OFT fights back against threat of extinction with mixed results.
With corporate dealflow showing little sign of returning in any major way, 2010 was an opportunity for competition practices to take centre stage.
While a few big pieces of M&A kept competition watchdogs relatively busy – not least the Kraft takeover of Cadbury and the merger of T-Mobile with Orange to create Everything Everywhere, which both came before the European Commission – the limelight domestically fell on the OFT.
The OFT in particular has been under political pressure all year, with the lingering threat that it will have its enforcement operations either taken away or severely curtailed.
Then, in October, the Government announced plans to merge the OFT and Competition Commission (CC) as it seeks to slim down competition bureaucracy.
The result of such pressure, both before and after the Department for Business, Innovation and Skills’ (DBIS) announcement, was that the OFT embarked on one of the most aggressive eras in its history, with varying degrees of success. This resulted in a slew of high-profile cases and plenty of work for competition partners across the City.
The OFT’s newfound aggression was first seen back in the autumn of 2009 when it fined 103 construction companies a total of £130m after it found they had colluded with competitors on building contracts. In the summer the Competition Appeal Tribunal (CAT) heard appeals from 25 of the companies involved.
The judgment is pending, but the appeal has engaged a swathe of competition practices. Firms involved include DLA Piper for ISG Pearce, Renew Holdings and Robert Woodhead Holdings; Pinsent Masons for Galliford Try and Apollo Property Services; CMS Cameron McKenna for Ballast Nedam; Nabarro for PKF Coringway; and Simmons & Simmons for Kier.
However, the OFT’s 2010 was marked by somewhat mixed results. It was forced to withdraw criminal proceedings against four British Airways (BA) executives accused of being involved in price-fixing – a climbdown that was widely viewed as embarrassing.
Indeed, the BA trial, abandoned after it emerged that the OFT had failed to review 70,000 documents, could be the final nail in the coffin for its criminal function. One of the functions of the newly established Economic Crime Agency (ECA) will be to fold together the enforcement powers of the OFT, the FSA and the SFO.
Along with the planned CC consolidation, a consultation paper, expected some time next year, reveals that the focus of competition lawyers has shifted. The shift has seen practices that once concentrated on mergers turn their attention more to the behavioural side of competition work.
But what mergers there were still needed competition expertise. The year kicked off with one of the biggest deals of all – Kraft’s £12bn takeover of Cadbury. While Clifford Chance took the M&A glory, it was Arnold & Porter that helped the deal get competition clearance.
The T-Mobile-Orange deal, meanwhile, saw competition teams from Clifford Chance and Norton Rose act for respective parent companies Deutsche Telekom (T-Mobile) and France Telecom (Orange). Competition partner Jenine Hulsman led for Clifford Chance, while regulatory partner Michael Grenfell did so for Norton Rose.
Juicy mandates though these may have been, both came on the back of 2009 deals, with European Commission approval coming early in the year – January for Kraft-Cadbury and March for Everything Everywhere.
Into the increasingly arid merger landscape have stepped the regulators. One of the biggest OFT investigations centred on the price-fixing of tobacco products by supermarkets and their suppliers.
In microcosm, the result was evidence of the mixed year that the OFT experienced throughout 2010.
It levied fines totalling £225m against manufacturers and retailers, but it also abandoned its pursuit of the biggest supermarket of all, Tesco, due to lack of evidence after a seven-year investigation. Freshfields Bruckhaus Deringer advised Tesco throughout, with competition partner Deirdre Trapp leading.
Sainsbury’s also avoided a fine from the OFT when it became the first of the retailers to apply for leniency. Addleshaw Goddard is understood to have acted for the supermarket chain.
Ashurst advised Imperial Tobacco, which received the largest fine of £112m, while Hogan Lovells competition partner Suyong Kim acted for Morrisons and Safeway, having taken on the mandate for former firm WilmerHale before becoming the transatlantic firm’s first post-merger lateral partner hire in May. Norton Rose advised Asda, another of the fined retailers.
While the tobacco case provided a mixed result for the regulator, the same could not be said for another investigation involving supermarkets. In November the OFT dropped its inquiry into price collusion among the big four – Tesco, Sainsbury’s, Morrisons and Asda.
The same advisers acted for the supermarkets as on the tobacco case, with a raft of firms, including SJ Berwin, acting for their suppliers. While the clients came away smelling of roses, it was seen as a serious blow to the OFT.
“What it means is that they’ve lost two huge cases this year,” says one City competition partner. “The BA case on the criminal side and this one on the civil side.”
However, the level of activity has meant that the investigatory side of competition practices has come to the fore. One partner
at a top 10 firm confirms that around two-thirds of the firm’s competition work is now focused on the behavioural side and only a third on mergers – a reversal of most firms’ positions a decade ago.
“The levels of fines are so high now that companies have to take notice,” adds the City partner. “In the past five years competition risk has become a standing item for executive boards.”
The coming year will see the CAT hear appeals from several of the companies fined in the tobacco case. It will also be kept busy by the resurrection of another high-profile case when BSkyB challenges Ofcom’s ruling that it had to reduce the price it charged rivals for access to its sports channels. Herbert Smith is acting for BSkyB.
If regulators continue to flex their muscles as they seek to prove their value to the Government, 2011 could be the year of competition litigation.