Merger Q&A with Úna Butler, Director of Legal Services
September 8, 2015
31 October 2014 was a significant date for legal practitioners working in the areas of competition and consumer protection law, with the entry into force of the Competition and Consumer Protection Act 2014 (“2014 Act”). The 2014 Act established a new statutory body – the Competition and Consumer Protection Commission (“the Commission”) – formed by the amalgamation of the Competition Authority and the National Consumer Agency. The 2014 Act also introduced a number of important substantive legal changes, notably in the field of merger review law.
Director of Legal Services at the Commission, Úna Butler, provides her insights into the Commission’s work, focusing in particular on the organisation’s implementation of the new merger review rules.
How do you see the work of the Commission impacting on businesses in Ireland?
The Commission plays a vital role in making Ireland a good place in which to do business. Our mission is to make markets work better for consumers and businesses. Open and competitive markets are essential to Ireland’s economic recovery. We believe that competitive markets where businesses can compete and consumers can exercise choice are a key driver of productivity, innovation and long term growth.
What are the main changes, from a competition law perspective, brought about by the 2014 Act and how do they impact on businesses?
The 2014 Act strengthens our enforcement powers in respect of serious competition offences, such as price-fixing and bid-rigging. In addition, we have been given a new role in the regulation of the grocery sector in defined aspects of the commercial relationships between suppliers, wholesalers and retailers. The 2014 Act also introduced important changes to the Irish merger review regime, which perhaps have had the most immediate impact on businesses and on competition law practitioners in Ireland.
Can you explain the changes made by the 2014 Act to the Irish merger review regime?
The 2014 Act introduced numerous important amendments to the merger review regime set out in the Competition Act 2002. Firstly, the 2014 Act changed the financial thresholds for mandatory notification of mergers. Under the new rules, the worldwide turnover threshold and the requirement that at least two of the firms involved “carry on business” on the island of Ireland have both been abolished. Mergers must now be notified to the Commission if, in the most recent financial year, the aggregate turnover in the State of the firms involved is not less than €50 million and the turnover in the State of each of two or more of the firms involved is not less than €3 million. It is important to note that these financial thresholds do not apply to “media mergers” – such mergers are subject to mandatory notification to the Commission, irrespective of the turnovers of the firms involved.
Secondly, firms are no longer under an obligation to notify a merger within any specific time period. The only requirement is that the relevant merger cannot be put into effect before the Commission issues a clearance decision. In addition, firms do not need to wait until an agreement has actually been concluded and are now able to notify the Commission from as early as the date on which they can demonstrate to the Commission a “good faith intention” to conclude an agreement. These changes bring the Irish merger review regime into line with the EU merger review regime. In my view, these are very positive developments which make the Irish regime more efficient and user-friendly for notifying parties.
Have the changes in the financial thresholds for mandatory merger notification resulted in an increase in the number of mergers notified to the Commission?
Yes, we have seen an increase in the number of mergers notified to the Commission, although this may in part be reflective of a general increase in merger activity. In the six-month period from the entry into force of the new merger regime on 31 October 2014 up until 30 April 2015, 31 mergers were notified to the Commission. This compares to 21 and 27 mergers notified to the Competition Authority during the equivalent six-month periods in 2013-2014 and 2012-2013, respectively.
The intention of the revised thresholds in the 2014 Act was to create a better targeted regime focusing more closely on mergers that have a potential competitive impact in Ireland. The previous thresholds tended to catch many transactions which had no such impact, thereby creating an unwarranted expense for businesses and inefficiently tying up the Competition Authority’s resources. The new thresholds have addressed that problem, but the lower individual threshold of €3 million has resulted in a number of smaller, domestic transactions becoming notifiable. The Commission believes it is too early at this stage to say whether the new thresholds have fully achieved their objective of re-focusing the legislation on transactions that may substantially lessen competition in Ireland.
Concerns have been expressed by a number of legal practitioners and others regarding the effect of the new thresholds. In particular, it has been argued that the individual financial threshold of €3 million is too low, triggering a notification obligation which places an unnecessary and disproportionate burden on the SME sector. By the end of 2015, we will have 12 months of notification data and will be in a better position to assess whether there is merit in some of these comments. However, any change to the thresholds would require the enactment of amending legislation by the Oireachtas.
The new merger review rules give the Commission longer time periods for reviewing mergers. Have these resulted in the Commission taking longer to conduct merger reviews?
The 2014 Act extends the maximum time periods for review of notified mergers. The Irish merger review regime provides for a two-stage review procedure. Where a notified merger does not raise competition concerns, it will be cleared by the Commission at Phase 1. If, at the end of the Phase 1 period, the Commission is unable to decide that the proposed merger will not substantially lessen competition, it will open a Phase 2 investigation. The Commission must now generally make its Phase 1 determination within 30 working days of the “appropriate date”, i.e. the date on which the Commission receives a complete merger notification (or, if applicable, the date on which the parties respond in full to a formal request for information issued by the Commission during Phase 1).
In cases where the Commission decides to open a more detailed Phase 2 investigation, it must now generally make its Phase 2 determination within 120 working days of the appropriate date. In addition, the Commission can now for the first time “stop the clock” in Phase 2 by issuing a formal request for information to the parties. This request must be issued within 30 working days from the date of the Commission’s decision to open a Phase 2 investigation.
Around the time of the enactment of the 2014 Act, certain lawyers in private practice expressed concerns about the length of the new Irish merger review time periods. However, I think these concerns have so far proved to be unwarranted. We believe the move from “calendar” days to “working” days introduced by the 2014 Act is very welcome as it brings the Irish merger regime more in line with the EU merger regime. The new time periods allow us to undertake a thorough investigation of complex mergers where that is required – something that is clearly in the interests of the parties. The Commission is, of course, aware of the potential impact of unnecessary delays on businesses and endeavours to review all notified mergers as quickly as possible. We recognise that a merger notification has a suspensory effect, meaning that parties are unable to implement a transaction until they have received clearance. Where a merger does not raise any competition concerns, staff in our Mergers Division work to complete their investigation as promptly as possible. For mergers notified between 31 October 2014 and 30 April 2015, the Commission has taken on average 22.6 working days to issue a decision. The timelines in individual cases have varied from 11 to 29 working days depending, for example, on the complexity of the transaction and the nature of the competition issues involved.
Have the rules changed in relation to asset acquisitions?
The term “merger or acquisition” is defined broadly in section 16(1) of the Competition Act 2002 to cover not only acquisitions of corporate legal entities but also certain types of asset acquisition. The 2014 Act has amended the definition of an asset acquisition to bring it broadly in line with the approach adopted under the EU merger review regime. This means that a “merger or acquisition” is now deemed to occur where a transaction involves the “acquisition of assets that constitute a business to which a turnover can be attributed”, and for these purposes “assets” includes goodwill. The change in the definition of an asset acquisition, coupled with the revised financial thresholds introduced by the 2014 Act, means that the Commission is potentially going to see an increased number of commercial property acquisitions being notified. We hope to publish guidance in due course for legal practitioners and businesses on its understanding of the statutory provisions governing asset acquisitions.
What changes have been made to the rules on media mergers?
The 2014 Act made significant changes to the media merger regime set out in the Competition Act 2002. The parties to a media merger are now required to submit two separate merger notifications: one to the Commission (focusing on competition issues) and the other to the Minister for Communications, Energy and Natural Resources (focusing on media plurality issues). The 2014 Act inserted a new Part 3A into the Competition Act 2002 which provides for a much more comprehensive investigation of media mergers on plurality grounds by the Minister for Communications and, potentially, the Broadcasting Authority of Ireland (BAI).
In December 2014, the Competition Act 2002 was further amended by the Intellectual Property (Miscellaneous Provisions) Act 2014 to make it clear that a media merger notification cannot be submitted to the Minister for Communications until after the Commission has first reached its determination. In other words, there is a sequential review process.
It is important to emphasise that the Commission does not have any power to scrutinise media mergers on grounds relating to media plurality or to prohibit a transaction on the basis that it would curtail media diversity. Instead, the Commission’s only remit is to review media mergers on competition-related grounds i.e. the Commission must determine whether the transaction will result in a “substantial lessening of competition” in the affected market(s). By contrast, the remit of the Minister for Communications (and, where applicable, the BAI) is to assess the merger on grounds relating to media plurality.
What happens when the Commission finds that a proposed merger raises competition concerns?
When assessing mergers the Commission has to determine whether the notified merger will “substantially lessen competition in markets for goods or services in the State”. In effect, the Commission has to decide whether to (i) clear the merger, (ii) block the merger, or (iii) issue a conditional clearance.
The Commission has the power – at the end of a Phase 2 investigation – to impose conditions in its clearance of a merger. Separately, the parties involved in the merger are entitled to submit proposals to the Commission during both Phase 1 and Phase 2 with a view to remedying any potentially anti-competitive effects of the merger. A recent example of such proposals arose in the Commission’s investigation of the proposed acquisition by Valeo Foods UK Limited of Wardell Roberts Limited and Robert Roberts (NI) Limited. On 17 February 2015, the Commission cleared the proposed acquisition, subject to binding divestiture commitments given by Valeo. During the course of its investigation, the Commission identified certain competition concerns relating to the impact of the transaction on the market for brown sauce. The Commission ultimately cleared the acquisition subject to Valeo’s commitment to divest the “YR” brown sauce brand to an independent third party purchaser who will be able to maintain and develop the YR business as an active competitive force.
If the Commission concludes – at the end of a Phase 2 investigation – that a notified merger will result in a substantial lessening of competition, it will make a decision prohibiting the merger from being put into effect i.e. it will block the merger. To date the Commission has not blocked any mergers. Between 2003 and 2014, the Competition Authority blocked three mergers out of a total of 644 mergers notified to it. (One of these prohibition decisions was overturned on appeal by the High Court; the judgment of the High Court is currently under appeal to the Supreme Court.)
Director of Legal Services
Competition and Consumer Protection Commission
Úna Butler is Director of the Legal Services Division in the Competition and Consumer Protection Commission. She is a graduate of Trinity College Dublin, the College of Europe in Bruges, the Honorable Society of King’s Inn and King’s College London. Úna has extensive experience as a competition law practitioner working for McCann FitzGerald and Philip Lee Solicitors. Before joining the Commission in 2014, Úna was a legal advisor with the Commission for Communications Regulation.