The UK's Competition and Markets Authority ('CMA') has found that the merger of Cygnet Health Care Ltd ('Cygnet') and Cambian Adult Services ('CAS') may result in a substantial lessening of competition ('SLC') in one area following a Phase 2 merger review. The finding represents a significant reduction from the 12 areas where competition concerns were identified at Phase 1, and the two areas where the CMA identified an SLC in its provisional decision published in August.
Cygnet and CAS both operate mental health hospitals in the UK. Cygnet acquired CAS on 28 December 2016 for £377 million, and the CMA opened a Phase 1 investigation on 22 February 2017. The CMA's investigation was focussed on the provision of rehabilitation services to patients suffering from conditions including personality disorders, learning disabilities, autistic spectrum disorders, acquired brain injuries and long-term mental health issues.
At the end of the Phase 1 investigation the CMA identified competition concerns in relation to the provision of rehabilitation services to patients suffering from long-term mental health issues in eight areas; and patients suffering from personality disorders in four areas. As Cygnet did not offer any undertakings to address the CMA's concerns the merger was referred to a Phase 2 investigation on 3 May 2017.
On 23 August 2017 the CMA published its Phase 2 provisional findings. In relation to personality disorder services, the CMA concluded that the parties' sites were treating largely different patients and therefore did not compete. In relation to long-term mental health services, the CMA identified competition concerns in two areas, the East Midlands and the West Midlands, on the basis of the parties' high combined market shares. The CMA was concerned that in these areas prices may have been higher and/or quality may have been lower than they would otherwise be.
In its final report, published on 16 October 2017, the CMA continued to identify concerns in relation to the East Midlands, requiring a divestment to remedy the SLC identified. However, in the West Midlands two of the four CMA panel members concluded that the merger was unlikely to result in the parties increasing prices or reducing quality post-merger. As a two thirds majority is required for the CMA to find a SLC at Phase 2, the CMA did not identify competition concerns in this area.
This merger is a rare example of the CMA reversing a decision between the provisional findings and final report. The fact that the panel could not reach a consensus in relation to the West Midlands illustrates the marginal nature of the decision, and the significant hurdle merging parties face to persuade the CMA to change its mind once provisional findings have been issued.
Ashurst acted for the parties in relation to the CMA's investigation.
With thanks to Tom Punton of Ashurst for his contribution.
All articles in the November edition of the Competition newsletter
Balmoral appeal tanks in the CAT
CMA reverses provisional findings in mental health care merger
ECJ dismisses British Airways' air cargo fine appeal
Flooring manufacturers fined €302 million by French competition authority
Image is not everything - but Luxury watchmakers still permitted to operate selective repairer system
Liberty Global / Ziggo merger clearance decision annulled
Marine Harvest's acquisition of Morpol confirmed as 'gun jumping' by General Court
Show's over - CMA accepts commitments to protect fair competition
Wallpaper cartelists hung out to dry as court increases their fine on appeal
