24 May 2016

(by ) After two years at its helm, the Chief Executive of the UK’s Competition & Markets Authority (CMA), Alex Chisholm, is to become the new Permanent Secretary at the Department for Energy and Climate Change (DECC). His departure marks the end of an era for the competition watchdog which, despite only becoming fully operational in April 2014, has reached a number of key milestones during his tenure. In a reflecting on the CMA’s achievements over the last two years, Chisholm made reference to notable progress on enforcement activity, efficient merger control and, of course, some very high-profile market inquiries. His verdict, then, is that there is cause for optimism as the authority embarks on a new chapter. But the outgoing CEO is also mindful of ‘the 3 big challenges’ that lay ahead for his successor. Perhaps the most striking of these ‘harder nuts to crack’, as Chisholm puts it, is the CMA’s ability to deal with ‘challenges to the primacy of competition analysis when sensitive mergers give rise to calls for public interest interventions’.

The role of so-called ‘public interest’ considerations in UK merger control is . Broadly speaking, the default position is for the CMA to assess mergers according to their likely impact on competition, but the Secretary of State has the capacity to intervene in any merger investigation that is suspected to raise certain public interest concerns; namely, concerns relating to (i) national security, (ii) media plurality, or (iii) financial stability. Significantly, the Secretary of State may also propose new public interest considerations which, subject to Parliamentary approval, can be added to this list. This therefore creates the possibility that the CMA’s competition-based assessments will one day be overridden by broader and more frequent public interest interventions.

Although very few public interest cases have materialised in practice, the calls for public interest intervention have been more common, particularly in mergers within certain ‘sensitive’ industries or involving so-called ‘crown jewel’ firms. in 2014 is one of the more recent examples of how public interest arguments – be they made by lobby groups, trade unions, the media or politicians themselves – can exert pressure on the Secretary of State to make an intervention and propose new public interest criteria. Nevertheless, there are a couple of features of the Pfizer/AstraZeneca bid that suggest public interest interventions are still some way off becoming the norm.

Firstly, the mergers that are most likely to have a significant impact on the public interest in the UK are the large-scale transactions with a ‘Union dimension’ that fall within the jurisdiction of the European Commission’s assessment procedure, by virtue of exceeding the turnover thresholds of the EU Merger Regulation. Had Pfizer been successful in its bid for AstraZeneca, it would certainly have fallen to the Commission to assess the merger on competition grounds. And, although the UK Government could have requested the competence to rule on the merger in order to protect its legitimate national interests, it seemed . Secondly, the current Conservative Government appears reluctant to extend the use of public interest interventions in the UK, having rejected such calls within its own party as recently as 2013. That said, the and each included pledges for a ‘stronger public interest test’ in their 2015 General Election manifestos, indicating that the political debate is far from settled.

Indeed, even if the public interest provisions are unlikely to change in the near future, it is still conceivable that ‘sensitive’ mergers will arise under this Government’s administration, prompting politicians – and other stakeholders – to raise the public interest argument. In an in 2014, Alex Chisholm himself noted the problems that such scenarios create for promoting the long-term benefits of competition in the public’s eye, particularly where the media and lobby groups focus on the ‘headline-grabbing’ short-term consequences of a particular deal. This is an issue that is inherently linked to another of ‘the 3 big challenges’ awaiting Chisholm’s successor; namely, ‘embedding a competition culture right across the UK economy’. If more UK businesses and consumers were instilled with an appreciation of the benefits that competition can deliver, the calls for public interest interventions would become less fixated on the short-term and could ascribe greater value to long-term economic rewards. It is to his credit that Alex Chisholm has steered the CMA to actively engage in the ‘’ in this area and, moreover, to show a willingness to present the case for competition in a ‘public and accessible fashion’. It is paramount that this becomes one of his enduring legacies at the CMA and, even if no ‘sensitive’ mergers are on the horizon, the new Chief Executive should waste no time in adding their voice to the discussion.

Finally, a word on the UK’s upcoming EU Membership Referendum and the potential impact that a ‘Brexit’ could have on the challenges faced by the incoming Chief Executive. In the event of the British public voting to withdraw from the EU, plans will be put in motion to disentangle EU legislation from domestic law, meaning the EU Merger Regulation would ultimately cease to apply in the UK. The result would be an end to ‘one-stop’ merger control, as UK mergers that also had a Union dimension would be subject to separate investigations by the CMA and the European Commission. Significantly, this also leaves the UK merger regime more prone to political interventions on public interest grounds. Brexit would remove the Commission’s ability to counteract any UK Government measure that appears inconsistent with free movement or EU merger principles. The removal of this important safety valve would, at the very least, offer greater traction to the arguments of public interest lobbyists and, at most, could increase the temptation for politicians to intervene more frequently in the future. Unquestionably, the challenge of preserving the primacy of competition-based merger control appears far more formidable in a post-Brexit Britain.

The CMA has targeted markets that have the potential to deliver tangible benefits to consumers, including the . Of course, it remains to be seen whether this investigation will allow such benefits to be realised; see David Deller’s on this blog.

From a personal perspective, having written a PhD on this exact topic, I am extremely grateful to Mr Chisholm for the role he has played in keeping ‘public interest’ mergers on the UK policy agenda during his time at the CMA.

The Secretary of State derives the power to intervene and seize the decision-making from the CMA under the Enterprise Act 2002, s 42(2).

ibid s 58(3). Indeed, this power was exercised to propose the ‘financial stability’ criterion, which was applied to the during the financial crisis.

The public interest arguments raised in Pfizer/AstraZeneca originated from various quarters and included ‘’, ‘’ and ‘’.

David Reader, ‘’ (2014) 10(1) CPI Antitrust Chronicle 1, 5.

Council Regulation (EC) 139/2004 on the control of concentrations between undertakings (EC Merger Regulation) [2004] OJ L24/1, art 1(2). This is subject to the ‘two-thirds’ rule, under Article 1(3), which could conceivably place large-scale public interest mergers within the jurisdiction of the Secretary of State.

ibid, art 21(4).

Department for Business, Innovation and Skills, (Cm 8587, 2013) 59. Here, the Government rejected a recommendation by Conservative peer, Michael Heseltine, for the UK to signal a greater willingness to use public interest interventions in an effort to underpin the Government’s bargaining position with foreign investors where ‘vital national interests’ are at stake. Bruce Lyons has previously addressed Heseltine’s comments on this .

Intriguingly, shortly before the 2015 General Election, a revealed that the Conservatives would openly oppose any foreign takeover bid for British oil giant BP.

An expanded version of this speech has been adapted into an interesting article; Alex Chisholm and Nelson Jung, ‘’ (2014) 4(1) CPI Antitrust Chronicle.

This may very well be the hardest nut to crack, particularly where mergers involve a takeover by a foreign firm. A found that 39/100 UK respondents consider foreign investment to be desirable, while 53/100 deem it undesirable. For a meticulous recent study providing additional insights on public perceptions of competition, see Andreas Stephan, ‘’ (2015) CCP Working Paper 15-8.

Richard Whish, ‘’ (2016) 7(5) Journal of European Competition Law & Practice 297.

Alison Jones and John Davies, ‘’ (2014) 10(3) European Competition Journal 453, 493.