Annex 1
"Merging is such sweet sorrow"
Peter Freeman, Chairman of the Competition
Commission, spoke at the British Institute of International and
Comparative Law (BIICL) Mergers Conference on 13 November
2008. The full text of his speech follows.
SUMMARY
1. In this speech, with the regime in the
"process of maturing", Mr Freeman takes the opportunity
to assess the operation and effectiveness of UK merger control,
in the light of "a remarkable year".
2. Assessing one such recent event, the
decision not to refer the LloydsTSB/HBOS merger, he underlines
that this should be seen as the "exception rather than the
rule", where "speed and urgency overrode the need for
full investigation". A merger system must be able to deal
with "wider policy issues" and as such judgments on
conflicting policies are "in a democratic system, … in
the end best made by Ministers". His belief remains that
this shows the UK system to be 'in operation, not disarray'.
3. Admitting that the merger system causes
"some pain and some pleasure", Mr Freeman stresses that
the criticism is not that it delivers "wrong answers"
but rather that it is "too heavy, intrusive and burdensome".
He outlines how the CC has improved its approach to give greater
focus and time discipline to its inquiries, provide more clarity
and reduce the burden on parties.
4. Mr Freeman then tackles one of the major
challenges that have emerged from the CC's recent experience—the
"substantial" problems that arise from inquiries into
completed mergers. This has led the CC to take an increasingly
firm line to ensure that "our ability to achieve divestment … should
not be compromised". Although for parties it may seem "attractive"
to be able to complete mergers without clearance, a subsequent
referral means significant inconvenience and uncertainty during
the inquiry itself and ultimately the possibility of incurring
considerable costs, if the merger has to be "unscrambled".
5. As such, this issue warrants "a
serious discussion to assess the advantages and disadvantages
of moving to a mandatory notification system". Any change
would rightly require a great deal of thought on matters such
as notification thresholds but also whether there is actually
evidence on a "chilling" effect of pre-notification
on the economy "beyond the anecdotal".
6. Mr Freeman concludes by examining the
problems from balancing Phase I and Phase II. Clearly it is desirable
that with "problematic" mergers, most time should be
spent on Phase II. However, there may also be some mergers that
could benefit from a longer examination at Phase I, if they are
suitable candidates for undertakings in lieu. "Some skill
is obviously needed to tell the two cases apart" and to filter
out as early as possible cases that require in-depth examination—as
well as to avoid the trap of the filtering process taking as long
as the examination itself.
7. He stresses that this is not a problem
that depends on the number of examining authorities. But given
that two-stage investigations are the norm, then the "existence
of a separate, well established Phase II authority is a big advantage".
However, he concludes, regardless of the number of institutions
involved, "the question of how much work is done at which
stage will not go away and needs to be addressed".
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