Competition Law and a Business Sale

Competition law and mergers is in a state of flux. The Government is merging the Office of Fair Trading and the Competition Commission which recently issued their own comments on the proposals (see . This is an area to watch.

Until the changes take effect  the law remains that where a UK merger may lead to a 25% market share or increase one (or the value of the assets acquired exceeds £70m) then the merger may be referred to the Competition Commission after investigation by the Office of Fair Trading. The buyer may be required after the sale to sell the assets acquired.

The latest edition of Buying and Selling Private Companies and Businesses (Beswick & Wine 8th edition) covers all the new guidance issued by the OFT In this area in 2010 and 2011 relating to mergers and acquisitions as well as EU merger law where relevant.

UK mergers cannot be investigated by the OFT until they have taken place unless one party notifies the OFT in advance. There is no current compulsory UK notification procedure although many buyers, where the 25% or £70m limits are reached, will want to  include in the sale agreement a condition that clearance be obtained in advance. Advice from specialist competition lawyers such as the writer is wise at the time to ensure notification is not made unnecessarily or in low risk areas but nor is a notification avoided where the OFT are likely to be interested.

If the notification route is taken formal clearance is expensive where turnover exceeds thresholds of about £11m with merger fees starting at £30,000 following recent increases. This is in addition to any fees also paid to solicitors acting on the notification.  Informal advice from the OFT Is also possible although it is not legally binding on the OFT as then they do not consult competitors and suppliers and customers. Beswick and Wine summarises the new OFT guidance on the forms of notification which can be made all of which is available on line. The OFT has some “de minimis “ guidance which looks at what turnover levels might mean even if market shares are over 25% they would not be interested.

The proposed new UK system may see mergers with a turnover over £5m required in advance to be notified even if not anti competitive and even if there would be no “substantial lessening of competition” which is the relevant test.

Sometimes a major merger has EU wide implications and compulsory notification under the EU merger regulation is necessary.

Finally all sale agreements will specify that the seller will not compete with the buyer after the sale. If the period and breadth of such restriction is too long then the clause in the agreement could be void under UK and EU competition law – Chapter I of the Competition Act 1998 and Article 101 of TFEU. Restrictions of up to 3 years are usually acceptable. Again this is addressed in “Beswick and Wine”

Susan Singleton, Solicitor, Singletons, Co-Author Buying and Selling Private Companies and Businesses (Beswick & Wine) (8th edition).

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