- A number of London-listed companies are still awaiting decisions from the CMA with bated breath
- These include Pets at Home, Vodafone and the housebuilders
The Competition and Markets Authority (CMA) shoved itself into the spotlight this year after it blocked, and then waved through, Microsoft’s (US:MSFT) $75bn acquisition of Activision Blizzard. The consultation sparked a backlash against the watchdog and claims from Microsoft that the UK was “closed for business”. The government subsequently published what is officially termed a strategic steer to the CMA, saying it must create a “pro-investment environment” as well as protect consumers.
The jury is out on whether this will result in a change of direction. Chief executive Sarah Cardell has staunchly defended the regulator’s approach, saying that merger control is crucial to a “vibrant innovative economy”. She added that just 16 out of the 7,000 mergers considered since 2013 have been prohibited.
However, data suggests that a growing number of deals are withering on the vine once they attract the attention of the CMA. According to law firm Linklaters, between January 2019 and November 2023, 59 per cent of mergers in the ‘phase two’ investigation stage did not proceed because they were blocked, abandoned or unwound. This compares with 30 per cent between 2013 and 2017.
The situation is muddied by the fact that – post-Brexit – the regulator is investigating bigger and more complex deals, often involving tech companies, which would have previously fallen within the exclusive remit of the European Commission.
A genuine shift does seem to have taken place, however, and in contrast to many other jurisdictions, the sight of a court overruling the competition regulator's decision is rare in the UK. “The CMA has definitely become tougher over the years,” says Alan Davis, head of competition, EU and trade at multinational law firm Pinsent Masons. “There is a general perception that the UK regime is tougher than other regimes. The process is very expensive, very laborious and very long.”
International transactions are attracting particular scrutiny – even when they are “insignificant looking”, according to Andrew Morrison, a senior associate at law firm Macfarlanes.
“Since mid-2019 there has been much more awareness of the CMA's jurisdiction, and the fact that they will get involved in things which, from the outside, don’t immediately look like a UK problem.”
Closer to home, a number of London-listed companies are still awaiting decisions from the CMA with bated breath.
The veterinary market
First up, pet care. In September, the regulator announced a review of how veterinary services are bought and sold, on the grounds that vet bills seemed to have risen faster than the rate of inflation and that pet owners may be struggling to access information about prices and treatment options. This caused shares in Pets at Home (PETS) and, in particular, CVS Group (CVSG) to tumble, and neither company has recovered yet.
Pets at Home expects the review to have “no impact on [its] growth strategy or ambitions”. Given that all of the group’s 450 practices carry the Vets for Pets brand, there is little doubt that individual surgeries are part of a larger chain – a key point for the regulator. The group’s big retail division also provides a useful cushion if things do take an unexpected turn.
Aim-traded CVS is more exposed on both counts, but the CMA seems to be in a fairly benign mood. After all, it pre-briefed journalists ahead of the review announcement on the basis that the information was not expected to be material. The market clearly didn’t agree – but that suggests shares could be poised for a rebound.
Vodafone: incoming call
Further up the scale on the London Stock Exchange, Vodafone (VOD) is anxiously awaiting news on whether its merger with Three UK can go ahead. While the listed veterinary sector was thriving before the CMA intervened, Vodafone’s operations have been stagnant for some time. Its biggest market is Germany, where modest revenue growth is being sustained, as in other regions, by price hikes rather than volume gains. Meanwhile, underlying profits have been on a downward trajectory, and plans to slim down the company have proved gradual rather than radical.
The deal with Three UK could be key to kick-starting growth in its domestic market. For now, however, there is a big question mark over whether plans to create the UK’s biggest mobile operator in what some already see as an overconcentrated market will be allowed to go ahead.
Home truths
The UK’s housebuilders are feeling altogether more sanguine about the regulatory backdrop. In February, the CMA announced a market study into housebuilding, and has since homed in on land banks and estate management fees. The former relates to the land that companies buy up for future development, while the latter refers to the charges homeowners must pay for the upkeep of amenities.
For the builders, the study has been dwarfed by other worries – namely the impact interest rates are having on demand for homes – and it is unlikely the CMA’s final report will massively spook the market when it is published in February. Estate management fees are not a big money-spinner for the sector, and the watchdog has yet to suggest any specific actions on land banks.
Things could get more interesting if the regulator decides to launch a full-blown investigation into the market, as this would give it greater powers to scrutinise individual companies. For now, though, don’t expect anything too dramatic.
Digital transformation
Technology is the next frontier for the CMA, and its biggest preoccupation. One commentator suggested that the watchdog still regretted its decision to approve the Facebook/Instagram merger in 2012, and felt better placed than investors to predict which tech companies will be successful and hence benefit from economies of scale. Legislative proposals currently before parliament will give it new powers to regulate digital markets, and the change is due to take effect from 2024.
It is still uncertain, though, how the CMA will approach Big Tech deals in the wake of the Activision Blizzard saga, when it publicly diverged from the EU regulator, or whether the episode has caused it to rethink its approach not just to technology but takeovers in general. Last week’s news that the CMA is looking into Microsoft’s ties with OpenAI suggests it still has tech in its sights. The FT’s suggestion that the CMA’s US counterpart is also examining the OpenAI relationship may point to a more collaborative approach in the future.
“The CMA is very proud of its independence post-Brexit,” says Richard Pepper, antitrust partner at Macfarlanes. "But the European Commission has learnt, over several decades, that there is a benefit to cooperating internationally on these [Big Tech] cases. It will be interesting to see whether the CMA learns a similar lesson following the intense scrutiny they have received on the Microsoft/Activision deal.”
