Reference no: EM131234341

OFT loses power in merger decisions Mergers stand to cost more and take longer after a ground-breaking decision in December 2003 by the Competition Appeals Tribunal, which urged the Office of Fair Trading to refer more takeovers to the Competition Commission. In comments about the first merger decision to be challenged before the three-person tribunal, Sir Christopher Bellamy, its president, said that ‘only exceptionally' should the OFT try to resolve mergers where there was a ‘real question as to whether there is a substantial lessening of competition'. Competition lawyers said the decision was likely to encourage competitors to take more merger challenges to the tribunal and would probably lead to more references to the Competition Commission. ‘We're going to see a much higher level of contention,' predicted Chris Bright, lawyer at Shearman & Sterling. The decision came after the OFT cleared a planned £800m merger in November 2003 between Tore and soft, which supply software to hospitals and healthcare companies. Under rules brought in by the Enterprise Act of 2003 ministers have been taken out of the merger decision process and a new appeals procedure against OFT decisions has been introduced. Both Terex and soft are bidding to participate in the modernization of the National Health Service's computer system, the world's biggest IT project. The OFT itself decided, without reference to a more thorough investigation by the Competition Commissions, that the merger was not likely substantially to reduce competition. That view was challenged by IBA Health, an Australian-listed healthcare software provider. It claimed the OFT's decision was unlawful because of the anti-competitive implications. It pointed out that, for example, the combined group would have a market share of 46% in the electronic patient record sector and 100% of the installed base in Scotland. The Competition Appeals Tribunal also took issue with the OFT's approach. ‘We are not satisfied the OFT applied the right test or ... reached a conclusion that was reasonably open to them,' it said. ‘In a merger case where it is clear that there are material and complex issues relating to what is potentially a substantial lessening of competition between horizontal competitors in a sector (of) national importance, we do not think it likely that parliament intended that those issues were to be resolved at the stage of the OFT,' Sir Christopher added in his remarks. The tribunal quashed the OFT's decision and referred the matter back. This could either involve a fresh decision from the OFT or see it handed to the Competition Commission.

Question

1 Why did the Competition Appeal Tribunal overrule the OFT in this particular case?

2 What implications does this have for merger policy in the UK?