Mergers, acquisitions and takeovers: the takeover of Cadbury by Kraft - Business, Innovation and Skills Committee Contents

Memorandum submitted by the Department for Business, Innovation and Skills


  During our discussion at the committee hearing on Tuesday 12 January, members referred to the power Ministers have under the Enterprise Act 2002 to intervene in mergers on public interest grounds.

The reforms to competition and merger policy over the past two decades have focussed it on promoting competitive markets and applying a competition test. The 2002 Enterprise Act does however recognise that there are public interests which may not be adequately protected by the application of a competition test. It therefore includes a reserve power to allow some mergers to be examined additionally on the basis of their impact on the public interest.

There are presently three public interest considerations specified in the Enterprise Act as legitimate bases for Ministerial intervention. These are:

    — national security;

    — media plurality, quality and standards; and

    — the stability of the UK financial system.

  It is also possible to intervene in mergers that fall to be regulated under the EC Merger Regulation; generally being those larger merger cases that affect trade in more than one EC member state. European law currently specifies two grounds on which public interest interventions are possible: public security (equivalent to national security) and plurality and quality in the media.

  While every case needs to be considered on its merits, it is not clear that wider interests such as the concern expressed by some Members at the hearing about food security would be considered to fall within the scope of any of the existing public interest considerations.

  It is, of course, possible to specify additional public interest considerations. However, as the aim of the Act is to secure consumer interests through effective competition between enterprises, the policy intent was that the reserve power should be used sparingly to avoid inconsistency, uncertainty and a dilution of this aim.

  Any proposed new consideration to be specified in the Enterprise Act would need to be approved by a resolution of each House of Parliament. In addition, if it was to be relied upon also in European merger cases, it would need clearance by the European Commission. They would have to be satisfied that the consideration was legitimate and compatible with the objectives of the European Treaty, in particular in relation to the free movement of capital. Anyone making a case for a new public interest consideration would need clear evidence that this power was necessary, meaning that the only way to achieve the relevant public policy objective was to be able to intervene in possible mergers, as opposed to adopting other measures such as, for example, appropriate sectoral regulation. It may be noted that where governments have previously sought to use the powers, available under merger control, to intervene in merger cases in the food sector that action has been blocked by the European Commission.

  Further, merger control is a highly transparent process. Any decision to intervene and take action in relation to a proposed merger on public interest grounds is open to legal challenge. Even assuming a suitable public interest consideration had been specified that enabled intervention in a relevant merger, it would remain possible to intervene only where there was a defensible case for doing so. It would need to be a proportionate measure that was demonstrably necessary in order to achieve a specific public policy benefit.

  I hope this helps clarify the position on this matter.

January 2010

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