European merger reviews will be one of the many areas dramatically affected by Brexit, which British Prime Minister Theresa May began Wednesday, March 29, by signing documents that formally initiate the U.K.'s exit from the European Union.
One of the most likely victims will be the "one-stop-shop" for merger notifications that has streamlined merging parties' paperwork submissions to the EU's 28 member states. The EU merger framework has also simplified the merger review process, allowing many deals to be subject to review by the regulators at the European Commission as their primary merger enforcer. Now deals affecting Europe are likely to be subject to simultaneous, full-blown reviews by both the U.K.'s Competition and Markets Authority (CMA) as well as the EC.
Formal submission of the U.K. intent to leave the EU, filed nine months after British voters chose to leave the union, triggers a two-year negotiation over terms of the separation, including how merger reviews and other competition issues will be dealt with when the exit becomes effective in April 2019.
A group of experts in EU and U.K. competition practice laid out the merger review issues that will have to be resolved and made a few predictions about what will ultimately be decided during a panel discussion Wednesday as part of the American Bar Association's spring antitrust conference in Washington.
"It's a big day for Brexit and it's also a sad day," said Matthew Hall of McGuireWoods LLP's Brussels office. "The process is running. Nobody knows where we're going to end up."
A big concern for merging parties will be the obvious change to the referral system for merger reviews. The current system spells out what issues will be the responsibility of the European Commission and what will be up to a member nation's competition authority, noted Sheldon Mills, CMA senior director, mergers. The referral mechanism now parses out the duties of the EC and the U.K. officials and there are safeguards to make sure that the two enforcers are not looking at the same issues. "Brexit means that will change," Mills said.
There is hope, at least when it comes to mergers, that negotiators will preserve much of the current EC framework.
The U.K. may keep current rules on the books until there's a need to change them, said Philip Lowe of FIT Consulting's Brussels office.
The "one-stop-shop" for merger reviews, much appreciated among businesses doing deals, is likely to be a casualty, however, said James Modrall of Norton Rose Fulbright LLP's Brussels office.
Even if the review process otherwise stays the same, merging companies will likely need to file merger notifications in both London and Brussels, Modrall said, noting that the CMA is expecting a 50% increase in notifications due to Brexit. "That's a burden on the CMA and a burden on business, although it will be good for competition lawyers," he said.
The added workload may force the U.K. to alter the multiple thresholds it has for requiring a merger review, including deal size and market share. "Something has to give," CMA's Mills said. Perhaps the U.K. will implement a hybrid system that gives it more discretion on when to launch an investigation, he suggested.
Mills said he is skeptical that the U.K. and the EC will have crafted the formal agreement on merger control in time for the 2019 separation. Instead, the jurisdictions will likely rely on informal memoranda of understanding when separation first occurs.