Following the CMA taking up its role as the new UK super competition regulator on 1st April, it has exercised its enhanced hold-separate powers for one of the first times.
On 7 April 2014, the Competition and Markets Authority (CMA) made an initial enforcement order under section 72 of the Enterprise Act 2002 against Eden (GM) Limited and Eden Automotive Investments Limited in relation to the completed acquisition by Eden (GM) Limited of two car dealerships from Riders Garages Limited. The order is without prejudice to the ongoing investigation into the completed merger.
Following the enactment of the Enterprise and Regulatory Reform Act 2013, the CMA no longer invites parties to negotiate initial hold separate undertakings. Instead, it now makes an immediate initial enforcement order under Section 72 to stop any integration between the parties in completed acquisitions where the CMA is considering whether to make a reference to a Phase II merger investigation. This power in theory also extends to anticipated mergers but it is unclear as to when such a power would need to be used in conditional transactions given that integration of the merged business is very unlikely to happen prior to completion.
Its enhanced powers, backed up with substantial financial penalties for non-compliance, are designed to stop any integration with immediate effect. The intention is to ensure a swifter regulatory response in completed merger cases. The scope and breath of these initial enforcement orders has come under criticism due to their draconian effect on the merging parties. Although it is possible for the parties to seek amendments, these orders can have the effect of materially undermining the merging parties ability to conduct their business.
There has also been a worry that the aggressive use of initial enforcement orders in completed merger cases is, in practical terms, turning a UK voluntary merger control system into a pre-notification system by the back door – an outcome which Parliament decided it did not want to follow.
Therefore companies considering making an acquisition in the UK above the relevant thresholds in the Enterprise Act 2002 (and over which the CMA has jurisdiction to investigate) need to consider whether it would be more commercially attractive to pre-notify their transaction to the CMA rather than be subjected to the rigours of an initial enforcement order.