Corporate aspects of the Digital Markets, Competition and Consumers Bill
The end of 2023 saw King Charles make his inaugural speech as monarch at the State Opening of Parliament. He announced his Government’s intention to reform competition regulations and provide further protections for consumers with the Digital Markets, Competition and Consumers Bill (DMCC). This article analyses the corporate aspects of the proposed legislation.
Merger Reporting for Digital Markets
The digital sector is one where a small number of tech giants have come to dominate the marketplace. Google, for example, make up more than 90% of the £7.3 billion search advertising market and Facebook has a share of over 50% of the £5.5 billion display advertising market. This problem continues to grow as these giants buy up more and more smaller entities, with the five largest firms making over 400 acquisitions between 2009-2019. The DMCC would seek to monitor and regulate these acquisitions, to ensure that smaller players can enjoy a fair share of the digital marketplace.
Under the DMCC, the Digital Markets Unit (DMU) of the Competition and Markets Authority (CMA) has the power to designate certain key players as having “Strategic Market Status” (SMS). SMS status means that under the proposed legislation, these entities would be required to report any:
- Mergers where they have acquired “qualifying status” of a UK body corporate and the consideration paid is at least £25 million; or
- Joint ventures where they have acquired “qualifying status” of the newly formed body corporate and the capital/consideration provided is at least £25 million.
Here, “qualifying status” means an increase in the percentage of shares/voting rights in a body corporate from:
- Less than 15% to 15% or more;
- 25% or less to more than 25% ; or
- From 50% or less to more than 50%.
When the report is made, it must be in the prescribed form and sent to the DMU who must in turn respond stating whether it is “sufficient”. The first working day after the report is designated as “sufficient”, the five-working day “waiting period” begins, during which the parties must not complete the merger/joint venture. The “waiting period” allows the CMA enough time to decide whether it wants to open a full investigation into the transaction in line with its usual merger control regime. Such an investigation may ultimately result in the CMA intervening in the transaction if they feel that the acquisition will have an anti-competitive effect on the marketplace.
Merger Control Jurisdictional Threshold Reform
Beyond the digital sector, the DMCC would also seek to reform the CMA’s wider merger control powers. Specifically, it would amend s23 of the Enterprise Act 2002, which sets out the jurisdictional thresholds that must be met before the CMA can review mergers. The DMCC would amend s23 as follows:
- The target turnover threshold at subsection (1) would increase from £70 million to £100 million to account for inflation.
- A “safe harbour” would be introduced that prevents the CMA from reviewing a merger they would otherwise be entitled to under subsection (2) if the UK turnover of each of the entities is less than £10 million. This is designed to protect smaller entities and “foreign to foreign” mergers.
- A new threshold would be introduced which applies where one of the parties concerned has a 33% market share of the supply of the relevant goods/services in the UK (or a substantial part of it) and a UK turnover of over £350 million and the other party is a UK business or body, carries on at least part of its activities in the UK or supplies goods and services in the UK. This aims to target “killer acquisitions” where markets leaders snap up newcomers before they have properly established a market position.
Such reforms aim to make the jurisdictional threshold provisions more pragmatic but also, alongside the digital market merger reporting regime, aim to promote competition by ensuring established market leaders do not unfairly dominate the marketplace.
With the DMCC currently in the Committee Stage in the House of Lords, and due to receive royal assent in Spring 2024, it is not long before our clients will have to be mindful of these provisions. If you are planning a merger in the new year and are concerned whether you or your counterparty are complying appropriately do not hesitate to contact us in the Corporate and Commercial Department.
Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.
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