Sainsbury’s - ASDA merger investigation news
The investigation into a proposed Sainsbury’s - ASDA merger rumbles on, with Tesco and Morrisons presenting their comments to the Competition and Markets Authority (“CMA”) at the recent November hearing. Morrisons have raised concerns that the merger would have a wide range of adverse effects on manufacturers, suppliers and consumers.
In the UK, the CMA has the right to investigate an acquisition or change of control, where there is a ‘relevant merger situation’. While you will usually see the Sainsbury’s - ASDA scenario of two large, standalone operations merging into one, the triggers to what the CMA considers a ‘relevant’ merger can sometimes be far less obvious.
What is a relevant merger situation?
As well as acquisition of assets or shares, the CMA may also look at transactions featuring acquisitions of parts of a business, of voting rights conferring managerial control or of significant veto rights, as well as demergers or joint ventures.
If a sale/acquisition features the transfer of customer records, transfer of employees under TUPE regulations or a payment of goodwill above and beyond the book value of what is bought, then these are good indicators that it may be a relevant merger.
What is a significant impact on competition?
A merger in the food industry will meet the threshold for investigation, if it exceeds one of the two standard tests:
- where the turnover of the business being acquired exceeds £70m; or
- where the merging parties together supply or acquire at least 25% of particular goods or services (across the whole of the UK or just within a substantial part of it).
It is important to remember that, while a given company may be a very small player in the food market as a whole, there may well be a distinct market within the food market in which the combined business post-merger will meet the 25% threshold for that market. In that case the merger will be caught by this definition.
Where a transaction falls within these boundaries, it is optional for the parties to notify the CMA of their intention to merge and seek clearance for the transaction. If they choose not to do so, they run the risk that the CMA may investigate post-deal and in a worst-case scenario seek to unwind the merger.
If you are considering growing your business through acquisition or would like more information on this topic, please contact Sebastian Calnan, or you can give us a call on 0345 070 6000.