It is perhaps not surprising that the high level of merger activity in the second half of 2007 threw up some interesting developments in merger control policy in London and Brussels.

The European Commission (EC) has exclusive jurisdiction to examine very large, international mergers in the European Union (EU), under the European Merger Regulation (ECMR). Following a string of high-profile reverses in the European courts, the EC has become more reluctant in recent years to block mergers. Last year nevertheless saw only the second prohibition decision since 2002, when the EC blocked Ryanair's acrimonious attempted hostile takeover of Aer Lingus. The EC took this decision on the basis that the merger of the two companies would have harmed consumers by creating a monopoly or a dominant position on 35 routes currently operated by both airlines, principally out of Dublin airport. The EC noted that this would have reduced choice and led to higher prices for more than 14 million EU passengers using these routes each year. The EC declined to accept the remedies offered by Ryanair, on the basis that they were inadequate to remove the competition concerns.

The EC distinguished this case from previous airline mergers, arguing that this was the first time it had to assess a proposed merger of the two main airlines in a single country, with both operating from the same home airport – Dublin. The number of overlapping routes was also unprecedented, compared with previous airline cases. It is notable that the EC adopted an unusually (but welcome) hands-on approach to its assessment of this case, which apparently included sending officials to Dublin airport to survey travellers.

The case is perhaps most remarkable, however, for the unusually intemperate public exchanges between Ryanair and the EC. Even before the decision was made public, Ryanair's chief executive Michael O'Leary described the prohibition as "bizarre, illogical, manifestly inaccurate and untenable" and characterised the reasoning behind it as "bullshit". In response, the Commissioner Neelie Kroes memorably commented that "[Mr O'Leary] took the conclusion… that even if he was standing on his head in the nude I would not be impressed. I think he was right".

On 11 September, 2007, Ryanair launched an appeal of what it now described as the EC's "politically motivated" decision before the European Court of First Instance (CFI). This was followed soon afterwards by an appeal by Aer Lingus against the EC's refusal to force Ryanair to reduce its stake in the company to below its current level of 30%, on the grounds that it lacked jurisdiction to do so. Both cases now look set to trundle slowly through the CFI, although the chances of another round of colourful public insults appear to be receding.

Under the ECMR, all mergers that meet its jurisdictional thresholds must be notified to the EC and may not be implemented until approved. The EC has enforcement powers to ensure that these rules are not circumvented, which include the right to conduct 'dawn raids' – unannounced inspections on company premises, to uncover evidence of non-compliance and the ability to impose fines.

During an in-depth 'Phase II' investigation of the proposed acquisition by chemicals group INEOS of Norsk Hydro's worldwide polymer business (Kerling), the EC announced on 13 December, 2007, that it had used its powers to raid the UK offices of INEOS and Kerling, supported by officials from the UK's Office of Fair Trading (OFT). The EC had apparently acted as it was concerned that the companies may have exchanged commercially-sensitive information to such an extent that they could be viewed as already implementing the merger, before clearance by the EC, and/or that they were infringing the article 81 prohibition of anti-competitive agreements. Nevertheless, the EC ultimately approved the merger without conditions on 30 January, 2008, simultaneously confirming that it had also closed its inquiry into the alleged information exchange, after apparently concluding that its concerns were unjustified.

While enforcement action for pre-clearance implementation (or 'gun-jumping') through information exchange is a well-established feature of US merger control, this issue had until now received relatively little attention in the EU. INEO/Kerling is the first example of the EC using raids to search for evidence of gun-jumping and only the second time raids have been used at all in the context of an EC merger investigation. This interesting development serves as a timely reminder of the EC's powers and the need for merging parties to take great care to restrict the exchange of commercially-sensitive information to a very limited group of people, or even to external advisers only. Taking such steps should help to avoid the risk of financial penalties, delay and disruption to the review process that such lapses can cause.

Turning to UK merger control, on 15 November, 2007, the OFT issued new guidance regarding situations in which it will view the markets affected by a merger as not of sufficient importance to justify a reference to the Competition Commission (CC) under the Enterprise Act 2002. The OFT's previous guidance, dating from 2003, had explained that the purpose of this (potentially very useful) exception to its statutory duty to refer problematic mergers for an in-depth investigation was to avoid references being made where the costs involved would be disproportionate to the size of the markets concerned. The OFT estimated that the cost of a CC inquiry was around £400,000, suggesting that the exception would be available only where annual sales on the affected market were below this figure. The OFT took the view that the exception to its duty to refer was likely to apply only very rarely in practice and, perhaps not surprisingly, it was never in fact used.

The OFT's new guidance on what it has renamed the de minimis exception states that it will now take the view that the benefits of a CC reference will generally outweigh the costs only where a merger concerns a UK market with sales of more than £10m per year. The OFT has, however, introduced a number of 'claw backs', under which it would still refer a merger where:

- There is a very high level of market concentration and low entry prospects (in particular in 'two to one' or 'three to two' horizontal mergers);

- There is evidence of co-ordination (such as hardcore breaches of the Chapter I prohibition on anti-competitive agreements) in one or more markets in question;

- A reference would have important precedent value and will provide guidance for the industry involved; or

- A substantial proportion of the likely detriment is suffered by vulnerable customers.

The OFT's rapid adoption of the new guidance was confirmed by its announcement on 20 December, 2007, that it had cleared the completed acquisitions by Arriva of the cross-country passenger rail franchise and by National Express Group of the Inter City East Coast rail franchise, despite its identification of a possible SLC in each case. This was promptly followed by a decision on 4 February, 2008, not to refer a third rail franchise award, this time that of the East Midlands Rail Franchise to Stagecoach, on the same grounds.

The limits of the exception were highlighted on the same day, however, by the OFT's announcement that it was not making use of the exception to clear the completed acquisition of eight newspapers by Dunfermline Press, even though the annual revenues generated by the titles were less than £10m. Interestingly, rather than relying on one of the exceptions in the revised guidance, the OFT decided to introduce a new qualification, namely that it would not apply the de minimis exception where the competition problem identified can be readily addressed through undertakings (i.e. commitments by merging parties to change the structure of a deal, for example by divesting a business, or to alter their behaviour). While this position is understandable, it is puzzling that this potentially significant qualification was not flagged during consultation on the new guidance and the reason for its emergence now can only be guessed at. Provided that it is not confined to rail franchise cases, the new de minimis policy marks a welcome injection of realism to the UK merger control process, which can be triggered by very small transactions (e.g. the acquisition of a single grocery store). The fact that the OFT has so rapidly demonstrated its willingness to apply its guidance in practice, even in potentially sensitive areas, is particularly good news for merging parties and their lawyers.

Finally, the long-running saga of the regulatory review of BSkyB's acquisition of a 17.9% stake in ITV has been fascinating to watch. As well as being a politically-charged example of the use of minority shareholdings to block acquisitions in a high-stakes game of poker, the acquisition was also significant as the first transaction reviewed under the media merger provisions of the Enterprise Act. The case also showed the authorities applying merger control rules to find an acquisition of control at an unusually low level of equity participation.

It remains to be seen, however, whether this will serve as a precedent for future cases or whether it is an outlier, perhaps reflecting the particular industry and personalities involved.

Becket McGrath is a partner and Simon Albert an associate at Berwin Leighton Paisner.