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The Increasing Cost of Anti-Trust Rules

Merger control rules are now a routine concern for many European buy-out houses. National and pan-European rules can delay or frustrate deals, and the importance of effective due diligence and sound strategic advice is clear to most, says SJ Berwin. But, until now, fees charged by the competition authorities themselves have not been a major issue.

Most European countries do not charge fees at all, and neither does the European Commission itself. In the UK – where fees have been levied (but not increased) since 1990 – the amount has usually been negligible in the context of the overall deal: ranging from £5,000 to £15,000.

That contrasts with the position in some other parts of the world, including the United States – where fees can be more than £150,000 for very large deals. And the British Government, which reckons that it spends around £2 million a year on administering the UK rules, looks set to follow suit. In a consultation that closes next month, proposals are laid out for partial or full cost recovery through significant increases to the levels of fees charged.

The figures suggested go up to around £50,000 for simple notifications, and – under one option being considered – up to £300,000 for very big cases that are referred to the UK’s Competition Commission.

There is a question of principle here: should the cost of merger control rules be borne by the taxpayer, or by merging companies? There are strong arguments in support of the view that, if the purpose of anti-trust rules is to preserve effective competition – for the benefit of the wider economy and the general public – then the cost of that system should not fall solely on those doing deals.

That argument might particularly apply to those whose deals raise no competition issues and are ultimately cleared: most buyouts and M&A deals benefit the economy and often enhance competition. Levying significant merger control fees on those companies seems unfair and counter-productive.

Still, the UK system does offer a reasonably compelling counter-argument. Unlike most systems – and certainly unlike most in Europe – the British rules make merger notifications voluntary. There are clearly very significant costs to closing a deal that is later referred by the OFT, which is always free to investigate deals, to the Competition Commission which can ultimately block them.

But those who believe – after taking proper advice – that their deal does not raise any issues can usually avoid the system, and the fees, altogether. In many other countries, and under pan-European rules, that is not possible: deals that meet certain size criteria must be referred and cleared before the deal is closed.

The British Government argues that, in general, fee levels should be set to recover the full cost of a "service", and that would mean pretty significant fee increases for those notifying deals or getting referred to the UK’s Competition Commission. However, policy-makers do recognise that sometimes this may not be appropriate, and that there is a need to balance the interests of taxpayers with the competitiveness of business and the need to promote efficiency and innovation. With these competing tensions in mind, the consultation seeks views on a range of options, including expanding the types of mergers subject to fees, moving to full cost recovery (and if so how), exploring a range of possible fee structures.

Some increase in costs does seem inevitable. But it is imperative that any merger control system remains transparent, business-friendly, easy to administer and does not disproportionately impact upon smaller transactions or companies, thereby stifling growth and innovation. On that basis, a flat fee system, although easier to administer, would not be a suitable model. Similarly a model based on the possibility of incurring significant additional costs in the event of a referral to the Competition Commission would jeopardise the economic rationale of some transactions and could make the UK less competitive.

Perhaps a turnover based banded fee system, which is based on new turnover bands with greater differentiation between larger acquisitions, is the most attractive option. In any event, it is to be hoped that the Government will resist the temptation to move to full recovery, which seems flawed in principle and could have unhelpful (and unintended) effects for the British economy.

For more information on the impact of competition law on European private equity please email the author, Elaine Gibson-Bolton (elaine.gibson-bolton@sjberwin.com).

SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on its services to the private equity industry please contact Jonathan Blake or Simon Witney in its London office +44 (0)20 7533 2222 or visit our website at www.sjberwin.com