The importance of competition policy
An Office of Fair Trading case study

Below is a list of Business Case Studies case studies organised alphabetically by company. To view more companies, please choose a letter from the list below.

Page 4: Mergers

Under the Fair Trading Act, a merger is said to take place when two or more enterprises cease to be distinct. Once they come under common control, for example, in a situation where a minority stake allows one party to have a material influence over the policy of the other party, the Act sets out two tests to determine whether a particular merger can be investigated.

  • The assets tests: that the total gross assets of the company to be taken over exceed £70 million in value.
  • The share of supply test(sometimes called the market share test): that, as a result of the merger, 25or more of the supply or purchase of goods or services of a particular description in the UK, or a substantial part of it, comes under common control. An increase in an existing 25share also meets the test.

Companies are not required to notify the Director General of a merger but generally do so. He conducts a preliminary investigation into qualifying mergers and then advises the Secretary of State on whether to refer them to the MMC for further investigation and a report. Only a small minority of mergers examined is referred. If the Director General advises reference to the MMC, the Secretary of State may invite him to seek undertakings from the merging companies as an alternative.

Undertakings commit the companies to take action to correct the adverse effects which have been identified. Such undertakings would generally be the divestment of part of the merging business. Undertakings on the conduct to be followed by the merged business may accompany divestment, or be adopted as an alternative to it.

After the MMC carries out an investigation, it reports to the Secretary of State on whether the merger is against the public interest and recommending what action, if any, should be taken.

If the MMC finds against the merger the Secretary of State, in consultation with the Director General, makes the final decision about what should happen - allow the merger to stand, prohibit it or seek other undertakings from the business.

Office of Fair Trading | The importance of competition policy