The UK’s Competition and Markets Authority (CMA) recently decided that the proposed takeover of Sky by 21st Century Fox (Fox) would not be in the public interest. The decision was based on media plurality concerns with the CMA wanting to ensure a diverse range of viewpoints are made available to consumers.
This proposed takeover was ongoing when The Walt Disney Company (Disney) made a bid to take over Fox, the latter of which owns 39% of Sky. If the Disney takeover is successful and if the Fox takeover of Sky is also authorised by the CMA (a final verdict is expected in June this year), Sky will come under the full ownership of Disney. The Takeover Panel also ruled that if only the Disney takeover is successful, they will be required to make a full takeover bid for Sky.
So, how could the merger rules affect you? A company looking at a potential merger or acquisition in the UK, in a similar sector, should consider the importance of the CMA’s competition rules. Alternatively, a company could be affected by a merger of similar businesses and want to know if, and how, it will be protected to ensure competition remains fair.
A merger may qualify for investigation by the CMA where:
- two or more enterprises (the activities of a business) cease to be distinct; or
- there are arrangements in progress or in contemplation which, if carried out, would lead to enterprises ceasing to be distinct;
- and either:
- the combined enterprise would have a market share of 25% or more in the UK or an existing market share of 25% or more would be enlarged; or
- the UK turnover of the target business exceeds £70 million.
The review process
When investigating a merger, the CMA follows a two stage process. The first stage is an initial review of the merger to establish whether it raises any competition concerns – the ‘phase one’ investigation. The second stage, the ‘phase two’ investigation, is an in-depth review of more controversial mergers.
Following the phase one review the CMA is under a ‘duty to refer’ mergers for a phase two investigation where that merger has resulted, or is likely to result, in a substantial lessening of competition in a UK market. The CMA can investigate a merger based on its own initiative using information available in the public domain or following notification from one of the parties to the merger. It is also possible for a third party to challenge a proposed merger.