OFT temporarily ends guidance

By Richard Eccles


April 2006

For many years, the OFT has provided confidential guidance to parties involved in mergers under contemplation which have not been made public. When giving this confidential guidance, the OFT would give a written opinion on whether it would be likely to refer a particular transaction to the Competition Commission for an in-depth review.

However, the OFT has recently announced that it will be suspending the provision of confidential guidance and informal advice. This decision is a result of increased pressure on the OFT’s resources, caused by a recent upturn in merger activity combined with more work being required on individual cases. It is also a result of the limitations on such advice, such as a substantial dependence on the parties’ submissions without any ability to test arguments with, or gather evidence from, other market participants, which makes the advice of little value. The OFT has therefore decided that the routine provision of such advice cannot be justified in the public interest and it should concentrate its resources on dealing with transactions in the public domain instead.

The OFT has said that it intends to undertake a public consultation over the next year on the long-term position on provision of confidential guidance as well as the practice of providing informal advice. In the interim, confidential guidance will not be provided at all and the OFT have recently clarified that informal advice will only be provided where there is a good faith intention to proceed and where the risk of referral is a genuine issue. However, ‘focused’ pre-notification contact with the OFT which is aimed at expediting smooth handling of public cases will continue to be possible.

This means that it will be up to the parties and their advisors to form a view on the likelihood of a Competition Commission reference. This will in turn emphasise the need to obtain clear evidence of the competition benefits of possible transactions and the importance to gauge likely third party reactions to proposed transactions.

The Department of Trade and Industry (DTI) has also decided to increase the merger fees charged by the UK competition authorities, which will take effect from 6 April 2006. The fee increase will be phased in to help businesses adjust. Small and medium sized firms will continue to be exempt from the fees. However, mergers where the acquiring company is a non-UK company and the transaction takes place wholly outside the UK, which were previously exempt from the fees, will now be subject to the fees. The fee levels will be reviewed every three years to ensure that the costs of regulating mergers can be fully covered.

From 6 April 2006, the new charges will be:
  • £15,000, payable where the value of the UK turnover of the enterprise being acquired is £20 million or less. This will be increased to £30,000 from 6 April 2009;

  • £30,000, payable where the value of the UK turnover of the enterprise being acquired is more than £20 million but less than £70 million. This increases to £60,000 from 6 April 2009; and

  • £45,000, payable where the UK turnover of the enterprise being acquired exceeds £70 million. This increases to £90,000 from 6 April 2009.

Source: OFT notice, November 2005, available at: http://www.oft.gov.uk/NR/rdonlyres/AA1711C5-41BB-4551-B27B-5A858E3E0417/0/mergersinformal.pdf and OFT press release of 12 April 2006 available at: http://www.oft.gov.uk/News/Press+releases/2006/76-06.htm

and Department of Trade and Industry press release of 6 January 2006, available at: http://www.gnn.gov.uk/Content/Detail.asp?ReleaseID=183447&NewsAreaID=2