Rentokil Initial plc ("Rentokil") has been fined £27,000 for failing to comply with a UK Competition and Markets Authority ("CMA") information request imposed on the company in relation to a Phase 1 merger review into its acquisition of MPCL Limited (formerly Mitie Pest Control Limited) ("MPCL").
| what you need to know - key takeaways |
- The CMA has become increasingly more strict in enforcing procedural requirements as part of its merger and antitrust investigations.
- Parties must ensure that they response to CMA information requests appropriately the first time around. Responding to subsequent notices with documents that are responsive to previous questions will highlight to regulators that you have been non-compliant.
- CMA will take into account the offending parties' behaviour, actions of senior management and their financial resources in coming to an appropriate penalty amount.
- The CMA may consider particular aspects of the transaction as key to their assessment. Parties that avoid providing answers or otherwise frustrate the CMA's may be subject to more serious penalties.
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On 30 September 2018, Rentokil acquired MPCL. On 16 October 2018, the CMA issued a notice under section 109 of the Enterprise Act 2002, requiring certain information from Rentokil on the integration steps relating to the merger and details of an agreement to provide of pest control services to certain MPCL clients entered into by the parties (the Preferred Supplier Agreement, "PSA"). The CMA was not satisfied with the response to this notice and stopped the clock (regarding its review period to decide whether to launch a more detailed Phase 2 assessment) on 25 October 2018.
On 30 October 2018, the CMA issued a further notice (with a deadline of 7 November 2018), asking questions in relation to the rationale behind the merger, the overlap between the parties and details of the negotiations. On 5 November 2018, Rentokil informed the CMA that it would be unable to meet that deadline and requested an extension, which was rejected by the CMA. The CMA followed this with a number of additional notices seeking further information on the merger, in particular the link between the share purchase agreement and the PSA.
The CMA decided to fine Rentokil for failing to comply with the section 109 notices. In particular it noted that Rentokil had provided documents in response to the second and third notices which should have been provided in response to earlier notices. In coming to the decision to sanction Rentokil, the CMA found that there was no reasonable excuse for failing to comply with the notices. Although Rentokil had engaged with the CMA, the errors that arose due to Rentokil's searches were negligent and not caused by an event outside of Rentokil's control, or the result of a significant and genuinely unforeseeable or unusual event. The CMA also stated that it is ultimately the parties' responsibility to ensure that it provides all relevant material in response to a document request.
Furthermore, the CMA concluded that the penalty was appropriate as the failure to comply with the notices had had an adverse impact on their Phase 1 inquiry, the failure was significant and the penalty had to be an adequate deterrent. The penalty (£27,000) is at the upper limit of the fines that the CMA can impose (it has the power to set a fine of up to £30,000) and the CMA listed the a number of aggravating factors in setting a high penalty, such as:
- failures to comply with the notices disrupted the Phase 1 inquiry and increased public expense;
- Rentokil had, in particular, failed to respond to questions relating to the PSA, which it considered fundamental to the CMA's assessment; and
- Rentokil's senior management ought to have been aware that the responses omitted highly relevant documents.
On 22 August 2019, the CMA announced that it had accepted final undertakings from Rentokil in lieu of a Phase 2 investigation reference.
With thanks to Kishen Vora of Ashurst for his contribution
