As reported in an earlier alert, the UK Competition and Markets Authority (CMA) has been stepping up enforcement action against breaches of its procedural rules on merger control.1 This alert highlights the CMA's recent enforcement action in relation to delivery of the merging parties' internal documents to the CMA.
The UK's Information Gathering Powers
To facilitate its merger reviews, the CMA has formal and informal information gathering powers. Under Section 109 of the Enterprise Act 2002, the CMA can issue a notice at any stage of its review requiring any person (including a third party) to appear before it as a witness or to provide information (S.109 request).2 If a party fails to comply with the information request or provides incomplete or inaccurate information, the CMA has the power to impose a fine. The fines for procedural breaches of this type are capped at £30,000 (approximately $39,000) for each breach, plus a daily fine of up to £15,000 ($19,000) for continuing delay.
The CMA can also "stop the clock" until such information is provided, extending the statutory review timetable. Moreover, the CMA is not obliged to consider information received from the merging parties after the compliance date specified in its request.
In addition, procedural breaches of this nature carry the risk of criminal sanctions. Under the Enterprise Act 2002, it is a criminal offense, punishable by a fine or a maximum of two years' imprisonment (or both), to knowingly or recklessly supply false or misleading information to the CMA in relation to a merger investigation.3 Criminal sanctions are an alternative to the civil sanctions and cannot be used cumulatively against a party.
Recent Enforcement Actions
In Just Eat/Hungryhouse,4 in November 2017, the CMA levied its first fine for failure to comply with a formal information request. The fine of £20,000 (approx. $26,000) was imposed on the target, Hungryhouse, for failing to hand over certain documents without reasonable excuse. The documents were responsive to the CMA's first S.109 request but were only released in response to later S.109 requests. The CMA was highly critical of the methodology employed by Hungryhouse to identify responsive documents and noted that the company should have realized that there was a substantial risk of missing responsive items. In the CMA's view, the production of documents from senior management should have been prioritized and sufficient resources made available to support the document collection and processing. Further, Hungryhouse made no attempt to discuss its chosen methodology with the CMA or to share its concerns over the scope of the request, despite commenting on a draft of the S.109 request. Similar fines were issued in Rentokil/MPCL Limited5 and AL-KO/Bankside Patterson.6
More recently, in October 2019, the CMA published its decision in Sabre/Farelogix to penalize Sabre £20,000 ($26,000).7 Sabre had responded within the April 2019 deadline set for two S.109 requests. However, in June, the company updated its response with an additional set of 444 documents, of which 188 had not previously been provided to the CMA. These documents had either been entirely withheld from the CMA or produced in redacted form. The issue arose because of a disclosure gap in the parallel U.S. review of the transaction, where a number of documents initially withheld as privileged were subsequently re-classified and produced to the U.S. Department of Justice (DOJ). Sabre then provided these documents to the CMA. While the CMA acknowledged that it had been on notice that Sabre was providing the same universe of documents as had been given to the DOJ, that the failure was not intentional, that Sabre had been transparent, and that the documents were "only of limited relevance" to its review, the UK enforcer still sanctioned the company. In the CMA's view, withholding the documents gave rise to a "material risk" that the CMA's decision would be taken on the basis of incomplete evidence.
Wilson Sonsini Insights
While historically the CMA has tended to use a mix of its informal and formal information gathering powers during merger reviews and has rarely imposed pecuniary sanctions, the publication of updated guidance on internal document production in January 2019 signaled a shift by the CMA towards a stricter standard.8 This is in line with global enforcement trends, where agencies are increasingly tough on procedural breaches.9
The CMA's recent enforcement actions underline the importance of a timely and complete response to any S.109 request. In order to minimize delay to the review timetable and the risk of sanctions, merging parties should:
- Engage with the CMA as early as possible on the parameters of any document production, flagging any concerns with scope or timing;
- Seek the CMA's sign-off on the proposed methodology (including the list of custodians, the search terms to be used, and the file types to be included);
- Prioritize, if possible, the collection and assessment of responsive materials from senior management;
- Ensure that sufficient resources, whether in-house or from external advisers, are dedicated to answering the S.109 request and the e-discovery process;
- Run comprehensive quality control checks over any document production to ensure that key documents are not omitted and that search parameters do not need to be adjusted; and
- Work closely with external counsel on multi-jurisdictional filings to ensure consistency across the different merger review processes, to align on privilege, and to avoid disclosure gaps.
An iterative dialogue with the CMA will ensure that any concerns that the parties have regarding the scope of an information request or the identification of responsive documents can be addressed, and that the CMA is comfortable that it is receiving (and subsequently able to process) information that is pertinent to its inquiry.
Deirdre Carroll and Schweta Batohi contributed to the preparation of this Wilson Sonsini Alert.
[1] Wilson Sonsini client alert, When “Voluntary” Does Not Mean Voluntary—Stricter Enforcement of Procedural Rules in UK Merger Control, available here [add hyperlink].
[2] Enterprise Act 2002, available at: https://www.legislation.gov.uk/ukpga/2002/40/contents.
[3] The criminal sanctions can be enforced against the parties, third parties, and the external advisers to the parties or third parties, as applicable.
[4] Case ME/6659/16, Anticipated acquisition by Just Eat plc of Hungryhouse Holdings Limited, Penalty Notice of Nov. 24, 2017.
[5] Case ME/6784/18, Completed acquisition by Rentokil Initial plc of MPCL Ltd (formerly Mitie Pest Control Ltd), Penalty Notice of Aug. 7, 2019. Rentokil was fined £27,000 (approx. $35,000) for failing to adequately (and timeously) respond to the CMA’s S.109 requests. Rentokil failed to produce a number of material responsive documents or handed the documents over in response to subsequent requests rather than in response to the first S.109 request.
[6] Case ME/6776/18, Anticipated acquisition by AL-KO Kober Holdings Limited of Bankside Patterson Limited, Penalty Notice of May 21, 2019. AL-KO was fined £15,000 ($19,500) on AL-KO for late provision of certain responsive documents to two CMA document requests without reasonable excuse. AL-KO produced almost 500 documents responsive to the first S.109 Notice more than four months after the (already-extended) deadline, with the response to the second request late by approximately one week.
[7] Case ME/6806/19, Anticipated acquisition by Sabre Corporation of Farelogix Incorporated, Penalty Notice of Sept. 27, 2019.
[8] Guidance on Requests for Internal Documents in Merger Investigations, CMA100, published in Jan. 2019, available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/773103/guidance_on_internal_documents_in_merger_investigations.pdf.
[9] For instance, the European Commission fined Facebook €100 million ($112 million) in May 2017 for providing misleading information during the merger review of its WhatsApp takeover and imposed a €52 million ($58 million) fine on General Electric in April 2019 for similar reasons during its acquisition of LM Wind.
