Under the UK's merger control rules, the OFT has jurisdiction to review "relevant merger situations". A relevant merger situation arises when two or more enterprises cease to be distinct and when either the turnover test or the share of supply test is met. The turnover test requires the target company to have turnover of more than £70 million in the UK and the share of supply test requires that as a result of the transaction, a share of 25% or more in the supply or consumption of goods or services of a particular description in the UK (or a substantial part of the UK) is created or enhanced.
The tests and thresholds enable the OFT to intervene in an incredibly wide range of transactions. Acquisitions of minority shareholdings, even at levels below 20%, can give rise to relevant merger situations where the acquisition gives rise to the ability materially to influence the commercial policy of the target.
So too, the acquisition of a few people and some contracts can give rise to a relevant merger situation. This is exactly what happened when STS acquired ICAP's treasury consultancy business. The deal involved the transfer of seven staff under the TUPE regulations together with some customer contracts. The OFT took the view that the transfer resulted in enterprises ceasing to be distinct and that the parties had a combined share of supply of treasury consultancy services to local authorities in the UK of more than 25%. Therefore, it had jurisdiction to review the completed deal and it did so.
Following its review, the OFT concluded that the acquisition would be expected to result in a substantial lessening of competition in the UK and therefore it was referred for Phase 2 investigation by the Competition Commission. This was in spite of the fact that the total 'market' value was estimated to be only £5-10 million.
The lesson here is that whilst the UK's merger control regime may seem benign (because it does not mandate that proposed transactions should be notified and cleared before proceeding), it has a very wide embrace. It can result in proposed or completed transactions which are not classic mergers or acquisitions being delayed, blocked or unwound.
If you would like to discuss these issues, please do not hesitate to contact John Cassels.
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