Table of Contents
- EU Review of Small Drinks Transaction Shows Expanding Reach of Worldwide Merger Control Rules
- UK CMA Investigates Information Exchange Between Competitors
- European Commission Investigates Misleading Merger Filing
- UK CMA Provides Second Guidance on a Green Agreement
EU Review of Small Drinks Transaction Shows Expanding Reach of Worldwide Merger Control Rules
On 14 March 2024, the European Commission accepted a request from Luxembourg to review the acquisition of a small drinks wholesaler under EU merger control law, contained in the EU Merger Regulation (EUMR). The case demonstrates once again the ever-expanding reach of merger control worldwide and the need to review any acquisition, joint venture or investment for a potential filing obligation.
Article 22 of the EUMR gives the Commission the power to accept EU countries’ “referrals” of transactions that do not fall subject to the jurisdictional thresholds of that legislation. The Commission takes the view that this extends not only to transactions that fall subject to national merger control thresholds in the EU and therefore normally would be reviewed by the relevant country or countries, but also to transactions that do not fall subject to national thresholds.
The latest case accepted for referral is Brasserie Nationale’s proposed acquisition of Boissons Heintz, both based in Luxembourg. According to the Commission, the referral criteria are met because the transaction affects trade between EU countries, given the importance of importing drinks into Luxembourg, and threatens to significantly affect competition in the country as it would combine the two main wholesale distributors of drinks in Luxembourg.
It is notable that the turnover of the target in this case is only €39 million and it employs 70 people. The deal is therefore (way) too small for EU review. It is also not subject to review under Luxembourg merger control law because that country does not yet have a relevant law, although it has been proposed.
It had been thought that referrals of this nature likely would take place only in digital, pharmaceuticals or other industries with high levels of innovation. A potential competition problem arising from “the importance of imports of beverages into Luxembourg” shows that risk in relation to merger control must be considered in any transaction, even where jurisdictional thresholds are not met. This is particularly the case where there may be a complaint (reportedly, there was a complaint from a competitor).
UK CMA Investigates Information Exchange Between Competitors
The UK Competition and Markets Authority (CMA) has started an investigation under UK competition law into eight housebuilders’ alleged exchanges of competitively sensitive information. This follows publication of the CMA’s housebuilding market study report, which found that the planning system, together with the limitations of speculative private development, is principally responsible for the apparent persistent under-delivery of new homes in parts of the UK.
The investigation appears to consider stand-alone information exchange between the housebuilders. This allegedly relates to information identified in internal documents relating to the build-out of sites, pricing, incentives and rates of sale. The CMA ultimately could impose material fines for this alleged behaviour.
The case provides a reminder that information exchange between competitors is dangerous under UK and EU competition law, even where the arrangement is not part of a wider anti-competitive arrangement such as a price-fixing cartel. It can be an issue even where the exchange is one-off or unilateral. The risk arising from a stand-alone exchange is highest when it is classified as a restriction “by object” and/or does not have a pro-competitive purpose or form a necessary part of a wider pro-competitive arrangement.
The CMA has identified exchanges of certain types of information as often giving rise to “by object” restrictions. These include, among other examples, current/future pricing intentions, production capacities or commercial strategy, as well as launch plans and a forecast of future sales.
Competition compliance programmes and training for the UK and EU and elsewhere need adequately to cover information exchange scenarios that relevant employees may encounter doing their jobs.
European Commission Investigates Misleading Merger Filing
The parties to EU, UK and other countries’ merger control and other competition law investigations have a duty to provide accurate and complete information at the start of the procedure and throughout its course. Breach of this obligation potentially can give rise to fines and other sanctions as well as a loss of reputation.
A remarkable recent example is the European Commission’s investigation into Kingspan’s alleged provision of incorrect, incomplete and misleading information during the Commission’s investigation under the EU Merger Regulation (EUMR) of the company’s planned acquisition of Trimo.
Following the Commission’s opening in April 2021 of an EUMR phase 2 detailed merger control investigation into the proposed transaction’s substantive aspects, the parties abandoned the investigation in April 2022. Nevertheless, in November 2022, the Commission opened a separate investigation into Kingspan’s provision of information.
Well over a year later, in March 2024, the Commission issued a Statement of Objections (SO), or preliminary statement of case, to the company, which takes the preliminary view it intentionally or negligently provided incorrect, incomplete and misleading information in the EUMR procedure. This concerns “basic facts” related to a number of issues, including Kingspan’s internal organisation.
In addition, the Commission has concerns about basic facts relating to a number of substantive points, including the scope of the relevant product and geographic market, the existence of barriers to entry and expansion, the importance of innovation and the closeness of competition between Kingspan and Trimo, and vis-à-vis their competitors.
It is surprising that the Commission refers to potential problems with the “basic facts” about all of these issues. The merger filing and all correspondence with the Commission will have been subject to detailed review and analysis by the company and its counsel, with opportunities to make corrections even after the material is sent.
The case shows the importance of all submissions to merger control and other regulators, even about the basic structure of a business and similar issues, being subject to careful review and verification. While substantive issues are more open to different views, submissions on those cannot be misleading and the submitting company must be prepared to back them up with evidence. Counsel also has a duty to carry out verification so far as possible.
UK Competition and Markets Authority Provides Second Guidance on a Green Agreement
On 20 March 2024, the CMA published informal guidance to WWF-UK on the application of UK competition law to a proposed environmental sustainability agreement. The informal guidance was issued as part of the CMA’s “open-door” policy set out in its Green Agreements Guidance. It is the second example of this, following guidance issued to Fairtrade Foundation in December 2023.
The request relates to a proposal developed by WWF-UK in the context of WWF-UK’s “WWF Basket – Climate Action” initiative. The proposal’s stated objective is to help reduce participating UK retailers’ scope 3 emissions in the grocery sector, requiring suppliers that account for at least 80% (compared to a current target of 50%) of each retailer’s supply chain emissions to set net-zero science-based targets (SBTs). This voluntary scheme is combined with incentives to meet those targets and penalties.
The principle is that this would strengthen the grocery sector’s efforts to address supply chain emissions. WWF approached the CMA in the early stages of developing the proposal to help it assess any potential competition law risks.
The CMA had limited information but found that the risk of significant harm to competition was low. It calculated an expected monetary value benefit based on an estimate of emission savings and values for carbon abatement, resulting in an estimated multibillion GBP benefit.
As the proposal was classified as a “climate change agreement” under the guidance, the totality of those benefits could be used to offset any harm to consumers. The CMA took the view that there are reasonable grounds to expect that the potential benefits would equal or exceed any such harm. This was cross-checked with UK government research suggesting that every GBP1 invested in low-carbon land use generates an average of GBP3.30 in benefits. This is the first time the CMA has assessed the reduction of greenhouse gas emissions as a benefit in an assessment of a climate change agreement.
As required as part of its analysis, the CMA also took the view that the terms of the proposal were indispensable to achieving the goal (e.g., participating supermarkets could unilaterally identify suppliers to include in the scheme and unilaterally set the incentives and penalties) and that the proposal would not eliminate competition.
The guidance shows that the CMA is prepared to issue guidance even without full information. However, WWF-UK is required to keep the scheme under review and to take account of feedback from suppliers as it is implemented. It is also required to contact the CMA if it receives credible evidence that the setting of net-zero SBTs by suppliers is likely to have significant negative impact on competition in their markets. There is therefore an ongoing compliance obligation, as there is in relation to any agreement that may raise competition law concerns.
The guidance is not a full exemption from UK competition law but provides the parties with comfort that the CMA will not issue fines if the scheme is later found to infringe UK competition rules.
Additional EU and UK competition law news coverage can be found in McGuireWoods’ news section.
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