OFFICE OF FAIR
TRADING News Release (84/07) issued by The Government News Network
on 18 June 2007
The Office of Fair
Trading has today issued for consultation revised guidance on the
so-called 'markets of insufficient importance' or
'de minimis' exception in merger cases. The revised
guidance is intended to provide the same high level of consumer
protection in UK merger control while reducing the system's
cost to business and the taxpayer.
Under the Enterprise Act 2002, the OFT has a duty to refer
certain mergers to the Competition Commission (see note 1). The
exception allows the OFT to decide not to refer where the markets
involved are not of sufficient importance to justify a reference.
Existing guidance suggests that the OFT may consider a merger in
a market worth as little as £400,000 per year to be of sufficient
importance to justify a reference to the Competition Commission.
The revised guidance raises the market size threshold to £10 million.
Since real consumer harm can arise in cases below that threshold,
it is subject to certain caveats. Specifically, the OFT is less
likely to make use of the exception where:
* market concentration is very high and entry prospects are low,
making substantial consumer harm likely,
* there is evidence of coordination -- such as price-fixing --
between competitors in one or more of the markets in question,
* a reference would have important precedent value for business, or
* a substantial proportion of the likely detriment is suffered by
vulnerable consumers.
The OFT decided to review its guidance in this area because it
was concerned that an unduly narrow interpretation of the
exception might result in mergers being referred to the
Competition Commission where the risk of consumer harm was low and
any adverse effect there might be would be small-scale. In such
case the costs involved potentially outweigh any benefit of
intervention. This concern has been heightened by the impact of
the Court of Appeal's judgment in IBA Health which is widely
regarded as having made references more likely in marginal cases
(see note 2).
The existing guidance emphasises that the exception will be used
only very rarely and suggests a very low threshold for market
value. This may have contributed to a situation in which, to
date, the exception has not been determinative of the outcome of
any case.
Download the consultation paper, including a proposed revision of
the guidance (pdf [ ]).
John Fingleton, Chief Executive of the OFT, said:
'The changes we proposed are carefully designed to remove
unnecessary regulatory burdens on business with no lessening of
consumer and business protection from anticompetitive mergers.
These changes will benefit the taxpayer, businesses directly, and
consumers indirectly. We welcome views from consumers and
business and their representatives on these changes and how we can
ensure that they have the greatest positive impact.'
Comments from any interested parties on the issues raised by this
paper are welcome. The deadline for comments is 10 August 2007 and
responses should be submitted in writing by email, letter or fax
to:
Markets of Insufficient Importance - Consultation
Mergers Group
Office of Fair Trading
Fleetbank
House
2-6 Salisbury Square
London
EC4Y 8JX
Fax: 020 7211 8916/11
Email: Alison.Knight@oft.gsi.gov.uk
and Duncan.Porter@oft.gsi.gov.uk
Next steps
We will publish our formal response to the consultation exercise,
together with a summary of response after August 2007.
Data use statement for responses
Please note that we may choose to refer to comments received in
response to this consultation in future publications. In deciding
whether to do so, we will have regard to the need for excluding
from publication, as far as that is practicable, any information
relating to the private affairs of an individual or any commercial
information relating to a business which, if published, would or
might, in our opinion, significantly harm the individual's
interest, or, as the case may be, the legitimate business interest
of that business (confidential information). If you consider that
your response contains such information, that information should
be marked 'confidential information' and an explanation
given as to why you consider it is confidential. All information
received is subject to Part 9 of the Enterprise Act 2002.
If you are replying by email, these provisions override any
standard confidentiality disclaimer that is generated by your
organisation's IT system.
NOTES
1. The Reference Test - The OFT has a duty to make a reference to
the CC if the OFT believes that it is or may be the case that
arrangements are in progress or in contemplation which, if carried
into effect, will result in the creation of a relevant merger
situation; and the creation of that situation may be expected to
result in a substantial lessening of competition within any market
or markets in the United Kingdom for goods or services.
2. In its February 2004 judgment in IBA Health v OFT [2004] EWCA
Civ 142, the Court of Appeal criticised the OFT Guidance in force
at that time, which described the threshold test for reference as
whether there was a 'significant prospect that a merger may
be expected to lessen competition substantially', as setting
too high a threshold for reference. As a result, OFT guidance was
revised, and it now states that the threshold for reference will
be met if there is a 'realistic prospect that the merger will
lessen competition substantially'. The effect of the
judgment, and the change in OFT guidance, is widely regarded as
having lowered the threshold for references and, consequently,
having made reference in marginal cases more likely.
3. Under the Enterprise Act 2002 a relevant merger situation is
created if two or more enterprises have ceased to be distinct
enterprises; and the value of the turnover in the United Kingdom
of the enterprise being taken over exceeds £70 million; or as a
result of the transaction, in relation to the supply of goods or
services of any description, a 25% share of supply in the UK (or a
substantial part thereof) is created or enhanced.
4. Download 'Mergers: substantive assessment guidance'
(pdf [ ]). This explains how the OFT approaches the substantive
assessment of mergers under the Enterprise Act 2002 (in particular
the substantial lessening of competition test) and the grounds on
which the OFT refers mergers to the Competition Commission.
5. Download 'Interim arrangements for informal advice and
pre-notification contacts' (pdf [ ]). This sets out OFT
interim practice since April 2006 on the provision of informal
advice for proposed mergers.
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