The retail sector, in particular grocery, has been an area of intense focus for the CMA recently. In the past month alone, it has published a report on food price inflation and launched two new investigations into loyalty scheme pricing and the sale of infant formula.
Another area that promises to have significant implications for retailers is the CMA’s proposed reforms to its in-depth phase two merger review process. This is the first time in over a decade the CMA has made meaningful changes to that process, and the proposals have the potential to radically change the format of its investigations.
While retailers may not encounter the CMA’s phase two process on a daily basis, some of the most consequential and heavily scrutinised review processes in the last few years have been in the retail sector – including Sainsbury’s/Asda, Cérélia/Jus-Rol, and JD Sports/Footasylum.
The CMA pays particular attention to retail transactions, and at a time in which many are predicting increased retail M&A and consolidation, its phase two rules will have an increased importance.
The regulator’s decision to revisit its process comes following feedback that there is little scope for meaningful dialogue with CMA decision-makers, it is often difficult for parties to know the case against them, and provisional findings come too late in the process for parties to change the CMA’s mind (i.e. it is the final report in all but name).
To address these concerns, the CMA has proposed the following key changes:
- Early engagement with decision-makers: The proposed new guidance introduces a new meeting with key CMA individuals early on in the process, to allow parties to respond to its phase one decision and set out the positive case for the transaction.
- Publication of interim report: The CMA will provide merger parties with an earlier version of the provisional decision through a new ‘interim report’. This will detail the CMA’s current thinking and give parties an opportunity to respond to issues at an early stage.
- Revised main party hearing: As part of their response to the interim report, parties will have the opportunity to make oral submissions directly to key decision-makers at the CMA.
- Earlier remedy discussions: For challenging cases involving remedies, the CMA proposes a revamped procedure thatseeks to encourage early ‘without prejudice’ discussions about an appropriate remedy package. The hope is this should limit the likelihood of parties being ‘timed out’ from discussing and agreeing complex remedy packages with the CMA.
Whilst these changes are welcome, there are also areas the CMA has decided not to change. In particular, it does not intend to give parties ‘full’ access to the third party evidence relied on as part of its decision, on the basis that this would be disproportionate.
The CMA is an outlier on this point, and other regulators – including the European Commission – do provide parties with this insight. This has the potential to hamper parties’ ability to respond to the CMA’s decision, particularly in retail cases where submissions from suppliers and third parties are often the deciding factor.
The CMA is consulting on these changes until January. It remains to be seen whether it introduces a more expansive approach to granting parties ‘full’ access to third party evidence.
Whatever happens, these changes have the potential to materially improve the existing phase two procedure – particularly by giving merger parties an earlier opportunity to engage with and respond to any concerns at an earlier stage.
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