JD Sports has filed an appeal with the Competition Appeal Tribunal (CAT) against the decision by the CMA to prohibit its acquisition of rival retailer Footasylum, with the appropriate treatment of Covid-19 a key area of dispute between the parties and the CMA.
Among the grounds of appeal published on 23 June 2020, JD Sports alleges that the CMA erred in law and / or acted irrationally by excluding the effect of Covid-19 on Footasylum when considering the relevant counterfactual (i.e., the competitive situation that would have prevailed absent the merger). JD Sports further alleges that the CMA was also mistaken in finding that Covid-19 would not materially affect the competitive constraint exercised by Footasylum. Continue reading
The UK government has announced two significant amendments to the UK merger control regime, intended to enhance its powers to scrutinise certain foreign direct investment (“FDI”) into the UK, against the backdrop of the Covid-19 pandemic and wider national security concerns. These amendments come ahead of the National Security and Investment Bill (“NS&I Bill”), which is expected to be brought before Parliament in the coming weeks to create a new distinct FDI regime in the UK, introducing standalone powers enabling the government to review a broad range of transactions on the grounds of national security (following on from a White Paper published in July 2018, although the detail of the regime has not yet been confirmed – see our previous briefing).
The headline changes are:
- the addition of “to combat and mitigate the effects of a public health emergency” as a criterion for intervention in a transaction by the government on public interest grounds, under the existing public interest merger regime contained in the Enterprise Act 2002 (“EA02”) – to be implemented by way of a statutory instrument The Enterprise Act 2002 (Specification of Additional Section 58 Consideration) Order 2020 tabled today, which will take effect from tomorrow (23 June 2020); and
- the introduction of lower jurisdictional thresholds for review of transactions in three specific sectors: artificial intelligence, cryptographic authentication technology and advanced materials – also to be implemented by way of two statutory instruments (the Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2020 and the Enterprise Act 2002 (Turnover Test) (Amendment) Order 2020) tabled today, but to be debated before they enter into force.
The intention behind these reforms is to enable the government to review proposed acquisitions of businesses directly involved in the response to a pandemic (including any future pandemic, other than Covid-19), whilst also expanding the government’s powers to intervene in mergers in sectors which are deemed to be central to national security. The reforms cover not only companies directly involved in the response to a pandemic (e.g. pharmaceutical or medical equipment suppliers) but also companies which mitigate its effects (examples given include internet service providers and food supply companies) as well as, potentially, usually stable UK businesses suffering a short-term impact to their share price or profitability as a result of the economic uncertainty caused by a pandemic. Further guidance from the department of Business, Energy and Industrial Strategy is expected shortly and should provide additional clarity on the circumstances in which the government would exercise its powers.
These amendments are significant for investors in the identified sectors, particularly non-UK investors, although notification of affected mergers to the Competition and Markets Authority (“CMA”) will remain voluntary. However, it is also important to note that – as expressly flagged in the government’s press release – these changes are primarily intended to “mitigate risks in the short term”, ahead of the introduction of “more comprehensive powers” in the NS&I Bill. We expect that Bill to be brought before Parliament in the coming weeks, and will provide a further update as soon as it is published.
For further detail on the amendments set out in the statutory instruments tabled today, please see our full briefing.
The Covid-19 health crisis raises substantial challenges for businesses and consumers and has had a significant impact on competition law affecting the consumer sector.
While the particular implications will vary by jurisdiction, some common trends may be identified. One broader development is that competition authorities have recognised that certain forms of temporary cooperation between businesses, which could otherwise contravene competition law, may be necessary to secure the supply of essential products for consumers and have sought to allow specific cooperation through regulation, authority decisions or guidance. Another pattern that also emerges however is of competition authorities warning businesses against exploiting the crisis and adjusting their enforcement priorities to scrutinise practices related to essential consumer products, with a focus on excessive pricing in the food and healthcare sectors particularly common. Continue reading
Foreign direct investment (“FDI”) regulation has featured increasingly on the radar for cross-border M&A, against a backdrop of amplified protectionist rhetoric.
Even before the COVID-19 pandemic, a number of countries which have traditionally been seen as open to foreign investment were moving towards stricter public interest and FDI scrutiny of transactions (such as the UK, USA and Australia).
Following the outbreak of the pandemic, this trend towards protectionism has only increased. In particular, governments have sought to move quickly to protect businesses (affected by the COVID-19 economic fall-out) from opportunistic acquisition by foreign buyers. Indeed, while there is still a degree of uncertainty and volatility in the global markets, there is nonetheless scope for such opportunistic acquisitions, perhaps especially by Chinese buyers (with the wider Asian region emerging sooner from the COVID-19 restrictions). Conversely, many businesses in Europe are still subject to stringent restrictions. Europe, therefore, may provide a more fertile ground for opportunistic takeovers of distressed targets by foreign investors. The rhetoric surrounding the introduction of the EU-level guidelines on FDI screening during the pandemic (as further explored below) is telling in this respect: on 25 March 2020 the European Commission urged EU Member States to be “particularly vigilant to avoid that the current health crisis does not result in a sell-off of Europe’s business and industrial actors”.
European countries such as Spain, Italy and France have responded by making specific amendments to their FDI regimes to address these concerns such as lowering thresholds for review for certain/all foreign investors and/or expanding the list of sectors subject to review. However, these changes have not been limited to Europe, with Australia, Canada and India all imposing stricter restrictions on FDI to protect domestic targets from opportunistic takeovers. For more information, please click here to read our detailed briefing.
Germany is continuing to tighten its FDI regime: A current amendment to the German Foreign Trade and Payments Ordinance (AWV) brings new filing obligations for several case groups. The AWV amendment clearly focuses on the health sector as a direct consequence of the COVID-19-pandemic. It aims to contribute to the permanent maintenance of a functioning health care system in the Federal Republic of Germany. The Government emphasizes that this draft will be followed by an additional AWV amendment in the course of 2020, inter alia triggered by the EU Screening Regulation, where an expansion of the critical infrastructures is expected.
The AWV amendment is the second step within an ongoing change and tightening of the German FDI regime, following an draft amendment of the underlying Foreign Trade Act (dated 8 April 2020, being currently under parliamentary discussion and which we summarize again below).
The amendment has been passed by the German Federal Government passed today / 20 May 2020.
Investors must be aware that the German FDI regime will continue to grow in its significance. In the light of the recent amendments, the filing obligations are expanded, the standstill obligation extended and the intervention threshold lowered. Each transaction with a German angle must be analysed thoroughly to understand potential filing obligations and to initiate all required steps in due time to avoid any delay.
For more information, please click here for our detailed briefing.
We are pleased to share with you this podcast series where our procurement law experts discuss hot topics and live issues in the field of public procurement.
We take a look at the impact of the COVID-19 crisis on public procurement procedures and disputes and litigation in the field of public procurement in the UK:
On 8 May 2020 the European Commission adopted the second amendment to its Temporary Framework on the application of the EU State aid rules in light of the COVID-19 outbreak. The amendment extends the Temporary Framework to cover State recapitalisations of companies in the form of equity and hybrid capital instruments, subject to conditions with respect to the State’s entry, remuneration and exit, and governance and other requirements to limit potential competitive distortions. It also introduces the possibility for States to use subsidised subordinated debt to address companies’ liquidity issues, in addition to subsidised senior debt (which was already covered). Continue reading
A new Competition Act Exclusion Order, the Competition Act 1998 (Dairy Produce) (Coronavirus) (Public Policy Exclusion ) Order 2020 (the Dairy Exclusion Order) came into force on 1 May 2020. Under the Competition Act 1998 (Schedule 3 paragraph 7) the Government can exempt certain specified agreements from the Chapter I prohibition if there are exceptional and compelling reasons of public policy to do so. Since the COVID-19 pandemic this process has now been used for certain types of agreements relating to the groceries sector, healthcare services, ferry services for the Isle of Wight and now the dairy sector (see here for our blog post on the previous Orders). Continue reading
The COVID-19 pandemic has resulted in a rush of applications to the ACCC seeking to authorise coordination as between competitors which might otherwise contravene provisions of the Competition and Consumer Act (CCA).
The ACCC has responded quickly and dedicated significant staff to assess these applications. As of 8 April 2020, the ACCC has made 16 COVID-19 interim authorisation determinations. More will follow.
In granting interim authorisations, the ACCC has recognised that it may not be possible for applicants to be precise about the conduct which is to be authorised, given the uncertain nature of the pandemic and the benefits associated with speed and flexibility.
While each application will be considered on its own merits, ACCC practice to date demonstrates that the ACCC is prepared to authorise broadly described conduct where the parties must notify the ACCC of agreements entered into under the terms of the authorisation and respond to future ACCC requests for information. As a result, the ACCC will continue to have a central role in determining the scope of arrangements as between competitors to address supply chain, logistics and resource availability and consumer relief efforts arising from the pandemic.
Please see our more detailed briefing for an overview of the ACCC’s current approach to COVID-19 authorisation applications, as well as other ways in which competition law risk for industry coordination might be managed. We have included a detailed summary of the COVID-19 interim authorisations granted by the ACCC to date, grouped by sector, and also set out some guidance on how to approach industry discussions prior to any authorisation decision of the ACCC.
Herbert Smith Freehills has published a new global guide on supply chain difficulties arising from the COVID-19 pandemic and associated restrictions.
The guide explores issues around: maintaining the links in the supply chain; competition law issues; product-related issues; and the suspension and termination of contracts. In each area, the guide suggests practical steps to consider immediately and further ahead, and environmental, social and governance (ESG) and human rights issues are also explored. Where appropriate, the guide includes country-specific overviews and insights on the issues covered.
Click here to access the guide.