CMA publishes revised guidance on merger remedies 

Background to the merger remedies guidance

Updates to the CMA's approach to merger remedies

Approach to effectiveness and proportionality

In practice, the CMA adopts a two-stage assessment:

• an assessment of the remedy's effectiveness, which involves a consideration of whether the remedy effectively addresses the SLC and its adverse effects; and

• an assessment of whether the remedy is proportionate, which involves the CMA identifying the least costly and intrusive remedy that it considers to be effective and ensuring that the proposed remedy is not disproportionate in relation to the SLC and its adverse effects.

In response to feedback received as part of the Call for Evidence, the CMA concluded that the current analytical framework for the assessment of remedies allows for "greater flexibility in the effectiveness assessment" than was previously reflected in the CMA's guidance. The Merger Remedies Guidance seeks to broaden the range of potentially effective remedies that may be considered. For example, the CMA has removed the presumption that behavioural remedies are unlikely to be as effective in dealing with a SLC comprehensively than structural remedies.

The CMA has also added further clarification in relation to its assessment of proportionality, in particular by outlining the key steps it will apply to: (i) identify any relevant costs (in particular where imposed on third parties, the CMA and other monitoring agencies); (ii) ensure that the remedy is no more onerous than it needs to be; and (iii) choose the least onerous remedy, before assessing whether the chosen remedy is proportionate in relation to the SLC. The Merger Remedies Guidance acknowledges that there may be exceptional circumstances where "even the least onerous but effective remedy" might still incur costs that are disproportionate to the SLC and its adverse effects. In these rare instances, it states that the CMA may instead consider remedies that are only partially effective in resolving the SLC and its adverse effects and select the most effective and proportionate remedy available. 

Widening the scope for behavioural remedies in merger reviews 

The Merger Remedies Guidance states that behavioural remedies "can be effective in some cases" and that effectiveness will be assessed on a case-by-case basis. This represents a departure from the CMA's previous approach where it would generally only accept behavioural remedies in cases where: (i) there is a time-limited SLC; (ii) there are substantial relevant customer benefits (RCBs); or (iii) structural remedies are not feasible. 

The CMA's consultation acknowledged academic evidence indicating that there may be instances were behavioural remedies may be more appropriate than structural remedies, including certain cases involving vertical and/or conglomerate, rather than horizontal, theories of harm. 

The Merger Remedies Guidance therefore sets out a wider range of circumstances in which behavioural remedies may satisfy the effectiveness criteria. In particular, whilst maintaining the position that "most behavioural remedies do not directly address the SLC at source" and that such remedies are subject to a "variety of risks" which might limit their effectiveness, it sets out the following features which may reduce the risks associated with behavioural remedies: 

• where the behavioural remedy has a limited duration;

• regulated sectors where the regulator has the ability to effectively monitor the remedy; 

• industries with certain characteristics (e.g. a high degree of transparency) which make it more likely that third parties are in a strong position to identify non-compliance;

• the behavioural remedy aligns with pre-existing market practices and norms in the relevant industry; 

• the market is sufficiently stable and mature, such that competitive conditions are unlikely to materially change in ways which mean that the behavioural remedy becomes ineffective; and

• the merging parties appoint and pay for a monitoring trustee. 

The Merger Remedies Guidance distinguishes between: 

• enabling remedies (such as access remedies), which it notes may "work with the grain of competition" by seeking to address the causes of an SLC and, in certain cases, may directly stimulate competition in a long-lasting way; and 

• controlling remedies (such as price caps) which seek to control market outcomes. For example, a remedy involving the licensing of intellectual property may stimulate competitive rivalry and/or enable market entry (and therefore have a similar effect to a structural remedy). 

Some enabling remedies may also be used to secure merger-specific rivalry-enhancing efficiencies (e.g. Vodafone / Three, where the CMA adopted a behavioural remedy to secure the merging parties' efficiency commitments). The Merger Remedies Guidance notes that controlling remedies are unlikely to be appropriate other than for a limited duration or if there are no other effective remedies.

New guidance on 'carve-out' remedies

The CMA has maintained its position that there are considerable risks associated with carve-out remedies (that involve the divestiture of part of a business or a collection of assets). In particular, during the CMA's consultation it referred to its 2023 study, which found that carve-out remedies are generally prone to greater composition and purchaser risk than the divestiture of a standalone business. 

However, the changes introduced in the Merger Remedies Guidance provide additional examples of the types of evidence that the CMA may have regard to when assessing carve-out remedies (such as, for example, data relating to the performance of previous comparable divestitures or the performance of the relevant assets to be divested). 

The Merger Remedies Guidance also outlines several ways in which the risks of a complex divestiture remedy may be mitigated, thereby increasing the likelihood that the CMA will consider the remedy to be effective. This includes, for example, early engagement between the merging parties and the CMA in relation to the proposed remedy, requiring an upfront buyer to mitigate increased purchaser and mitigation risk, the appointment of divestiture and monitoring trustees, and requiring a "fall-back" remedy comprising a more marketable divestiture remedy (often referred to as 'crown jewel' remedies). 

In response to feedback from several stakeholders, the CMA agreed to re-insert guidance on mix-and-match remedies by stating that while the CMA will continue to prefer carve-out remedies provided by only one of the parties, it will consider mix-and-match remedies where "it can be demonstrated to the CMA’s satisfaction that there is no significant increase in risk from a mix-and-match alternative or any additional risks resulting from a mix-and-match alternative can be adequately addressed". This ensures greater flexibility for the merging parties when preparing a remedy package for the CMA. 

The Merger Remedies Guidance maintains the existing standard that undertakings offered by merging parties at the end of phase 1, in lieu of a reference to phase 2 (UILs), must be "clear cut" and "capable of ready implementation". 

However, the Merger Remedies Guidance confirms three significant changes to the CMA's approach to the acceptance of UILs at phase 1: 

• the CMA has removed the presumption against behavioural remedies being accepted at phase 1. Although the CMA considers structural remedies more likely to satisfy the "clear cut" standard, it will nevertheless consider proposals put forward by merging parties for behavioural remedies that "fully substantiate, with appropriate evidence, the proposed remedy's effectiveness to the clear-cut standard";

• it notes that the earlier merging parties engage with the CMA in relation to remedies, the more likely a remedy will meet the "clear-cut" test as it gives the CMA time to fully assess the risks and consider appropriate safeguards. The Merger Remedies Guidance also encourages parties to, if possible, facilitate early engagement with third parties who would be affected by a proposed remedy; and

• in cases involving local markets and where the CMA applies a "filter" or "decision rule" (which sets a threshold for when a realistic prospect of an SLC arises, typically based on market share), the CMA may accept divestitures that do not remove the entire increment caused by the merger. This approach contrasts with the CMA's previous approach in some local markets cases, in which it required divestitures to remove the entire increment (i.e. to restore the pre-merger market structure).

The Merger Remedies Guidance recognises that, in cases where merging parties propose a remedy that is complex or highly technical in nature, it may be useful to appoint an independent expert (or extend the role of a monitoring trustee) to perform this role. 

The CMA notes that the appointment of a trustee or independent expert may provide additional comfort to the CMA that a remedy proposal will be effective and enable the CMA to reach a decision on remedies within shorter timescales. For example, in Schlumberger / ChampionX, the merging parties appointed a monitoring trustee during the UILs process and prior to the CMA's final acceptance of UILs to assist the CMA in the assessment of a potential upfront remedy taker's scale and capability and to provide independent advice on its overall suitability as a remedy taker. In response to several stakeholders concerns, the CMA confirmed in the Merger Remedies Guidance that the same trustee can extend across the roles of "monitoring trustee, divestiture trustee, adjudicator, and an independent expert" and that these roles are not mutually exclusive.

RCBs are benefits resulting from a merger, which can take the form of lower prices, higher quality, greater choice, or greater innovation. The CMA may assess the effect on RCBs in the context of considering phase 1 UILs and has a discretion not to refer a merger to phase 2 if it believes that any RCBs outweigh the SLC concerned. RCBs are also considered when assessing remedies at phase 2. In order for a benefit to constitute an RCB, the CMA must believe that: (i) the benefit may be expected to accrue within a reasonable period as a result of the merger; and (ii) the benefit is unlikely to accrue without the creation of that situation or a lessening of competition. 

The CMA has historically adopted a restrictive approach to RCBs which, in turn, has deterred some parties from putting forward and evidencing RCBs. In order to encourage engagement on RCBs, the Merger Remedies Guidance signals a greater openness to "early without-prejudice discussions" during phase 1 (including in pre-notification) or at early stages of phase 2. Merger parties will be expected to provide "verifiable" evidence (changed from "convincing" evidence in the previous guidance) in relation to the nature and scale of any claimed RCBs. The Merger Remedies Guidance also provides guidance and examples of how the CMA will consider certain types of RCBs.

In relation to rivalry-enhancing efficiencies, the Merger Remedies Guidance confirms that in some cases, such as in Vodafone / Three, remedies can address concerns that the CMA may have about the likelihood or timeliness of merger-specific efficiencies which, if realised, would enhance rivalry, benefit UK customers and be sufficient to prevent an SLC. In response to the Call for Evidence, stakeholders argued that the Vodafone / Three decision should not set the standard which claimed rivalry-enhancing efficiencies would need to meet (in particular as that case has limited application outside of regulated sectors). Whilst deciding not to address these concerns in the Merger Remedies Guidance, the CMA has noted that it will consider its approach to the substantive assessment of efficiencies more widely and a call for evidence is expected early this year.