The harder line

Andrea Coscelli’s leadership of the Competition and Market Authority (CMA) has been highly consequential. Since his appointment in 2016, the agency has become one of the most interventionist competition agencies in the world, challenging more than 30 transactions, including transactions that had little nexus to the UK and, in some cases, had been approved by other agencies.

Coscelli has also been at the forefront of those calling for new powers to regulate the world’s largest tech firms. As he stepped down in July, we spoke to Cleary Gottlieb competition partner Nicholas Levy about the temperature of the enforcement environment domestically and globally, and to assess the implications of that environment.

The In-House Lawyer: It feels that, despite the spectre of a looming recession and an ever-tightening regulatory landscape, there is still a terrific appetite for deals?
Nicholas Levy: We’ve already seen a number of significant transactions announced this year, including three sizeable US-based tech deals: Microsoft’s $69bn acquisition of Activision Blizzard; Broadcom’s $68bn offer for VMware; and Elon Musk’s $40bn run at Twitter. Overall, though, deal activity is down around 20% and some expect it to fall further in the second half of 2022. Antitrust enforcement nevertheless remains vigorous, including in the UK.

Perhaps it’s best to first provide some historical context. Would you set the scene for us?
The last 30 years have seen three principal developments in merger control around the world: the EU’s implementation of a mandatory system of merger control in 1990; the adoption of competition rules in China; and the establishment of merger control regimes in more than 150 jurisdictions around the world, based largely on the EU’s administrative model and substantive test. To a greater or lesser extent, the EU, China, and other jurisdictions applied evidence-based rules grounded in the consumer welfare standard that has been the bedrock of US enforcement policy from the outset.

It feels like a transformative time for competition enforcement, on a global scale. Decades-long precedents seem to be on the chopping block.
The last few years have called into question what had been a fairly settled consensus around the focus and objectives of merger control rules. Some have demanded more permissive rules to allow for the creation of national champions, others have criticised perceived under-enforcement and called for new rules to rein in the leading digital platforms, and still others have suggested that the consumer welfare standard was too narrow and have urged antitrust agencies to take account of social, industrial, employment and environmental considerations.

How is the European Commission operating in this environment?
Twenty years on from the General Electric/Honeywell decision, when the EC was criticised by the then-heads of the US antitrust agencies for blocking a merger they had approved, on grounds they disagreed with, it has become one of the most stable and consistent agencies in the world, applying a well-established, economically based analytical framework in a flexible and transparent way. Commissioner Vestager has resisted calls to flex EU rules to create European or national champions, although she has been somewhat more interventionist than her immediate predecessors while refraining from criticising their records or decisions.

Let’s turn our attention to the UK, specifically. What is the role of the CMA in this paradigm shift?
Over the past 20 years, UK competition law enforcement has experienced continuous reform and innovation. That process has accelerated since the UK voted to leave the EU in June 2016. The past few years have seen significant changes in UK antitrust policy and enforcement. Some were anticipated, others less so.

As had been expected, Brexit gave the CMA parallel jurisdiction over major transactions, cartels and unilateral conduct that were previously subject to exclusive EC jurisdiction, increasing costs arising from parallel reviews in London and Brussels. What was less anticipated was that the CMA would ally itself with those who believe that merger control rules have been under-enforced, allowing some industries to become too concentrated, and, as a
result, that it would become more muscular and interventionist in its enforcement practice.

The most significant change at the CMA has been the way in which it now uses its existing merger control powers, in particular by asserting jurisdiction over transactions that might previously have escaped scrutiny in the UK, challenging transactions that might have been approved in the past, and imposing global hold-separate orders on completed transactions. The CMA’s general concerns over concentration levels in UK markets have translated into consistently high intervention rates in mergers. In the three years preceding the Brexit vote, the CMA prohibited or caused the abandonment of around seven transactions. In the five years since then, that number stands at more than 30. Among those blocked transactions are deals that were not approved in other jurisdictions and/or involved companies that had next to no turnover in the UK.

There is a great deal of speculation about Coscelli’s successor and whether they will confirm the policies championed under his leadership or step back, possibly under pressure to avoid the UK becoming an unattractive target for foreign investment.

So, it’s fair to say that the CMA is more forceful these days?
Yes, particularly in markets that the CMA already considers to be concentrated. In these cases, the CMA has shown a readiness to intervene even where market-share increments are low, and in assessing acquisitions of new entrants and potential competitors by established market players. The CMA is also sceptical of behavioural remedies in merger cases, and has blocked two transactions that the EC approved because it didn’t agree with remedies that the Commission had accepted.

As to antitrust enforcement, the CMA has brought cases concerning allegedly excessive pricing, which were novel at the time but, partly due to Covid, has been less active with respect to cartel investigations.

You have previously described the Directors Disqualification Bill as legislative ‘tinkering’, rather than a wholesale overhaul. So this isn’t a sea change then?
I wouldn’t call it a sea change, although the CMA does consider that its 2019 policy change was significant in allowing the CMA to consider director disqualifications in all cases and in parallel with its substantive investigation. I don’t think there’s anything in the Bill that will fundamentally change the importance and modalities of companies’ compliance policies. Around 20 or so directors have been disqualified over the past couple of years to date and it’s thought unlikely the new legislation will lead to a materially greater number of disqualifications.

What about the National Security and Investment (NSI) Act?
This is a sea change. It’s the culmination of a wide-ranging debate around national security and the acquisition of domestic companies by foreign buyers. In this respect, the UK legislation reflects the mood of our times, and other jurisdictions have adopted similar rules in response to concern about domestic companies in strategically important industries being acquired by foreign buyers. It’s broadly comparable to regimes that have been brought in all over the world, although it goes further than certain of those regimes in some respects.

How so?
The new rules can be applied retroactively; they apply to acquisitions of domestic companies by UK companies, as well as foreign buyers, and also capture acquisitions of non-UK targets; they apply to acquisitions of noncontrolling minority shareholdings; they include mandatory reporting rules in 17 sensitive sectors and the possibility to call in transactions in sectors that fall outside the mandatory regime if a risk to national security is suspected; there’s no definition of national security; and the Government may void transactions entirely even after they have been completed.

What is perhaps the biggest takeaway here for potential acquirers?
You should take account of the possibility of an NSI review in deal planning and transaction documentation, including in situations that might not obviously appear to involve national security.

What are the main concerns about the new law?
The main concerns have been around the administrative costs of notification and the attendant delay, together with the possibility that the rules may inject a political dimension into M&A by allowing the Government to use the NSI rules to maintain jobs and keep technology in the UK. Many view this possibility with alarm, although the Government has said this isn’t its intention.

Will this broader scope translate into elongated deal timelines across the board?
I don’t think it’s possible to discern any pattern yet. Some types of transactions will inevitably draw more scrutiny, but it’s encouraging that while there have been many filings, there have been relatively few challenges or conditional approvals.

Which sectors are likely to come under the most scrutiny in the coming years?
The digital sector has attracted a great deal of attention in the UK and elsewhere. Until recently, the CMA was less active in the digital space, but it’s opened a number of cases recently and has ongoing investigations of Apple, Amazon, Meta, and Google. It has also been strongly supportive of a regulatory regime with comparable heft to the one the EC is adopting with the Digital Markets Act. As it stands, though, there’s only a draft Bill, and the messages from Government have been mixed. The UK Government recently shelved plans to give statutory powers to the Digital Markets Unit (DMU) during this parliamentary term, but it is committed to putting the regime on a statutory footing when parliamentary time allows. Some are advocating for a lighter-touch regime, hoping to make the UK a friendly venue for tech companies to invest in.

These seem like opposing aims.
The Government wants to make the UK attractive for foreign investment while also establishing a new regulatory regime. For the time being, the CMA is bringing individual cases while it waits for a DMU to be formally established and given the powers it needs. My suspicion is that there may be little desire politically for a new piece of legislation that could inhibit investment in the UK.

Beyond tech, which other sectors are facing high levels of regulatory pressure?
Pharmaceuticals is an area where the CMA and others want to ensure that strong incumbents aren’t snapping up nascent, emerging competitors – so-called ‘killer acquisitions’. As for other sectors, the CMA’s stated ambition to be relevant may lead to greater focus attention on consumer-facing markets, such as music streaming, which is currently subject to a market study.

What are your predictions for the future?
More than a year on from Brexit, the CMA has taken its place as a global competition authority. The limited pool of parallel cases decided to date show that co-operation and alignment of the EC and CMA processes is possible but that there is no guarantee of the same outcome even where the agencies co-operate closely. The CMA is likely to maintain its rigorous enforcement of merger control in the coming years, and has already shown that it is prepared to take a different decision from other competition authorities in parallel cases, requiring merging parties and their advisers to give close attention to timing strategy and remedy design in future complex parallel cases.