Competition Law - new rules for mergers

The NHS has been trying to get to grips with a new set of regulators and rules in particular in connection with mergers of NHS organisations and the way in which the rules can apply not merely to full mergers but also to transfers of individual services.  In doing so we have all had to become used to the role and responsibilities of the OFT and the Competition Commission (CC).  As NHS organisations may be aware, those two bodies have now been merged into a new body, the Competition and Markets Authority (CMA).  This took over the responsibilities of the OFT and the CC with effect from 1 April 2014.   There are also some changes to the way in which the merger regime, in particular, will operate.  This does not change the existing two stage process, but instead of the OFT carrying out the first stage and either approving the merger or referring it on to the CC, both stages will be carried out by the CMA.

Monitor's role in NHS mergers is unchanged in that it will remain the advisory body for NHS Trust to NHS Trust mergers, and has a statutory responsibility to advise on patient benefits arising from proposed mergers. Monitor does not have any formal role in the decision-making process which has been the responsibility of the OFT and the CC in arrangements which involve either foundation or private sector providers of NHS services.   Monitor is seeking to increase its role at the informal stage when parties are developing what may become a merger proposal and this is likely to become increasingly important as the procedural changes in relation to merger law place a greater emphasis on informal discussions prior to the formal submission to what will now be the CMA. The timetable, once the CMA accepts a submission, is then a formal statutory timetable, and not an administrative one.

This means that parties proposing to merge need to do their preparation in advance and to recognise the level of detail and types of information that the CMA will require. 

There is a second and potentially more significant change in relation to the ways in which the CMA will be able to preserve the status-quo whilst it makes up its mind as to whether there is a significant lessening of competition which gives rise to a problem. 

Hold-separate powers:  Under the old regime, both the OFT and the CC had powers to require the parties to "hold separate" (i.e. suspend the integration of) the bodies that were subject to a completed merger so as to prevent steps being taken towards implementation of the merger which would prejudice the ability of the competition authorities to reach a conclusion that the merger should not proceed. Indeed such integration might also prejudice the position of the organisations if that were to be the eventual decision.

Since the merger regime was (and remains) a regime where pre-notification was voluntary, cases could be reviewed by the OFT either before or after the merger had been completed.  The OFT, at the stage of its initial review of the merger, did not have power to impose "hold separate" obligations for an uncompleted merger; it could do so if it was reviewing the position post-completion and the CC could do so in any event on the basis that by that stage the potential for a serious lessening of competition had been identified. 

This now changes in two important ways.  Firstly, the CMA will have the power to require "hold separate" arrangements at the initial stage even if it is only considering a contemplated merger not just a completed one.  Secondly, instead of an approach under which the OFT/CC would initially seek undertakings which were subject to some initial prior negotiation, the new regime works on the basis that the CMA will start by issuing an Order and the parties can then go back to the CMA and seek either a variation or a derogation from the Order to permit whatever it is they feel is justified. They may, or may not, be successful in their representations. 

It is perhaps significant that in the CMA's issued guidance on this jurisdiction, the types of circumstance in which they say that the power will be likely to be used pre-merger includes a number of types of situation which are not in fact uncommon in NHS merger arrangements.  These include:

• the exchange of commercially sensitive information over and above what is objectively necessary for the purposes of commercial due diligence
• steps already being taken to integrate the businesses
• conducting joint commercial negotiations with customers or suppliers
• key staff moving on and, where the acquiring Trust is in a position where it is effectively taking over management of the acquired Trust, possibly the secondment of staff.  This is a factor which may well trigger the requirement to appoint an independent "hold separate" manager to maintain the integrity of the target Trust pending the resolution of the merger process. 

The core tests for the assessment of a merger as to whether there is a significant lessening of competition and the impact of the relevant customer benefits remain the same and these changes do not assist NHS organisations in seeking to argue for mergers which were regarded as unlikely to be approved under the OFT/CC regime.