Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss the following:

Clauses 56 to 59 stand part.

That schedule 2 be the Second schedule to the Bill.

Clauses 60 to 66 stand part.

These clauses comprise chapter 5, “Mergers”, and schedule 2 provides further detail needed for chapter 5 to function smoothly.

Clause 55 establishes a requirement for SMS firms to report possible mergers involving them that have the potential to harm competition in the UK to the CMA before they can be completed. Unlike most merger regimes, at the moment there is no obligation in the UK to notify mergers to the CMA, but firms may choose to voluntarily notify the CMA of a merger in order to receive a binding decision from the CMA on it. In digital markets, this is a very different thing, because of the speed with which it can happen and the entrenchment of power, which we have discussed at length. That is why it is important that the CMA has the opportunity to review potentially harmful mergers involving SMS firms before it is too late. This light-touch reporting requirement is designed to focus on only those possible SMS firm mergers with the potential to give rise to competition concerns.

The mergers will need to be reported only if three conditions are met, these are when the SMS firms will obtain qualifying status through holding shares or voting rights in a target firm that is a UK-connected body corporate. I will set out further detail on the former when I explain clause 56. The latter means any body corporate that carries on activities in the UK or supplies goods or services to the UK, or which has a subsidiary that does so. The consideration provided by the SMS firm for the holding of shares or voting rights must also be at least £25 million. Similar conditions will also apply for the reporting of possible mergers involving an SMS firm participating in a joint venture. When an SMS firm is part of a larger corporate group, the requirement to report will instead apply to all the bodies corporate that make up the group. In those situations, the question will generally be whether the group as a whole will meet the conditions I have set out. When I say “an SMS firm” in debates on this chapter in part 1 of the Bill, it means an SMS firm or any larger corporate group it is part of.

The reporting process should take a maximum of 10 working days. Once a report has been submitted, the CMA will have up to five working days to determine whether the report is sufficient and must therefore be accepted. Following acceptance, the CMA will have a further five working days to review the information in the report before the possible merger can be completed. If the CMA identifies a reported merger as potentially problematic, it can use its powers under the general merger regime to investigate the merger as it would any other type of merger.

Clause 56 defines qualifying status. Under the merger regime, control over a target firm or joint venture vehicle must be acquired or increased for a merger to take place. That is for the CMA to determine on a case-by-case basis. One of the ways control can be exercised is through a shareholding or through voting rights. In order to capture acquisitions of control over target firms based on shares or voting rights, clause 56 provides that SMS firms will acquire qualifying status in a target firm when the percentage of the shares or voting rights they hold in the firm crosses any of the thresholds in subsection (1)—that is, when the percentage moves from less than 15% to 15% or more; from 25% or less to more than 25%; or from 50% or less to more than 50%. These thresholds have been chosen specifically to capture circumstances in which different levels of control recognised under the merger regime are likely to be acquired by an SMS firm.

Clause 57 sets out what is meant by the “value of consideration”, which is necessary to determine whether a possible merger meets the £25 million threshold for reporting set out in clause 55. Clause 58 places several requirements on the CMA with regard to the notice it is required to make, setting out the parameters of the report that SMS firms will be required to provide to the CMA about a possible merger. The clause requires the CMA—to pre-empt a possible question—to publish online a notice setting out what information must be included in a report and what form a report must take. We decided, in subsection (2), to limit what the CMA may require in the report to only that information considered necessary to decide whether to initiate a merger investigation or make a hold separate order under the general merger regime while an investigation is ongoing.

Clause 59 sets out further detail of when and how reporting requirements will apply. Schedule 2 provides further detail as to when interests like shareholdings and rights, such as voting rights, are treated as held in a target firm or joint venture vehicle for the purposes of the duty to report a possible merger in clause 55. Clause 60 places time limits and procedural requirements on the CMA once it has received a report. Clause 61 makes it clear that a reportable event must not take place until the reporting requirements set out in the chapter are met. Clause 62 clarifies when a possible merger is considered as taking place for the purposes of the reporting requirements. Clause 63 permits SMS firms to authorise third parties to act on their behalf—specifically, to give a report to the CMA about a possible merger and to receive the notice of acceptance or rejection from the CMA. In general, those third parties are likely to be legal representatives.

Clause 64 sets out the review process for non-penalty decisions made by the CMA in connection with the chapter. We will talk about appeals and the wider area later on, but if a person is aggrieved by the decision made by the CMA in connection with a reporting requirement that is not a penalty decision, they can apply to the Competition Appeal Tribunal for a review of that decision. The Competition Appeal Tribunal will apply the same principles as would be applied by a court on an application for judicial review. A full merits appeal process will apply to penalty decisions made by the CMA in connection with this chapter, as it does to penalty decisions under the wider merger regime.

Clause 65 provides the Secretary of State with powers to make regulations in relation to the duty to report. It also sets out which procedure-specific regulations are subject to that. It is appropriate that the Secretary of State has the power to make regulations on the duty to report. Operational experience may reveal that the criteria needs to be changed for the reporting process to continue to function effectively. Clause 66 places a duty on the CMA to monitor and enforce the merger reporting requirements. It goes no further than requiring the CMA to consider exercising its investigative and enforcement powers where it is aware of a basis for doing so.

I am grateful to the Minister for outlining chapter 5 and we welcome the provisions. None of us want to see potential loopholes or designated undertakings being able to avoid their responsibilities thanks to a merger, so we see clause 55 and many of the clauses that follow in this chapter as being eminently important. More specifically, the clause sets out the circumstances in which designated undertakings or, where designated undertakings are part of a group, group members—see clause 114—will have a duty to report a possible merger involving a reportable event to the CMA before it takes place.

We welcome the clarification that there will be two categories. The first is concerned with designated undertakings or groups reaching certain percentage thresholds of the shares or voting rights held in certain bodies corporate with links to the United Kingdom. The second is concerned with designated undertakings or group members forming certain joint venture vehicles that are intended or expected to have links to the United Kingdom. We recognise the role of a minimum value requirement, which will also apply in relation to the consideration provided for the relevant shares or voting rights, or in relation to the formation of the joint venture vehicle.

We see the clause as important in clarifying where the line will be drawn for possible mergers in relation to this regime, and agree with the drafting, which sets the value of the merger as being at least £25 million. We feel that is a fair value, so we support the clause and have not sought to amend it at this stage. The same can be said for clauses 56 to 59. As we know, one of the strategic recommendations of the Digital Competition Expert Panel’s Furman report suggested that legislation adapting the merger control rules—so that the CMA could more effectively challenge mergers that could be detrimental to consumer welfare—was required. So we see clause 56, which sets out the circumstances in which a designated undertaking or group will have qualifying status in relation to a UK-connected body corporate or joint venture vehicle, as being vital to ensuring that mergers are covered by this legislation more widely.

Turning to clause 57, I note that subsection (3) creates a delegated power for the Secretary of State to make regulations setting out

“further provision about how the value of—

(a) consideration,

(b) capital, or

(c) assets, is to be calculated for the purposes of” the duty to report.

Although I welcome the clarification that this power is subject to the negative procedure, as per subsection (5), I wonder whether the Minister could elaborate on exactly how it will work in practice. Could he give us an example whereby he deems that the Secretary of State of the day would want to draw on this delegated power, and what the ensuing regulations may or may not look like?

Clause 58 concerns the “Content of report”, which is important, and we welcome its inclusion in the Bill. As the Minister confirmed, it means that the CMA will have to set out a notice, which will be published online, as well as setting out the required form and content of a report. That is a sensible approach and we welcome the transparency of the clause.

However, I draw the Minister’s attention to subsections (3) and (5). Subsection (3) reads:

“The CMA may from time to time replace the notice.”

Can he say in what circumstances that may occur and whether there will be a limit on how many notices may be replaced?

Subsection (5) reads:

“The CMA must consult—

(a) the Secretary of State, and

(b) such other persons as it considers appropriate, before making or replacing a notice under this section.”

We welcome consultation—that has been a regular theme of our debates in this Committee so far—but we find it curious why no other individuals or bodies have been named at this point. It is of course important that the Secretary of State plays a role here, but can the Minister elaborate on which other individuals he envisages will also fall under this subsection and that therefore will also have a role in the consultation?

Turning to clause 59 and schedule 2, we see these as reasonable and sensible, so we have not sought to amend them. Similarly, we support clauses 60 to 66, which broadly relate to the duties around report timings. We have not sought to amend them at this stage and they should stand part of the Bill.

Regarding the hon. Member’s questions about the Secretary of State having the powers to amend things, I cannot give her an example but it very much goes back to what I was saying in a previous debate, namely that digital markets change really quickly and it is just so that the Secretary of State has the power to amend things quickly and so that the reporting criteria may develop and evolve over a period of time, so that they can remain relevant in the long term.

Clearly, we have safeguards in the process there, so the Secretary of State will need to consult the CMA. This is not just an isolated decision-making process; the CMA has expertise in this area, but it will be for the Secretary of State to focus on the decision. The CMA will be able to provide the expert advice, ensuring that amendments can correctly reflect the changing landscape, and Parliament will clearly need to approve any amendment.[Official Report, 10 July 2023, Vol. 736, c. 3MC.]

Regarding the notice that the hon. Member was talking about, again it is appropriate for the CMA to set out by notice what a report must contain. The CMA has considerable expertise in the assessment of mergers, so it is well-placed to decide what information it needs to make an assessment. So, the approach that we are suggesting here is consistent with the wider merger regime, whereby the CMA sets out what information should be included in a voluntary merger notification.

Question put and agreed to.

Clause 55 accordingly ordered to stand part of the Bill.

Clauses 56 to 59 ordered to stand part of the Bill.

Schedule 2 agreed to.

Clauses 60 to 66 ordered to stand part of the Bill.