United Kingdom

Divergent Outcomes in 2023 Merger Cases – An Anomaly or More to Come?

Following Brexit, the the Competition and Markets Authority ("CMA") and European Commission ("EC") frequently carry out parallel reviews of major global transactions. While the majority of these parallel cases reach the same conclusion, a material number of high-profile deals faced different outcomes – ranging from Phase 1 clearance vs. Phase 2 reviews in different jurisdictions to unconditional clearances in one jurisdiction with a prohibition in the other jurisdiction.

Of the merger control reviews formally opened and reviewed by both the EC and CMA in 2023, 40% resulted in different outcomes. Of the cases opened in 2022 but subject to ongoing review in 2023, there were several high-profile examples of divergent decisions. These included: Microsoft/Activision (where the EC conditionally approved the original acquisition following a CMA prohibition, and the CMA eventually accepted remedies and cleared a restructured transaction 6 months after the EC’s clearance, following which the deal closed, even though there is ongoing FTC litigation in the U.S.), Booking.com/eTraveli (where the EC prohibited the deal while the CMA unconditionally approved it after a Phase 1 review), and Broadcom/VMware (where both the CMA and EC undertook Phase 2 reviews, but the CMA approved the deal without remedies while the EC required behavioural remedies as a condition of clearance).

Divergent outcomes reflect several factors, including different timelines, legal frameworks, market conditions, and approaches to remedies.

Based on these results in 2023, merging parties will need to consider ways to mitigate the divergence risk, including whether and, if so, when and how to restructure and renotify transactions when issues are identified during reviews in the UK and EC and tailoring contractual provisions (e.g., break fees and long-stop dates) to the circumstances of a particular transaction.

CMA Proposes Changes to Phase 2 Review

Against the backdrop of heightened scrutiny – particularly due to certain high-profile divergent merger decisions – in November 2023 the CMA unveiled proposals to improve its Phase 2 review process (see our recent blog post). Key proposed changes include increasing and formalising the opportunities for engagement with the CMA, introducing earlier opportunities to discuss remedies, and generally streamlining the Phase 2 process. Although these changes may increase the opportunity for coordination of remedies across jurisdictions, mitigating the risk of different outcomes between the UK and EU will continue to drive regulatory strategy in cross-border transactions in the coming year.

Digital Markets, Competition, and Consumers Bill

The UK’s proposed Digital Markets, Competition and Consumers Bill would establish a new competition regime for digital markets, similar to the Digital Markets Act in the EU. (See EU for a discussion regarding the Digital Markets Act in the EU). The new regime would be enforced by a new unit within the CMA, the Digital Markets Unit (DMU), and would target a small number of players deemed to have ‘Strategic Market Status’ (SMS) in relation to specified activities within digital markets.

In contrast to the more generalised obligations under the DMA, the UK regime would be structured to allow the DMU to determine tailored rules for each individual SMS firm and to ensure markets remain open to competition and innovation. The DMU also would have the powers to design targeted interventions to address competition issues in digital markets. SMS entities would also be subject to enhanced reporting requirements for M&A activity and would be required to file a report to the CMA before completing certain mergers. The new regime would have strong enforcement powers, comparable to UK antitrust enforcement. For example, the DMU would have far-reaching investigatory powers, along with the ability to impose financial penalties of up to 10% of worldwide turnover for infringements of the regime.

The Bill is currently working its way through parliament. The digital markets regime is expected to come into force around the end of 2024, although the precise timeline remains uncertain (including due to the likelihood of a UK General Election in 2024).

Increasing Scrutiny of Competition in Labour Markets and “Buyer Side Cartels”

Labour markets – not traditionally an area of focus for the CMA – have climbed the enforcement rankings in 2023. The CMA has at least two investigations underway in the broadcasting sector, focused on the hiring of production staff in the production and broadcasting of both sports and non-sports content in the UK.

Perhaps taking a cue from the other side of the Atlantic – where labour antitrust issues have come under increased scrutiny by the U.S. authorities – the CMA appears keen to intensify its scrutiny of labour issues and suggested that further enforcement cases should be expected. Indeed, the CMA has indicated that it is utilizing a strategy of engaging directly with individual employees and ex-employees as a means of gaining information about potential anticompetitive conduct. 

The CMA’s increased focus in labour markets is on so-called “buyer side cartels” and other forms of cooperation across employers that affect competition for hiring personnel. Conduct that could give rise to risk in this regard may include information exchanges relating to employment terms (e.g., remuneration and benefits information) alongside more obvious restrictions such as “no-poach” arrangements between organisations.

We expect the CMA to continue its focus on labour markets in 2024. Indeed, in January 2024 the CMA announced it is investigating labour restrictions as part of its ongoing antitrust case into the fragrance sector. In addition to potential new investigations, the CMA has suggested that further guidance – for example on the potential antitrust considerations relevant to agreements between solo self-employed persons to collectively bargain with employer organisations – can be expected.

The U.K. National Security and Investment Act ("NSIA") has been operational since 4 January 2022. The NSIA requires formal notification and approval for qualifying investments in 17 sensitive sectors and provides the U.K. government broad powers to call in non-notified transactions for national security review. In the first 15 months of operation (the only period for which official data is available), more than 1,000 notifications were made. The large majority of transactions have been cleared unconditionally and within the initial 30 working day review period. 17 transactions have been subject to orders prohibiting or conditioning investments, including 5 final orders unwinding or prohibiting transactions.

The NSIA provided wide powers to enable the UK Government to review and update key aspects of the legislation without needing to introduce new primary legislation. Despite the nascency of the regime, the U.K. government in November 2023 issued a call for evidence requesting stakeholder feedback on the scope of the mandatory notification requirements and review process. We expect the outcome of the call for evidence to include changes to the scope of the sectors and types of transactions subject to mandatory notification obligations. In particular, the U.K. government has indicated that it is considering introducing an exemption from notification for some – but not all – internal reorganizations. Revisions to the definitions of certain sensitive sectors – including Artificial Intelligence, Advanced Materials, Data Infrastructure, Energy and Synthetic Biology – may occur as a consequence of the call for evidence. Changes that narrow the scope of the NSIA notification requirements so they are better targeted at potentially problematic transactions would be a significant development that would be welcomed by investors.

Notwithstanding any incoming changes to the NSIA regime, the ISU has remained active in the use of its review powers, issuing 65 call-in notices during the last reported year (2022-23) including ten call-ins relating to transactions that were not notified by the parties. Six final orders were imposed during the calendar year 2023, and a further three final orders have already been imposed in 2024. The variety of different conditions included in these decisions is notable, as it demonstrates the wide range of options and tailored remedies available to the authority to address risks and concerns.

Developments in UK Antitrust Class Actions

Class actions are now an established part of the UK antitrust litigation scene. Since the introduction of an opt-out regime in 2015, the size and volume of antitrust class action claims brought in the Competition Appeal Tribunal (“CAT”) has accelerated, with 14 opt-out class action applications launched in 2023.

True opt-out class actions can only be brought under competition law in the UK. This has resulted in a number of class representatives bringing cases that stretch the established boundaries of competition law – framing data privacy, consumer care, environmental, and other issues as constituting an abuse of dominance. This trend is likely to continue: the CAT has applied a low threshold when deciding whether to certify claims, including by giving those with weaker claims a second opportunity to plead them (rather than striking them out).

Looking ahead, 2024 will see the first opt-out class action proceed to trial. Settlement of class action claims may become more common following the CAT’s decision in December 2023 to approve the first such settlement in an opt-out action. Similarly, we expect to see ongoing efforts to consolidate rival opt-out claims relating to the same subject matter following the first such consolidation in 2023. This will help avoid protracted disputes between rival class representatives competing for authorisation of their claim. Finally, 2024 will likely see legislative changes to reverse a Supreme Court decision from 2023 that prevents funders from recovering a percentage of any damages awarded. Restoring percentage-based funding recovery could lead to even more claims being commenced in the CAT.