The Implementation of Merger Policy in the U.K. 1984-1990

• Author: Charlie Weir
• Published date: 01 December 1993
• Date: 01 December 1993
• DOI: 10.1177/0003603X9303800406
• Subject Matter: Article

The Antitrust Bulletin/Winter 1993

The implementation

of

merger

policy in the U.K. 1984-1990

BY CHARLIE WEIR*

Introduction

943

Until 1965 there were no direct controls over merger activity in

the U.K. Indirect regulation occurred via the existing monopoly

legislation that permitted the investigation of firms with monop-

oly market shares (at the time a market share in excess

of

33%).

Although there have been a number of changes relating to the

implementation of merger policy, two are particularly important:

first, the 1973Fair Trading Act and second, the 1984 Tebbit state-

ment. The former provided for the setting up

of

the Office

of

Fair

Trading (OFT). This is a nonministerial government department

under the control of the Director General

of

Fair Trading who is

responsible to the Secretary

of

State for Trade and Industry. The

Act also altered the criteria by which merger proposals (or merger

situations) could be referred to the Monopolies and Mergers Com-

mission (MMC) as well as providing an outline framework

of

the

public interest, the concept that was to be used when deciding

*The Robert Gordon University, Aberdeen, Scotland.

e1994 by Federal Legal Publieations. Inc.

944 : The antitrust bulletin

whether or not a merger should be permitted. The latter, the Tebbit

statement (named after the then Secretary of State for Trade and

Industry, Norman Tebbit) made it clear that merger references

would be made primarily on competition grounds. Only in excep-

tional circumstances were other factors to be used in the reference

process, for example, foreign ownership as in the case of Kemira's

shareholding in ICI.

Although the 1973 Fair Trading Act does not defme the public

interest, section 84(i) of the Act states that the MMC "shall take

account

of

all matters which appear to them in the particular cir-

cumstances to be relevant." Issues that are identified within the

Act as being relevant to the public interest include maintaining

and promoting effective competition; promoting the interests

of

consumers and producers in terms of prices, quality and variety;

using competition to promote cost reductions, new entry and the

development of new production techniques; maintaining and pro-

moting a balanced distribution of industry and employment; and

maintaining and promoting competitive activity in foreign mar-

kets. These diverse elements however are not necessarily compati-

ble. For example, cost reductions may be desirable but if they are

achieved at the expense of increased regional unemployment, this

will conflict with the objective of maintaining a balanced distribu-

tion

of

employment.

In addition to the provisions of the Act, the OFT has issued

guidelines, first published in 1978, which were designed to give

clarification of section 84(i). The guidelines dealt with six areas.

First, competition; it was stated that different types

of

merger

raised different issues and therefore different treatments would be

necessary. Thus, for example, horizontal mergers tend to have a

direct effect on competition regardless of the size of the firm or

market.

If

market dominance was a feature

of

a bid the MMC

should then consider, for example, the extent of potential compe-

tition, the availability of substitutes, the importance of imports,

the existence of buyer power or the ease

of

entry in an attempt to

ascertain the degree of competitiveness within the.market. Verti-

cal mergers create the possibility of discrimination against com-

petitors who required access to, for example, raw materials or