I have spent much of my career advising businesses on complex mergers. Now, as chair of the CMA’s Panel of independent experts, I preside over a process that has had to adapt to considerable changes in markets and in how we think about competition policy. In both roles one thing has been very clear to me – the power granted to decision makers to prohibit mergers is considerable and that power has to be exercised with great responsibility. I propose to talk about how we exercise that responsibility, in particular that we do so in a manner that is demonstrably independent, clearly evidence-based, and procedurally fair.
There are 3 aspects to independence: independence in how we assess mergers; freedom from government intervention and, particularly since Brexit, appropriate cooperation with, but independence from, other global competition authorities.
The UK system is unusual by international standards in that phase 2 decisions are made by independent experts who engage open-mindedly with the cases referred from phase 1. Their background as senior business people, leaders in the professions, academia and consumer advocacy, as well as competition policy, means that they bring strong contextual understanding of issues relevant to modern merger control. This is coupled with a good understanding of merger policy concerns and cutting edge economic and legal thinking, developed at the initial induction, reinforced by a continuous programme of training and knowledge dissemination, and supported by advice from CMA staff, who approach phase 2 without being tied to the phase 1 conclusion. Throughout this process the importance of challenge – including challenge to the phase one decision and the views of members of the staff team – is hard-wired into the culture of the Panel including through the working methods of individual inquiry groups.
The law requires that at least one member of the Panel must also be a member of the Board. This makes obvious sense given that important aspects of the regime, such as the substantive and procedural guidelines, are agreed by the Board and have to be taken into account by decision-making groups. I make this point because one or two people have suggested that having Panel members on the Board is in some way incompatible with independence. In fact, professionals are perfectly capable of exercising different types of responsibility within complex systems, and there is nothing unusual about decision-makers in specific cases being members of a body that has wider regime-wide responsibilities. For example, serving judges sit on the Sentencing Council which produces binding guidelines on sentencing for the judiciary.
Second, the panel is independent of government. Other than in exceptional public interest cases, there is no role for ministers in merger decisions. I am told by advisers that they are sometimes asked by a client if government lobbying will improve their chances of achieving a successful outcome in the phase 2 process. In my time on the Panel, no minister, official or special adviser has been in touch with group members or staff to seek to influence how a group should decide a merger case. And if this was to ever change, they would be given short shrift. Similarly, media commentaries on mergers are part of what we expect from a free press, but our decision-making is based on the evidence, not media sound bites. A merger party that has confidence in its legal and economic arguments should focus on those rather than wasting everyone’s time lobbying government which might suggest a lack of confidence in the underlying strength of the case that the CMA has to decide.
Third, the panel is independent of other agencies. We receive different messages concerning international alignment. On occasions we are accused of being too closely aligned with other agencies and at other times we are criticised for not being sufficiently consistent with others. Our position is this. We do not “lobby” other agencies to achieve a particular outcome and they do not lobby us. We recognise that in many cases parties and the process benefit from coordination with other jurisdictions, and we strive to achieve this where it is possible within the legal framework. This is why we generally seek to align our timing and processes with other agencies to the extent we can, and why we ask merger parties to provide waivers that facilitate the exchange of information with other agencies. But ultimately, we have our own statutory duties: to prevent anti-competitive mergers for the benefit of UK consumers. And where the evidence points to a particular outcome, we shall not hesitate to exercise our responsibilities even if that means diverging from other authorities.
Mergers regimes are forward looking. We seek to anticipate what would happen in a market if the merger proceeds compared to what might happen if it did not. As with all the CMA’s work, our decisions are made on the basis of significant volumes of evidence and data and applying legal and economic principles.
In phase 2 investigations, this exercise is invariably complex. Clearly unproblematic mergers do not usually come to us. Obviously anti-competitive mergers are also the exception. The cases that we normally consider are between these extremes – sufficiently likely to give rise to concern to justify an in-depth phase 2 review, but generally not so clearly problematic or irremediable that the advisers and boards of the potential merging parties consider it to be a likely waste of time, money and reputation to take forward.
The analysis of certain mergers in dynamic markets or ecosystems was recently suggested extrajudicially by the President of the Competition Appeal Tribunal to be an exercise in crystal ball gazing or guesswork (footnote 1).
But the fact that an analysis is forward-looking does not mean that it is akin to fortune telling. Our role is not to predict market outcomes but to assess how the transaction would be expected to affect the competitive process in a market. We are seeking to understand how far, and in what way, the merger will affect the incentive of the merger parties and third parties to compete and how that may play out in practice. There is never 100 per cent certainty, and the legal test does not require that there should be. The test requires us to consider whether a substantial lessening of competition is more likely than not – a more than 50% likelihood. This involves applying judgement to evidence and data. This is as true in established markets as it is in new and developing markets characterized by dynamic competition. In each case one is considering a range of data and evidence and seeking to draw reasonable conclusions from this as to what is likely to happen if the merger was to proceed.
We regularly consider vast amounts of data, internal documents and other submissions. The volume of evidence has increased significantly over the past few years. It is now common to receive millions of documents from merger parties. As the volume of documents and data has increased, we are now also using artificial intelligence systems to help identify more quickly the most relevant material and patterns within material.
We are sometimes warned by merger parties to be sceptical about comments of third parties such as competitors and customers because third parties have their own commercial axes to grind. We are well aware of this, and we exercise appropriate scepticism. Of course, the main parties also (and quite properly) have commercial positions to defend, and we exercise similar scepticism when considering their arguments. This is why more objective and contemporaneous evidence, untainted by the prospect of the merger, can often be helpful, for example data about how markets have operated in the past and their trajectory for the future, in some cases survey data, and in some cases internal documents of the parties and third parties, for example, emails, internal reports, executive committee minutes and the like, particularly where these predate the planned merger.
One of the benefits of having Panel members who have worked at senior roles in large organisations or as leading advisers to businesses is that they understand the strengths and limitations of putting weight on internal documents. The documents have to be understood in context, they may be prone to exaggeration or understatement, and may be motivated by a desire to promote, or discourage, a particular project or development. We get that and we make judgements on the weight to be given such documents accordingly.
We are also sometimes told that such documents are irrelevant because the views of the CEO or other senior executives trump anything in internal documents, especially if given as part of sworn testimony. Again, we give weight to this, but it is not decisive. CEOs obviously play a very important role in setting commercial strategy but are nevertheless one part of a company’s decision-making machinery. Opinions can change as organisational and external circumstances develop, and a particular senior executive’s predictions can be wrong. If there is a difference in the view of how a business or market may develop between what a CEO says and what may be indicated in internal documents or by other senior stakeholders, including sometimes senior executives of other businesses, we have to assess what the totality of the evidence shows. We consider all this in the round.
A good example of this is the Sabre/Farelogix investigation. At the time, we concluded from Sabre’s internal documents and likely commercial incentives that, absent the merger, it would have continued to develop its merchandising solutions business in competition with Farelogix. Sabre, in its response to our provisional findings, said that this conclusion was “entirely fantastical and fundamentally flawed” (footnote 2). A few months after we blocked the deal, the Sabre CEO announced that this is exactly what it was going to do, stating that they were working to develop “essentially a Farelogix replacement” (footnote 3).
Another area in which judgements sometimes have to be made is the weight to put on contracts where parties argue that contractual obligations mean that they would have no ability or incentive to lessen competition post-merger, for example because, in a vertical merger, they would be contractually required to supply customers who might otherwise be foreclosed. As with all evidence, such obligations must be considered in context. This is not just an exercise in contractual interpretation. The terms of contracts will reflect the relative bargaining power of the parties at a particular point in time and contract terms can be amended, waived, or renegotiated. They can be interpreted more or less narrowly. While contracts are an important element of commercial life, contractual disputes are certainly not unknown and, in some cases, the cost of breaching a contract, including reputational costs, could be lower than the commercial gain from the breach. Such decisions by contracting parties will be taken in circumstances that may be very different from those in which the contract was entered into. A merger party who enters into a contract as a “lesser evil” compared to the alternative of having their merger prohibited or more onerous remedies imposed, may, once the merger is cleared, decide that its commercial interests are best served by renegotiating contract terms or interpreting them in a narrow way that a weaker dependent trading partner may have difficulty in challenging.
To recognise this is not to cast doubt on the sanctity of contract but to acknowledge that, as all who have actually run businesses know, contracts are an important, but not the only, element in defining a commercial relationship. And, significantly for us as a competition authority, where we find that a merger may harm the dynamics of competition in the UK with adverse consequences for UK businesses and consumers, this may be too important to be left to just the commercial decision making of the contractual parties.
Fairness of process
The phase 2 process has to achieve a number of objectives. It has to get to the right outcomes to protect competition and consumers in the UK without restricting mergers that will not have a harmful effect. It has to do this using a process that is fair to, and seen to be fair by, all concerned – the merger parties certainly but also third parties who may be impacted by the merger. The process must be conducted as efficiently and cost effectively as it can taking into account the other objectives. And the businesses concerned, the CMA and markets more generally have an interest in ensuring that the investigation is concluded as speedily as it sensibly can be.
The parties have repeated opportunities to engage directly with decision-makers. The Group will read all of the written submissions and the parties will meet the Group at least three times in-person (at the site visit, the main party hearing and the remedies hearing) before a decision is taken. This is a considerably higher level of engagement than in most administrative regimes.
However, no system is so good that it cannot be improved, and the recent consultation on possible reforms to the phase 2 process have helped highlight a number of areas for improvement that I, and the other inquiry chairs, have been considering for a while. In particular, the desirability of enhancing the quality of interaction with the decision-making group; improving the level of feedback to the parties as the process develops; tempering the inquisitorial aspects of the system with more discursive approaches; and adopting a new approach to the discussion of remedies.
I will outline our thinking on this shortly and Colin will go into more detail in his presentation later this afternoon but I would first emphasise that, while it is important that the process is fair and efficient, the outcome of a phase 2 investigation may depend also on the strategy that businesses and their advisers decide to pursue. Our process allows for different ways to engage with the CMA from the outset. Brad Smith, the President of Microsoft, very fairly made this point in his recent comments on the Microsoft-Activision transaction when he said: “I think we at Microsoft, quite rightly, should accept a level of accountability ourselves. We do, I do, for the fact that we didn’t figure out earlier how to unlock this problem and solve it… I accept the CMA criticism of Microsoft that we should have figured this out sooner. I wish we had. I think that is our responsibility” (footnote 4).
Proposed reforms to the Phase 2 process
I want to highlight four changes that I think will be especially positive from the Panel’s perspective.
First, we currently have a site visit early in the process. This is valuable in giving the Group members an opportunity to hear about the transaction and is an important early opportunity for the business people and the decision-makers to meet each other. We are proposing to add an additional opportunity at the beginning of the inquiry for the parties to present their views on the phase 1 decision to the Group in person. I believe this will be helpful to start focusing everyone’s attention on the key issues at an early stage and I hope will give the parties confidence that the Group is engaged with their arguments from the very start.
Second, we shall publish an Interim Report at an earlier stage of our investigation than the current provisional findings. While this will replace the provisional findings as the primary way in which we set out our provisional decision, it will – by its nature – be an earlier and less definitive statement of the case. We are conscious that when we publish provisional findings there is sometimes more of a focus on the word “findings” than the fact that they are “provisional”. Both in the timing of the Interim Report, and the way in which it is framed, we hope we shall more effectively convey the message that we remain open to evidence based arguments.
Third, we will have a revamped main party hearing at which the merger parties will have the opportunity to present directly to the decision-makers after seeing the full version of the “case against” the deal set out in the Interim Report – if that is the group’s provisional view. This will help address the concern that Parties do not have sufficient opportunity to make oral representations on the substance of the case after provisional findings. This hearing will give the group members an opportunity to question the merger parties but will also allow more time for the parties to make submissions and for the adoption of a more discursive approach. In my experience a dialogue between group members and the business people is invaluable in helping the group appreciate the purpose and potential impact of the merger.
Finally, throughout the process, it will be open to merger parties to discuss remedies with the Group at an early stage, if they so wish. This is true under the current process, but the revamped procedure seeks to draw this into the light a bit more and builds in a number of “hooks” that might serve as a prompt for parties to consider whether their overall commercial objectives might be best served by beginning remedies discussions. Early-stage remedies discussions should also be facilitated by the increased direct engagement with the Group, and hopefully a clearer and earlier understanding by the merger parties of the Group’s concerns.
These are positive changes, but their success will depend on how merger parties decide to constructively approach the many choices that have to be made throughout the process, such as whether to request a fast-track case, when to offer remedies, and how to engage with the Group when the opportunities arise.
It is through this combination of fair and efficient processes and effective engagement with merger parties, other businesses and consumers that we are best able to identify competition concerns and prevent or mitigate them where necessary.
 The Rise of Ecosystem Theories: Where are we after Microsoft/Activision and Booking/etraveli?, UCL Laws. YouTube. https://www.youtube.com/watch?v=SkQ7wmC__aE
 Anticipated acquisition by Sabre Corporation of Farelogix Inc, CMA, 9 April 2020.
 Sabre CEO Sean Menke, Q3 2020 Results, Earnings Call Transcript, 6 November 2020.
 The Times, 3 November 2023.