Will merger reforms create red tape?

Alex Nourry, head of competition law, Clifford Chance

John Davies, managing partner, Freshfields

Garth Lindrup, partner, Addleshaw Booth & Co

The government is attempting to shake up the UK merger market with major reforms.

As part of a consultation document released last week, Trade and Industry Secretary Stephen Byers hopes to make two main changes.

The first reform will lower the £70m combined asset value threshold on referring mergers to the Competition Commission. The second area for change is the removal of ministers from policing most bids.

The changes are being mooted after ministers questioned whether the existing threshold allows the growing number of knowledge-based companies with low asset values, but high turnover, to slip past the commission.

The proposals suggest bids would be freed from scrutiny by politicians, unless the director-general of the Office of Fair Trading decided there were public interest issues at stake.

Ministers would only retain a final say in bids involving defence and the existing procedures for adjudicating newspaper mergers.

But will the proposals create a more drawn-out process for lawyers to contend with, or will these new barriers prove to be a fee-rich area of work?

Alex Nourry, head of competition law at Clifford Chance's Brussels office, says: "Proposals to change the threshold go against government promises to reduce red tape. I can understand why this is being done. Assets do not always tell you how powerful a company is, but it could catch lots of other transactions. That would be an unnecessary burden for business."

Nourry says as more mergers will be referred to the commission, lawyers will have to handle more work in this area. But, he warns: "It is a retrograde step for business."

The threshold was raised from £30m to £70m by the last government because it felt that too many companies were put through more bureaucracy than was necessary.

Nourry adds: "If the Government has concerns with particular sectors they should change the threshold for those areas, for example the media and football clubs."

He suggests a turnover test would be more accurate than an assets-based one. But Nourry is sceptical of the changes to political involvement in the merger process.

"What Byers is doing is trying to have the best of both worlds. This will still keep a political perspective. It is a bit of a fudge, " he says.

But John Davies, joint managing partner of Freshfields in Brussels, thinks the move towards depoliticising mergers regulations will be a change for the better. "It could bring UK competition law in keeping with the EU," he says.

"It should increase confidence in companies, particularly international business which can't understand the way that the UK reaches its decisions, because mergers will be decided on economic grounds and not political ones," he adds.

Davies thinks the change in the asset threshold test will not create more work for lawyers as there is a second test for company dominance.

This test automatically refers mergers that would result in a market share of more than 25 per cent to the Competition Commission.

He says this catches many companies that do not have high assets but still dominate the market.

Garth Lindrup, competition partner at Addleshaw Booth & Co, thinks removal of political influences will create more certainty in the market for companies.

He says: "It is good to depoliticise this. Lawyers have felt uncomfortable with politicians deciding these things. But there should be a certain amount set aside in the public interest."

However, he disagrees with lowering the £70m threshold. He thinks the threshold test should not be altered because knowledge-based companies can rarely slip past the market-share test.

He says: "This is not a good reason to play around with the asset threshold."