1. Scenario 1:  the parallel transaction has received all regulatory approvals >> the CMA considers the merged entity as a single player, regardless of whether closing has taken place. In Sika/MBCC, for its Phase 2 assessment, the CMA took into account a parallel transaction (Saint-Gobain/GCP) that received CMA clearance during the course of the CMA’s Phase 2 review.
2. Scenario 2: the parallel transaction is subject to ongoing merger control review (in the UK or elsewhere) : ie, the Hydra starts to grow multiple heads and there are limited precedents that consider this scenario in detail. In 2006 in NYSE/Euronext, for example, the OFT in its phase 1 decision concluded that the parallel transaction (between Nasdaq and LSE) did not qualify as “sufficiently likely and imminent”. The OFT noted that there had been speculation as to many possible merger permutations among the major European and US exchanges but that no major transaction between key players had actually completed. That the parallel transaction would have required a substantive competition assessment appears to have influenced this decision – the OFT noted in particular that “to assume that Nasdaq would acquire full control of the LSE … would, among other things, prejudge competition clearance” and concluded that the appropriate counterfactual was the status quo ante. Conversely, for the assessment of NASDAQ/LSE, the OFT did take into account the parallel transaction. It noted that, irrespective of the likelihood of clearance and completion, it would consider the relevant counterfactual in this case on the basis of a completed merger between NYSE and Euronext.

In the more recent BT/EE, the CMA dismissed arguments from the parties that the parallel transaction (H3G/O2) was subject to merger control clearance in another jurisdiction (the EU), the outcome of which was “highly speculative”. The merger parties submitted that to predict such a counterfactual would require the CMA to prejudge the outcome of the European Commission’s review. They argued that taking a counterfactual with H3G/O2 merged was not realistic, and that the correct counterfactual should be the continuation of the prevailing conditions of competition absent the parallel transaction.   The CMA dismissed these arguments, noting that since the transaction had “been signed and announced … [i]t is not therefore too speculative”. The CMA did recognise that taking into account the H3G/O2 merger posed some challenges, as the Commission’s assessment of the H3G/O2 merger could lead to a range of possible outcomes (including an outright prohibition, an unconditional clearance, or a conditional clearance). However, the CMA concluded that the unconditional clearance of the H3G/O2 merger is the most appropriate counterfactual at Phase 1 as it is “the most cautious counterfactual for the purposes of the CMA’s competitive assessment … recognising that the CMA is not in a position to conduct a competitive assessment of the H3G/O2 merger”.    The CMA was not persuaded by submissions that it was possible to predict the likely outcome of the parallel transaction by reference to previous commitments accepted. The CMA instead countered that recent EC decisions in this sector had uncertain precedent value since these related to competition in different Member States with different competitive environments.

The stage of the parallel review is also relevant. The Saint Gobain/GCP  : there was a parallel transaction involving the anticipated acquisition by Sika of MBCC. At that time, the parties in Sika/MBCC had fast-tracked the Phase 2 review to remedies (see our previous Platypus post on this). Unsurprisingly, the CMA concluded that there was no longer a realistic prospect that Sika’s and MBCC’s chemical admixtures businesses in the UK could operate under combined ownership in the counterfactual. The logic here is clear: the parties had waived their procedural rights and the only possible outcomes were an outright prohibition or a conditional Phase 2 clearance that, in turn, would be expected to restore the competitive situation existing before the merger (as noted in the BT/EE Phase 2 decision).