Sarah Cardell: the future of UK merger control

A keynote speech by Sarah Cardell, Chief Executive of the Competition and Markets Authority (CMA), to the CMA's UK merger control event

Sarah Cardell


The operation of the UK’s merger control regime has attracted an unprecedented level of attention – both domestically and internationally – in 2023. In many ways, this shouldn’t come as a surprise. Post-Brexit, the CMA has both the jurisdiction and the responsibility to review the UK impact of many global deals where that UK dimension would previously have been considered by the European Commission.

As we discharge that responsibility, we do not shy away from taking, and defending, robust decisions to prevent anti-competitive mergers which would harm UK consumers or businesses, and where the merging parties can’t, or won’t, offer remedies sufficient to address our concerns. And we are committed to ensuring that our substantive analysis keeps pace with the competitive dynamics at play in the markets and transactions under review – including in fast moving and dynamic digital markets. So, it is perhaps not unexpected that we find ourselves at the frontier of complex merger control decisions, including in global deals.

But let me be clear. That does not mean we are excessively interventionist or unpredictable in our approach. On the contrary, as you will hear repeatedly through this afternoon’s discussions, the CMA is an organisation that takes immense pride in our independent, objective and evidence-based approach to merger control. We strive to ensure that our processes are fair and transparent, that merging parties can engage fully and directly with decision-makers and that we hear from a range of representative and affected third parties. We are an organisation driven by outcomes rather than ideology. We are not anti-business or anti-mergers. Thousands of mergers proceed every year without intervention by the CMA. And where credible remedies are offered that comprehensively address our competition concerns, we will work with parties to reach an acceptable outcome. Our focus is, quite simply, to ensure that UK consumers and UK businesses are protected from the detriment that would be caused by the handful of anti-competitive mergers that some parties seek to progress.  

Importantly, the CMA is an organisation that listens – and learns. Both in the course of every individual investigation that we undertake but also as we evolve our processes and seek to ensure that the UK merger control regime operates as effectively as possible. I’m truly excited to be sharing with you today the results of our Phase 2 process “stocktake” which I believe have the potential to deliver a real step-change in aspects of the way the regime operates. You’ll be hearing more about those changes from Martin, Colin and Naomi later.

But first, I’d like to take the opportunity to address some of the more debated aspects of the UK merger control regime this year and to reflect on where that leaves us going forward. Of course, I can’t do so without mentioning the Microsoft/Activision transaction which has acted as something of a “lightning rod” for discussions about the regime. I’m going to touch on 5 topics, all of which pick up aspects of the discussion around the Microsoft/Activision case but are also of broader importance going forward and connect with points that will be covered by later speakers. And I very much hope that by the end of this afternoon’s discussion we can also move our collective focus forward to the future operation of the regime.

In particular, the key topics that I would like to cover are:

  • the relationship between merger control and economic growth
  • whether it is appropriate to make merger control interventions in markets at an early stage of development
  • various procedural aspects of the CMA’s decision-making
  • how we assess what kinds of remedies should be accepted to address competition concerns
  • whether and how we should align outcomes with other agencies globally

The relationship between merger control and economic growth

When reviewing mergers, our statutory responsibility is to assess whether the transaction in question will substantially lessen competition. There is no legal basis for us to consider separately or more broadly the wider impact on economic growth.

But there is no tension here. Open, competitive markets provide the foundation for a vibrant, innovative economy and are critical to attract investment and drive economic growth. Merger control is a key part of this, ensuring that mergers that harm competition are prohibited or modified so that markets remain open to effective competition over the medium and long term. This benefits not only the UK consumers and businesses dependent on those markets but also the UK and international businesses seeking to invest, grow and innovate in a competitive marketplace.

And, of course, the many thousands of deals that go ahead every year with no negative impact on competition in the UK can also contribute to that economic growth. Indeed, since 2013, the CMA has prohibited just 16 deals out of approximately 7,000 mergers we have considered, and 500 that have been subject to a formal review.

That said, we continue to look for ways to minimise the burden on merging parties and ensure that the CMA focuses its resources on the most appropriate cases. To this end, as part of the proposed reforms we are announcing today, we are proposing changes to the application of the de minimis exception to the duty to refer cases to Phase 2 investigations.

Is it right to intervene in early-stage markets?

We have seen an increase in the number of deals being assessed in more dynamic and rapidly evolving markets including – but not limited to – digital and technology markets.

The potential harms resulting from the loss of dynamic and future competition in these markets are well documented. In recent years, a significant number of expert reports and academic papers have underlined the risks associated with under-enforcement in merger control in these dynamic and evolving markets, including at an early stage. The CMA recognised the need to evolve our analytical framework to better reflect the competition concerns arising with these mergers in our 2021 update to the Merger Assessment Guidelines – with changes that are in some cases broadly similar to some of those now being proposed in the revised US guidelines.

In some cases our intervention may be to prevent an established player buying out a nascent or emerging competitor which does or could provide an important competitive constraint as the market develops. But mergers between well-established companies can also be problematic in emerging markets. In Microsoft/Activision, we intervened to prevent Microsoft from reinforcing its incumbency advantage in the nascent but growing cloud gaming sector because of the risk that locking up access to Activision’s important content would have reduced competition.

The common theme underpinning our interventions in emerging market cases is the need to ensure that mergers don’t reduce innovative or dynamic competition in relation to early-stage markets or business activities. That reflects the importance of merger control as an ex-ante tool to prevent the creation or consolidation of market power rather than relying on ex-post intervention further down the track. It’s sometimes put to me that, with the new digital markets regulatory regime, we might be more relaxed about allowing such deals to proceed, relying on the ability to manage conduct after the event if concerns arise. I don’t agree. Merger control remains the most effective way to avoid situations of market power being created in the first place, including in emerging markets. Looking forward, you should expect scrutiny of such deals to remain a priority for the CMA.

But of course, a forward-looking assessment of competition in dynamic and rapidly evolving markets may equally be the basis for clearing a deal, as with the recent merger of Viasat and Inmarsat.

The CMA’s decision-making procedure

Turning now to the CMA’s decision-making procedure, I’d like to touch on three aspects: political independence, engagement with CMA decision-makers, and speculation around a “Phase 3” process.

The independence of the CMA

In 2002, the Enterprise Act took politics out of merger decisions. This was a conscious – and widely-supported – move to confirm that questions of competition policy should be decided by independent and expert decision-makers, applying an evidence-based and economics-led test. 

It was also premised on the consensus that businesses are entitled to know that decisions in this important area will not be influenced by short term political considerations. And with some limited exceptions – for example, relating to national security – this remains the position today. 

Of course, it is natural for there to be some political interest in high-profile transactions. Whilst we take our decisions independently, the CMA is accountable to Parliament and needs to be able to explain the actions it is taking and reasons for them. However, there is an important distinction between political interest and intervention. It is fundamental to the integrity of the UK merger regime that, outside of specific statutory exceptions, the CMA’s decision-making is free from political interference. And that has been – without exception – my experience in 10 years at the CMA, both as General Counsel and then as Chief Executive.

More specifically, I would like to put to rest, once and for all, the speculation that political intervention influenced the outcome of the Microsoft/Activision case. So let me be crystal clear: there was no attempt by any politician, political advisor, or government official to influence our decision-making in that case. The reason that the deal was, eventually, able to proceed was down to Microsoft’s decision to fundamentally restructure the deal in a way that addressed our competition concerns. Nothing else.

Of course, I recognise that, whatever we say, some commentators will continue to speculate that political intervention played a part. And for some advisors, it’s in their commercial interests to fuel this narrative. But my message is clear: any attempt to lobby for political interference in the merger control process will fail.

Engagement with decision-makers on competition concerns and remedies

Whilst political lobbying is not, I would suggest, a fruitful activity, engagement with our decision-makers absolutely is. There are already extensive opportunities for engagement with decision-makers in the course of our merger investigations, including in the context of Phase 2 investigations, at site visits, main party hearings, and remedies hearings. But we recognise how important that engagement is for merging parties and, reflecting on the feedback from our Phase 2 process “stocktake” over the summer, we have identified some areas for further improvement which Colin and Martin will discuss later.

We also used the “stocktake” to explore views on opportunities to engage on remedies. It is already open to merging parties to discuss remedies with the Inquiry Group at an early stage should they wish to. Microsoft/Activision is a good example of a case that could have been resolved much sooner – and at significantly less cost to the merging parties and the taxpayer – had the parties come forward with their ultimate solution at an earlier stage. 

Notwithstanding that, feedback received in our “stocktake” exercise highlighted perceived barriers to using the opportunities currently available. As part of the package of proposals we are announcing today, we have included a revamped remedies procedure that seeks to remove these barriers by introducing a number of prompts for merging parties to consider “without prejudice” remedies discussions and bringing greater transparency to the process.

But it takes two to tango. We are doing our bit to ensure the process gives parties every opportunity to engage early and fully on remedies. But this will only yield positive outcomes if parties - and their advisors - engage in good faith with a sincere attempt to understand our competition concerns fully and offer a comprehensive solution to address them. Too often we see a minimalist, incremental approach to remedies discussions which is far less likely to succeed.

A Phase 3 process?

There have been some suggestions that the Microsoft/Activision case has opened the door for a ‘Phase 3’ review. I would like to take the opportunity to clear up any misunderstandings on this front.

As I understand it, the concern seems to be that merging parties are now incentivised to hold back from offering their “best and final” remedies proposal at Phase 2 because, if the deal is blocked, they can have another bite at the cherry by re-notifying a new deal for a further Phase 1 review.

I think this concern is misplaced for a number of reasons:

First, it seems to presuppose that the Phase 2 remedies process is some kind of commercial negotiation where the Group will be tempted to accept the last offer on the table and so parties might get away with holding something back, knowing that they could always renotify if not. This is simply not how the process works. Where the Group identifies competition concerns and merging parties fail to offer an effective remedy that comprehensively addresses those concerns, prohibition is likely to be the only effective solution. There is no benefit from holding back: as was seen from Microsoft/Activision where the Group blocked the deal, and the CMA was ready to defend that decision in court.

It also seems to be predicated on an assumption that the merging parties would for some reason get an easier ride second time round on a further Phase 1 investigation. But that makes no sense. As was seen in the Microsoft/Activision case, the second Phase 1 review took the Group’s concerns as a starting point for the competitive assessment. So, the only reason the deal was eventually able to proceed was down to the fundamental restructure by the merging parties. But there was no gain to them from holding this back when it could have been offered at Phase 2 – as Brad Smith has himself acknowledged.

So, holding back doesn’t increase your chances of clearance at Phase 2. Nor at a further Phase 1 review. It simply extends that review unnecessarily. And, I think commercially, very few deals would be able to withstand the financial pressure and commercial uncertainties of a protracted 3 phase process.

What kinds of remedies should be accepted to address competition concerns? 

I’ve talked already about the importance of constructive engagement by parties on remedies and the changes to our process we are proposing in this regard. We are not proposing any change to our substantive position on remedies. As our guidance makes clear, the CMA has a strong preference for structural remedies, given that these are more likely to address the substantial lessening of competition comprehensively at source by restoring rivalry, and do not risk distortions in market outcomes resulting from behavioural interventions which require businesses to act in a way which may be contrary to their commercial incentives.

While behavioural remedies may be appropriate in some circumstances, the bar for acceptance is high. However, it is not insurmountable. Remedies with significant behavioural components have been considered to be effective from time-to-time, as have some remedies with both structural and behavioural components.  

I mentioned earlier that I have been asked whether the proposed new digital markets regulatory regime will change our approach to mergers. Whilst I don’t think it will or should result in us allowing deals that we would previously have prohibited, I do think the operation of an ongoing regulatory regime will be a factor for us to take into account when considering remedies in individual cases, as we do in other regulated sectors.

International alignment

I will end with a word on international alignment.

Our experience is that it is generally beneficial to merging parties and competition authorities for there to be open channels of communications between different authorities internationally when reviewing the same transaction. This can bring procedural benefits – in allowing us, as far as possible, to align on process and timing. And it can also assist our substantive assessment where the markets concerned have regional or global dynamics. In many cases this can and does result in aligned outcomes across different jurisdictions. But it is inevitable that there will be instances of divergence – whether that reflects differences in market features, evidence base, differences in our statutory duties and legal frameworks or, on occasion, differences of judgment. This is true both for our assessment of the competition concerns raised by a merger, and the appropriate solution to remedy those concerns.

When we carry out a merger assessment on a global deal, we are highly attuned to the fact that we do not operate in an international vacuum. But ultimately, our responsibility is to take our decisions applying our rules for the protection of UK consumers.  

Looking forward

To draw to a close, in speaking to you today, I hope I have dispelled some recent misconceptions about aspects of UK merger control. But more importantly, I hope I have given you a flavour of our approach going forward. The CMA is, and will remain, independent, objective and evidence-based in our approach to merger control. We won’t shy away from robust decisions to protect competition and consumers, but we will engage pragmatically where parties put forward solutions with a genuine commitment to fully resolve our concerns. We want to ensure our processes are open and transparent and that they allow for full engagement with merging parties and other interested parties. We highly value international co-operation but, at the end of the day, it is our job to discharge our responsibilities in the interests of UK consumers, and that’s what we will continue to do.

Competition and Markets Authority
Sarah Cardell