Merger Control: CMA's Ability To Reject Remedy Proposals

• Published date: 08 December 2020
• Subject Matter: orporate/Commercial Law, Anti-trust/Competition Law, M&A/Private Equity, Antitrust, EU Competition
• Law Firm: Gowling WLG
• Author: Mr Samuel Beighton

On 21 April 2020 the Competition Appeal Tribunal (CAT) dismissed a challenge by Ecolab, Inc of the Competition and Markets Authority's (CMA's) decision in its final report on Ecolab's completed acquisition of The Holchem Group Limited (Holchem),¹ including in relation to the CMA's required divestiture remedy.²

The CAT's judgment confirms the CMA's ability to reject proposed remedies where it does not have a high degree of confidence that they will effectively address identified competitive concerns.

In addition, the required divestiture remedy highlights the potential risks that purchasers face if they complete transactions without obtaining UK merger clearance and these transactions are subsequently investigated by the CMA.

Ecolab's completed acquisition of Holchem

On 30 November 2018 Ecolab completed its acquisition of Holchem, with Ecolab informing the CMA of the acquisition on 18 December 2018.

The CMA subsequently commenced a Phase 1 investigation into the acquisition on 14 February 2019 and referred the acquisition for a Phase 2 investigation on 10 April 2019.

In its Phase 1 investigation, the CMA found that Ecolab and Holchem were close competitors in relation to the supply of cleaning chemicals for food and beverage customers in the United Kingdom (F&B customers), and the acquisition gave rise to competitive concerns due to the loss of competition between Ecolab and Holchem.

Following its Phase 2 investigation, the CMA found that the acquisition had resulted in, or may be expected to result in, a substantial lessening of competition (SLC) in the supply of formulated cleaning chemicals (and ancillary services) to F&B customers. The CMA concluded that a partial divestiture (in the form of the divestiture of Holchem Laboratories, a subsidiary of Holchem) was required to remedy the identified competitive concerns.

Rejection of Ecolab's alterative divestiture proposal

In reaching this conclusion, the CMA rejected an alternative divestiture proposal (ADP) put forward by Ecolab, concluding that this would not provide an effective remedy.

The ADP comprised the transfer of a portfolio of customers to an existing competitor (the purchaser), so that the purchaser could then convert these transferring customers (the divestment customers) to the purchaser's own cleaning products during the course of a transitional period.

The ADP envisaged the transfer to the purchaser of:

• customer contracts for the divestment customers (where such contracts existed);
• ...