JD Sports and Amazon fined for breach of UK merger control procedural rules

In August 2020, the UK Competition and Markets Authority (CMA") imposed a fine of GBP 300,000 on JD Sports/Pentland for failure to comply with its initial enforcement order made in May 2019. Separately, in September 2020, the CMA then imposed two penalties of GBP 25,000 and GBP 30,000 on Amazon for its continuous lack of compliance with the CMA's information requests under Section 109 of the Enterprise Act 2002. 

JD Sports/Footasylum 

JD Sports Fashion plc ("JD Sports") completed its acquisition of Footasylum Limited ("Footasylum") in April 2019. Shortly afterwards on 17 May 2019, the CMA issued an initial enforcement order ("IEO") to JD Sports and its parent company Pentland Group Limited ("Pentland"), requiring them to manage the two businesses separately pending the CMA's determination. The CMA published its Phase 2 Decision in May 2020 which blocked the acquisition and required JD Sports to sell Footasylum to a suitable buyer (see Ashurst's June 2020 newsletter article here), which JD Sports is appealing. 

Separately, on 5 August 2020, the CMA imposed a fixed penalty of GBP 300,000 on JD Sports and Pentland under section 94A of the Enterprise Act 2002 for failure to comply with the   May 2019 IEO. The fine related to JD/Pentland's failure in respect of two requirements under the IEO:

• Break Notice: The IEO stipulated that the CMA's prior written consent should be sought before assets of the Footasylum business were disposed of. None of the parties had sought such consent when serving a Break Notice to close Footasylum’s Wolverhampton store. The parties submitted that the CMA's consent had not been required because closure of this store was part of Footasylum's ordinary course of business and the closure of that particular store had been part of Footasylum's business plan pre-merger. However, the CMA found that closing a retail store was a significant business decision which would have required its prior consent.
• Subsidiaries compliance: The IEO stipulated that JD Sports/Pentland should procure that each of their subsidiaries (including Footasylum) comply with the IEO. As a result, the penalty notice was not addressed to Footasylum. The CMA considered that neither JD Sports or Pentland had adequately explained to Footasylum that steps such as the disposal of a lease without the CMA’s prior written consent might breach the IEO. Payment of the GBP 300,000 fine has been deferred by nine months in light of the impact of the COVID-19 pandemic.

Amazon/Deliveroo

The CMA launched its investigation into the acquisition by Amazon.com NV Investment Holdings LLC ("Amazon") of a 16% stake in Roofoods Ltd ("Deliveroo") in October 2019 but cleared the acquisition on 4 August 2020 following a Phase 2 investigation.

On 7 September 2020, the CMA published its penalty notice imposing two fines on Amazon for failure to comply with Section 109 Notices. The CMA has information gathering powers under section 109 of the Enterprise Act, and has imposed two penalties of GBP 25,000 and GBP 30,000, in respect of Amazon's responses to three Section 109 notices issued by the CMA during its Phase 2 investigation.

• In total, 189 documents were provided late by Amazon to the CMA.
• The delay ranged from being a few days late to up to more than two months late, and some being provided only after follow-up by the CMA.

According to the CMA, Amazon’s approach to compliance with Section 109 Notices had a significant adverse impact on the conduct of its merger inquiry, requiring the CMA to expend significant time and public resources to verify the completeness of Amazon’s responses.

The CMA found that Amazon had no reasonable excuse for non-compliance; none of the factors presented by Amazon were unforeseeable issues beyond its control. Whilst the CMA recognised that ultimately Amazon had provided complete responses to the notices, it found that Amazon’s behaviour nevertheless risked the CMA taking its decisions on the basis of incomplete evidence. Both fines are payable within 28 days of the notice. 

Comment

The two fines on JD Sports and Amazon indicate the CMA’s increasingly tough stance in merger enforcement, and how seriously it will take breaches of its interim measures. The CMA appears to have increased its use of such fines since the first time it imposed a fine for breach of an IEO in 2018. There may also be scope for the CMA to impose even larger administrative fines than it has to date. The CMA can impose a maximum of 5% of global groupwide turnover for failure to comply with an interim measure. On the other hand, the maximum fine the CMA can impose for non-compliance with a Section 109 Notice is GBP 30,000. The CMA's 2019 reform proposals notably suggested the CMA might seek greater power to impose fines for non-compliance with information requests.

The CMA's approach to merger enforcement will also have an increasing impact on international transactions with a UK element as the UK's Brexit transition period finishes at the end of 2020, possibly leading to an increased number of transactions being notified to the CMA. 

With thanks to Helen Chamberlain of Ashurst for her contribution.