in the European Community Merger Regulation (see ECMR section of this chapter).

A company may withdraw a Merger Notice at any time, provided that it or its authorized representative makes the withdrawal in writing.

Confidential Guidance

This is a non-legislated process by which, before a merger becomes public knowledge, companies can seek the confidential guidance from the Secretary of State via the Office of Fair Trading on whether the matter would likely be referred to the Competition Commission. The Office's guidance is not a "binding guarantee" that the merger will not be referred to the Commission. This is because the Office has only a limited amount of information, due to the confidentiality of the matter. As a result, the Office does not make market contacts, but does seek the views of other government departments. The Office undertakes to provide written guidance within 25 working days (19 for itself and 6 for the Secretary of State; see Impact of OFT and Secretary of State Decisions’ section of this chapter).

This guidance is generally one of four responses:

that there would likely be no grounds to refer once the matter became public;
that it is impossible to state a view on the likelihood of reference;
that reference is likely warranted at the public stage but that the concerns could be addressed by undertaking; and
that reference is likely warranted once the matter is public.

Informal Advice

The Office of Fair Trading encourages and provides informal advice. Parties are encouraged to send in information about the transaction but the Office does not make third- party contacts. In almost all cases, it conveys the informal advice orally at a meeting with the parties and does not provided a written response. Informal advice is seen as a key component of the Office's approach, in that it enables parties and the Office to agree on key issues to be addressed in any subsequent submission, should the parties decide to proceed.

Administration of a Merger Review

The Office of Fair Trading's Mergers Secretariat comprises administrative, legal, economic and accountancy staff (6 economists, 6 support staff, and 13 case officers as of December 1999). The usual workload of a merger case officer is between 5 and 10 cases. As of December 1999, there were 111 active cases for the 13 case officers. The Office does not retain outside experts. In-house staff provide all the economic advice.

The Office has its own internal legal division, and the staff lawyers are expected to provide legal advice within specified administrative deadlines. Two lawyers are specifically responsible for advising whether a proposed transaction qualifies for investigation under the Fair Trading Act. The division works with the Mergers Secretariat to draft and negotiate undertakings.

When the Office receives a case, the Director of Mergers assigns it to a case officer who takes primary responsibility for it. In some instances, assignment to a particular individual will reflect the fact that he or she has knowledge of the industry involved. The Office sends the parties a letter acknowledging receipt of the documentation, along with the name of the officer who is responsible for the case. The parties are encouraged to make the identified person their primary contact on the file. In addition, an economist works on the file with the case officer. This is the extent of the team that works on most merger reviews at the Office. Larger teams are not generally created.

The Mergers Secretariat, as a matter of course, invites interested third parties to comment on a merger. Invitations are published through the Stock Exchange’s Regulatory News Service on Reuters and on the Office’s web site. The Secretariat also requests information about customers and competitors (generally a minimum of five of each) and contacts customers, competitors and suppliers to obtain their views and opinions on the proposed merger. Office staff also solicit the views of other government departments and regulators. When the Office receives adverse views, it will normally advises the parties and gives them an opportunity to comment. When there appears to be little likelihood of anyone raising concerns about the merger, the Office issues the formal Invitation to Comment and accepts any replies it receives, but does not actively seek input from third parties.

The Director of Mergers meets with his case officers once a week to review all cases, and is well aware of progress, initial conclusions, and economic issues, etc. related to each. The Director also receives and reviews all of the economic advice the staff economists provide.

When the assessment is completed the case officer signs off the case with two possible outcomes: a recommendation to refer the case to the Competition Commission or a recommendation to close the case. When a case officer concludes that a matter should be closed, he or she sends the assessment paper and recommendation to the Director of Mergers and then to any interested departments. When the departments agree to the recommendation, a clearance paper is sent to the Department of Trade and Industry for a decision by the Secretary of State. The Department of Trade and Industry announces the Secretary of State’s decision. When a department does not agree, it may recommend that the matter be referred to the Mergers Panel. The case officer may recommend this as well if he or she concludes that the proposed merger raises serious competition concerns. More than 80 percent of the cases the Office of Fair Trading reviews each year do not raise such concerns.

Merger Panel

The Merger Panel is made up of officials from the Office of Fair Trading, the Competition Commission, the Treasury and the Competition Branch of the Department of Trade and Industry. The attendance of other Departments depends on the issue at hand.

The Panel's role is to help the Office's Director General frame his advice to the Secretary of State about whether a matter should be referred to the Competition Commission or undertakings be sought. The work of the Mergers Panel allows Office staff to formulate recommendations with the benefit of the knowledge and experience of other government departments.

The Panel considers approximately ten percent of cases subject to full merger review (i.e. approximately 20 to 25 in 1998). Of these, between 30 and 50 percent are identified as warranting referral to the Competition Commission or undertakings in lieu of reference. In 1998, for example, nine cases were recommended for referral to the Commission.

Impact of Office of Fair Trading and Secretary of State Decisions

Having consulted, completed market contacts and sought the advice of the Mergers Panel, the Director General of Fair Trading may recommend one of the following to the Secretary of State:

that the merger be allowed;
that the matter be referred to the Competition Commission for a second- stage investigation; or
that the matter warrants reference but that undertakings would resolve the identified competition concerns.

When the Director General recommends no action, the Secretary of State may do one of two things:

accept the recommendation; or
refer the matter in the absence of a recommendation.

When the Director General recommends that the case be referred to the Competition Commission, the Secretary of State may do one of the following:

accept the recommendation and refer the matter to the Commission;
not accept the recommendation; or
ask the Director General to seek undertakings in lieu of reference to the Commission.

When the Director General recommends undertakings in lieu of reference, the Secretary of State may take one of three actions:

accept the advice and ask the Director General to develop undertakings (three cases in 1998);
decide not to accept the Director General's advice and to make a reference to the Commission; or
clear the merger without undertakings.

Under provisions of the Companies Act 1989 and the Deregulation and Contracting Out Act 1994, the Secretary of State may accept binding undertakings from a merged business as an alternative to referring a case to the Competition Commission. The Office of Fair Trading will usually seek structural undertakings, generally the more appropriate remedy for competition problems in a merger situation, but may recommend behavioural remedy when the structural route is not available. The Secretary of State may only use these provisions when the Director General of Fair Trading recommends a referral to the Commission and specifies existing or potential adverse effects on the public interest.

When the Director General recommends undertakings, the Department of Trade and Industry issues a public announcement stating that the Secretary of State is minded to make a reference to the Competition Commission unless satisfactory undertakings are obtained. This provides an opportunity for third parties to comment on the merger. Proposed undertakings are published in draft form and are open for comment. Once they are in place, undertakings are monitored by the Office of Fair Trading.

When the Secretary of State decides to make a reference, a public announcement briefly explains the reasons for the decision. Although he is not obligated to do so, the Secretary of State also publishes decisions not to refer mergers to the Commission. The Secretary of State also specifies whether the decisions are in accordance with the Director General's advice.

Decisions by the Secretary of State to close or refer merger cases or to accept undertakings are published by press notice. The Office of Fair Trading informs the merging parties. The Stock Exchange’s Regulatory News Service is also notified. Since September 2000, the Office of Fair Trading has subsequently published a summary of the terms of its advice on important cases, on its website.

The Role of the Competition Commission

The Fair Trading Act 1973 requires the Competition Commission to take into account "all matters which appear to them in the particular circumstances to be relevant in determining whether a merger operates or may be expected to operate against the public interest.²⁵" However, as with the Office of Fair Trading, the Commission's current practice is to focus more on the impact of a proposed transaction on competition.

When the Commission receives a reference, it creates a panel to hear the matter and also creates a team to conduct the second-stage investigation. A typical team consists of a team leader, an experienced investigator, called the recording secretary, an economist, an accountant and a lawyer, as well as one or more industry experts as required. Certain staff are full- time employees of the Commission, while others are retained on contract for the investigation.

The Commission conducts a hearing at which the parties present their case and experts may be called. The Office of Fair Trading usually appears before the Competition Commission near the beginning of an enquiry to explain its reasons for recommending reference and to give the Commission a broad introduction to the case. The Office of Fair Trading also usually appears towards the end of an investigation to discuss remedy. Witnesses are questioned but not cross- examined. After hearing submissions, the Commission considers potential remedies and provides them to the parties for comment. In addition, once the Commission begins drafting its report, it provides draft chapters to the parties for comment. Parties may not request meetings with ministers or Commission officials. Rather, the parties and other interested groups are encouraged to make written submissions.

When considering the impact on competition, the Commission will consider both the acquisition of market power by a single firm and the potential for enhanced inter-firm cooperation as the result of the merger. The Commission also considers the parties' efficiency claims and assesses whether any promised efficiency improvements would outweigh the effects of a reduction of competition. However, when parties claim such improvements, the Commission must be satisfied that consumers will share in the benefits within a reasonable period. It will not accept efficiency claims if only the merging parties will benefit from them.

To date, the Commission's investigations have been completely closed, but the Commission is exploring a number of alternatives to make the process more open. It lists the names of witnesses on its Web site, except when confidentiality is required and encourages parties to publish their main arguments before the Commission. The Commission also sends parties a letter listing the key issues it has identified. While it may not release the letter, it releases the list of issues.

The time allowed for the Commission's inquiry is usually three months, although the Secretary of State might grant a three-month extension.

Impact of Competition Commission Decisions

The Competition Commission submits its report and recommendations to the Secretary of State, with a copy to the Office of Fair Trading. These reports contain a summary of the investigation, analysis of the effects of the merger, descriptions of the companies and markets involved, arguments for and against the merger, and third-party views. The Secretary of State, in turn, is required to table all merger reports before Parliament and to arrange for their publication in full within 20 days.

When the Competition Commission concludes that a merger operates or is expected to operate against the public interest, it normally recommends to the Secretary of State action to remedy or prevent the adverse effect. As noted earlier, the Commission is not a decision-making body.

When the Commission finds that a merger should be allowed, the Secretary of State must accept this finding. When the Commission concludes that the merger does or could have adverse effects, it may recommend that the transaction be blocked. In the majority of cases, however, it identifies remedies that would allow the transaction to proceed. Note that the Office of Fair Trading also advises the Secretary of State on the appropriateness of recommended remedies, and may suggest alternatives to those the Commission put forward.

The Secretary of State is not bound by a recommendation to disallow a transaction or to accept certain remedies. The Secretary of State may choose to impose other remedies or allow a merger to proceed in spite of recommendations from the Competition Commission and the Office of Fair Trading, although this is unusual. When remedies are sought, the Secretary of State may, under the law, either impose an order or seek undertakings from the parties. In practice, however, undertakings are the usual remedies.

All undertakings and orders are published and all orders are tabled before Parliament. The Director General of Fair Trading is responsible for monitoring compliance with undertakings and orders and must keep them under review.

There is no statutory right of appeal of a Competition Commission recommendation or a decision of the Secretary of State. The High Court will, however, review the merits of the decision-making process, but no application for this review has been successful to date ²⁶.

Merger Review Fees

Fees are payable in the following circumstances:

when filing a voluntary pre-notification;
when the Secretary of State refers the case to the Competition Commission; and
when the Secretary of State announces that he will not refer the case to the Commission.

Fees vary according to size and type of merger:

£5,000, when the value of the gross assets acquired total £30 million or less;
£10,000, when the value of the gross assets acquired total more than £30 million but not more than £100 million; and
£15,000, when the value of the gross assets exceeds £100 million.

Review of Current UK Merger Review Test and Process

The UK is currently completing a formal review of the its merger review process. A discussion paper entitled Mergers: A Consultation Document on Proposals for Reform was published by the Department of Trade and Industry.

There were two key issues for the review: to revise the legal framework for decisions (it proposed to replace the current scheme with a competition-based test, essentially regularising current practice) and to minimise ministerial involvement by removing key decision-making for the Secretary of State (Minister for Trade and Industry.)²⁷ The Government stated in the consultation document that it was seeking a regime which will be characterised by "clarity, transparency and consistency" which will promote "predictability, fairness and accountability", be responsive to the needs of business and others, and be effective.

In October 2000, the government released a paper entitled Mergers: The Response to the Consultation on Proposals for Reform²⁸. The document announced a number of decisions reached by the government after the consultation and also identified a number of new issues where it requested comment and input. The Minister, Stephen Byers, stated in releasing the report that:

"In August 1999, I proposed changes designed to streamline and modernise the UK merger control regime. In particular, I proposed that decisions in the vast majority of merger cases should be taken by independent competition authorities against a competition-based test. These proposals received widespread support from respondents to the consultation.

In light of the responses to the August 1999 consultation I have decided to take forward my proposals for reform. I believe that the new regime will provide the framework for a clear and consistent merger control system in the UK. Decisions will be more sharply focussed on competition issues. Businesses will be given more certainty about timetables for decisions. The vast majority of the cases will be removed from the political arena.

But in view of the support for the proposals in the August 1999 consultation, I have also decided to take steps in advance of legislation. I am announcing today that from now on my policy will be to accept the advice I receive from the Director of Fair Trading on whether or not to refer merger cases to the Competition Commission save in exceptional circumstances.

I am also announcing today that small and medium sized businesses will be relieved of the obligation to pay merger fees, thus reducing the regulatory burden that the current system places on them."

The following are some of the key changes adopted by the government after receiving input through the consultation process. These will be the subject of legislation.

Decisions, except in exceptional cases, will be taken by the competition authorities, (the Director General of Fair Trading and the Competition Commission) and the Secretary of State would no longer be involved either at the stage of referral to the Competition Commission or after the Commission has reached a decision²⁹.
The test for merger review would become one of determining whether the proposed merger would substantially lessen competition in a market.
There would be no change to the present division of responsibility between the Office of Fair Trading and the Competition Commission.
With respect to the timetables for review, for those companies that notify under the Merger Notice, the statutory timetable is to be reduced from 35 to 30 working days. For those companies proceeding under the voluntary notification regime, the administrative timetable is reduced from 45 working days to 40 working days.
The government has concluded that it will maintain two alternative tests to determine whether a merger qualifies for investigation. The current share of supply test will be maintained but the current asset based test will become a turnover test based on U.K. turnover. While deciding to adopt the change the government intends to consult on the level which is proposed as ECU45 million.

On the question of the role and significance of efficiencies, the government is seeking further comment. The paper states that efficiencies would be considered as part of the competition analysis and "can contribute to the conclusion as to whether there is or is not a substantial lessening of competition. However, where a merger results in a substantial loss of competition in a market, it is unlikely that efficiencies generated by the merger will be passed on to consumers, as the merging parties will not be under competitive pressure to do this". The paper proposes that the new regime should keep separate the competition analysis and the question of offsetting benefits and is seeking comments on the proposal that " the competition authorities should be able to take benefits to UK consumers affected by the merger into account at the remedies stage of the process, where they have concluded that the merger will result in a substantial lessening of competition."

European Community Merger Regulation (ECMR)

The European Community Merger Regulation (ECMR) covers all aspects of merger control in the European Union (EU). Mergers that fall within the jurisdiction of the ECMR are not usually investigated under a national system.

Mergers are assessed under the ECMR to determine their compatibility with the Common Market. The compatibility test is based on competition criteria that stipulates "that the ECMR would have serious concerns where a merger creates or strengthens a dominant position as a result of which effective competition would be significantly impeded in the Common Market or in a substantial part of it.³⁰"

The ECMR applies when a concentration³¹ has a "Community dimension." Thresholds defining when a "Community dimension" exists are calculated according to the turnover of merging companies. A concentration has a Community dimension in the following circumstances:

the combined worldwide turnover of the undertakings concerned amounts to at least ECU5 billion;, and the aggregate Community-wide turnover of at least two of those undertakings is more than ECU250 million; or
the combined worldwide turnover of the undertakings concerned is more than ECU2.5 billion, and the combined turnover of all those undertakings in each of at least three Member States is more than ECU100 million, and the aggregate turnover of at least two of the undertakings concerned in each of at least three of those Members States is more than ECU25 million, and the combined Community-wide turnover of each of at least two of the undertakings is more than ECU100 million."

Officials must be notified of mergers falling within the jurisdictions of the ECMR within one week of the conclusion of the agreement, the announcement of a public bid, or the acquisition of a controlling interest. A merger must not be implemented prior to notification or until it has been declared compatible with the common market.

In the U.K., the Competition Commission has one month from receipt of a properly completed notification to conduct a first-stage investigation and decide whether the merger falls within the scope of the ECMR. This investigation may take up to six weeks. When there is serious doubt as to its compatibility with the common market, the Commission initiates a second-stage investigation. Fines of up to ten percent of turnover are imposed if the parties fail to honour their commitments given, or if they put into effect a merger that has been blocked.

General Views of the Private Sector

The merger review process in the U.K. is highly regarded by both the government and in the private sector. The process is perceived to work well and, as in Canada, lawyers familiar with the Office of Fair Trading are used to combining informal approaches to sound out officials with subsequent, more formal interaction. Government officials and lawyers identified openness, transparency and consistency as critical attributes of the merger review process. Timing and fees are not seen as issues, the latter generally being considered as minimal compared to other costs related to a proposed merger.

Confidential Guidance

Confidential guidance is seen by the private lawyers as one of the strengths of the Office of Fair Trading. There is great appreciation for an established system by which parties can get a clear view of the Office's sense of the issues that would likely be raised if the parties proceed with the transaction. The guidance Office staff provide is very helpful since they base their views on a detailed submission. As such, it is an excellent basis for identifying key issues, particularly matters for which the Office would need additional information if the parties proceed. In this way, lawyers are in a position to develop a subsequent submission focussed on the important issues when the transaction becomes public. Furthermore, such an approach will likely result in a more focussed, shorter review. Both the lawyers and Office managers see the letter the Office provides to the parties as very useful, as it provides both advice and guidance.

Voluntary Pre-Notification Versus Informal Filing

In the U.K., there is no formal process similar to that of the Canadian Competition Bureau's Pre-Notification Unit prior to assignment of the case. However, as noted, there is voluntary pre-notification, although it is not clear why parties have not made greater use of this process.

While it appears that most parties prefer to advise the Office of Fair Trading of a proposed merger by means of an informal submission, rather than the voluntary pre-notification procedure set out in the legislation, the most recent figures suggest a more balanced approach is emerging. In 1998, there were 45 voluntary pre-notifications and 179 informal submissions, while in 1999 (up to November) there were 62 voluntary pre-notifications, and 87 informal submissions. (These figures do not include cases submitted for Confidential Guidance, which relates only to matters not public that would be later examined under one of the other two headings if and when the matter became public.). The limited use of voluntary pre-notification may be due to parties' concern that, faced with a legislated deadline, Office of Fair Trading staff might choose to recommend referral rather than miss the fixed date. Moreover, the legislative timetable for completing the review of even the most complex transactions is considerably shorter than the Office's administrative standard for non-notified transactions, a standard based on actual experience. On the other hand, when a company is confident of its position, the fixed legislated period, which offers certainty about the timing of a reply, is also attractive.

The consultation paper on merger review reform also recognized that companies saw benefits in having a choice of approaches for getting a proposed transaction reviewed and recommended that the two track-system remain. Discussing time frames, the paper states:

"The government recognizes that it can be in firms' own interests for there to be some flexibility in the timetable to give them more time to prepare their arguments and evidence. This is clearly reflected in the low take-up of the existing pre-notification procedure offering a 35 working day deadline for reference decisions. In 1998 only 22 percent of qualifying cases were notified under the procedure. The government therefore takes the view that parties should continue to have the choice of either fixed statutory or administrative timetables for reference decisions.³²"

Extent and Value of Published Information

There is strong support in the private sector for competition authorities to publish as much information as possible about their approach to assessments and their decisions in individual cases. The Office of Fair Trading has responded by publishing a summary of advice on important cases. This practice however is not without additional cost. Law firms, particularly, noted the practice of the Office of Fair Trading of publishing working papers on particular subjects. Firms would like to see the reasoning behind more individual case decisions. As Canadian lawyers have said, there is value in knowing about cases that were not opposed and what arguments were persuasive. The view is that there is limited information on cases referred and even less on cases not referred. As in Canada, lawyers would like letters indicating that no action will be taken to be detailed and informative for the same reasons.

To date, the legal profession has been concerned about its inability to get substantial pertinent information on the Competition Commission's process and analytical approach. Since the Commission's hearings are closed, lawyers only get to observe the cases in which they are involved. The letter the Commission sends to the parties is only a list of issues and provides little in the way of analysis. The first real opportunity for lawyers to see the analysis is when the Commission provides draft chapters for comment. This issue is important because, although the Commission can only recommend actions, its findings of fact are binding.

Recently the Commission has become more open. For example, it has begun publishing the letter to the parties that identifies possible remedies in the event that the Commission finds against the merger.

Office of Fair Trading Process

The private bar has a high regard for the Office of Fair Trading's staff and process. Lawyers cite a number of points, starting with strong leadership both from the top and the Director of Mergers. They see the opportunity for them to come in early and to informally discuss a case as a key step in getting the subsequent review on the proper track. Such an early approach helps focus both the submission and the information requirements, gives a sense of the size of the problems the proposal may face and, in a limited number of cases, starts the identification of possible remedies.

One change the lawyers suggest is to enable greater delegation of decision making. A significant step in this direction would be to adopt the proposal regarding ministerial power to refer matters to the Competition Commission.³³

Adversarial Versus Non-adversarial Process

There were divergent views among the lawyers on the nature of the current process. Some see the lack of an open adversarial process as one of the factors contributing to the lack of information about the Commission's process and analytical approach. Unlike in the EU, there is no formal statement in the U.K. of objections at the end of the first- stage review. Rather, there is a press release announcing the reference, with some but not much detail.

On the other hand, there is strong support for the view that the lack of an adversarial approach is a benefit. Those who hold this view feel that an adversarial process would add substantial time before a decision could be reached. (At present, the Commission has three months, with the possibility of one three-month extension.) Given these opinions and the general agreement with the two-stage approach, there is little support for adopting an adversarial process.

Annex A: — Persons Interviewed

Mr. John S. Bridgeman
Director General of Fair Trading
Office of Fair Trading
Field House
15 - 25 Bream's Bldgs.
London EC4A 1PR
England

Ms. Margaret Bloom
Director of Competition Policy
Office of Fair Trading
Field House
15 - 25 Bream's Bldgs.
London EC4A 1PR
England

Mr. Andrew J. White
Director, of Mergers
Office of Fair Trading
Field House
15 - 25 Bream's Bldgs.
London EC4A 1PR
England

Mr. Adrian Walker-Smith
Director,
Cartel Investigations
Office of Fair Trading
Field House
15 - 25 Breams Building
London EC4A 1PR
England

Mr. Edward Whitehorn
Director, Policy Co-ordination
Office of Fair Trading
Field House
15 - 25 Bream's Bldgs.
London EC4A 1PR
England

Ms. Penny Boys
Secretary
Competition Commission
New Court
48 Carey Street
London WC2A 2JT
England

Mr. David Miner
Department of Trade and Industry
1 Victoria Street
London SW1
England

Mr. Richard Leyland
Department of Trade and Industry
1 Victoria Street
London SW1
England

Ms. Jane Swift
Department of Trade and Industry
1 Victoria Street
London SW1
England

Mr. Nicholas Spearing
Senior Partner
Freshfields
65 Fleet Street
London EC4Y 1H5
England

Mr. Richard Taylor
CMS Cameron McKenna
Mitre House
160 Aldersgate Street
London EC1A 4DD
England

Annex B: — Statistical Information

Table 1. Office of Fair Trading: Merger Cases Reviewed
	1999	1998	1997
Proposed or completed	226	252	218
Pre-notified	69	45	51
Confidential guidance	50	61	64
Informal advice	70	67
Total merger cases	415	425	396

Table 2. Office of Fair Trading: Merger Cases
	1999	1998	1997
Value	£116.5 billion	£180 billion	£106 billion
Horizontal mergers	94%	92%	95%
Undertakings (not referred)	7	3
References to Competition Commission	10	8	10

Table 3. Office of Fair Trading: Turnaround Times
Service	Timing	Authority
Voluntary pre-notification	Maximum of 35 working days (includes 15-day extension)	Legislative
Review of public merger	Maximum of 45 days (39 for the Office of Fair Trading and 6 for the Secretary of State)	Administrative deadlines
Informal written advice	Maximum of 45 days	Administrative Deadlines
Confidential guidance	Maximum of 25 days (19 for the Office of Fair Trading and 6 for the Secretary of State)	Administrative Deadlines