Will merger reforms help or hinder?

The Department of Trade and Industry has proposed plans to reform merger regulation. This week the forum asks how they will change the way competition lawyers work.

The Department of Trade and Industry (DTI) is at the centre of a row over its proposed plans to reform merger regulation.

The DTI proposes that the decision-making process for mergers should be based solely on competition issues and be controlled by the Office of Fair Trading (OFT) and the Competition Commission (CC).

The Trade Union Congress (TUC) raised questions about the proposals' effect on employees whose companies are undergoing a merger. The TUC argues that proposals to assess mergers on competition alone – replacing a public interest test, which assesses issues including redundancies and job transfers – is too narrow.

Under the reforms the Secretary of State's power of final approval on a merger would be removed and he would only be able to step in if the merger raised concerns over national security.

But is the TUC overreacting about the DTI's plans to remove the public interest test? And will throwing out the public interest test make the job of competition lawyers easier?

Samantha Mobley, a partner in the competition unit at Baker & McKenzie, says: “At the moment the public interest test allows the CC to take into account maintaining and promoting the balance of distribution of industry and employment. But if you have a test that only focuses on competition issues, the CC is not going to be taking into account employment concerns.”

However, Mobley says that the Secretary of State will also have a “reserve power”.

“The Secretary of State will be able to make an order defining further public interest criteria,” she says.

But she adds: “I don't think that the reserve power would necessarily help the TUC. The Secretary of State will have to specify other new criteria, for example employment concerns, by statutory instrument. It would have to go through both houses of parliament.”

Mobley says that removing issues surrounding public interest and concentrating on the competition aspects of a merger would be advantageous for lawyers. “When you couple together the removal of the political element with the transparency proposals issued by the OFT and the CC it will allow us to advise with more certainty,” she says.

“Because of the transparency proposals we will understand why the OFT has made certain decisions and we won't have to grapple with the wider public interest issues.”

Suyong Kim, a partner in the EU and competition group at Denton Hall, says: “I think the question is, should merger policy in the UK be dictated purely on competition issues or should there be a broader public interest test that they also have to meet?

“In certain cases I think that it is cleaner to have it as a pure competition test. Within the unpredictability that comes from not knowing why the Secretary of State had decided against advice given by the OFT, it would be better to get rid of the political intervention. But I think it is wrong of the TUC to think that public interest is altogether removed.”

Regarding the Secretary of State's limited powers under the proposals, Kim says: “He will not go against the CC verdict on competition. But what that means is that at one level there will be more political control, not less, on any defined exceptional public interest criteria.”

Guy Leigh, head of competition at Theodore Goddard, says: “I think that the more that can be done to ensure that competition is not confused with other things the better.

“Having said that I think it is undesirable that mergers be an issue that is subject to political decision.”

But he adds: “The broad public interest test can muddy the water and can require one to address things that aren't really relevant.

“The broad test leaves the possibility that a merger might be blocked for reasons other than competition considerations.”