BREAKINGVIEWS-UK antitrust U-turn will awaken no-go megadeals

By Aimee Donnellan

LONDON, March 21 (Reuters Breakingviews) - M&A bankers’ big dreams are often dashed by zealous competition regulators. Merging two banks or supermarket chains may be great for shareholders and fee-hungry advisors, but antitrust watchdogs are likely to oppose such moves if they mean higher mortgage rates or grocery prices. In Britain, which has until recently been at the vanguard of competition enforcement, a sharp U-turn is underway, potentially opening the door to mega-dealmaking ideas old and new.

The UK’s Competition and Markets Authority has, deservedly, gained a global reputation for being tough on tie-ups. Back in 2019, it blocked a merger between UK grocers Asda and Sainsbury’s SBRY.L. The same year, it expressed concerns about e-commerce behemoth Amazon.com AMZN.O investing in takeout app Deliveroo ROO.L. Then in 2023, it found problems with Microsoft’s MSFT.O $69 billion acquisition of “Call of Duty” maker Activision Blizzard – even though other watchdogs waved it through.

The CMA eventually changed course on that deal, but the regulator’s staunch pro-competition stance is evident in the overall numbers. From 2020 to 2024, over half of the transactions subject to an investigation failed – either because the watchdog blocked them, or the parties withdrew of their own accord, according to Linklaters data. Another one-quarter of the total passed subject to remedies, which is antitrust lingo for the measures that regulators extract to mitigate harm for consumers.

Things are changing under the new Labour government. CMA head Sarah Cardell launched a review into merger remedies and is looking for feedback on how she can make the process faster, more predictable and “proportionate”. On that final point, one key question is whether the regulator will increase the market-share threshold that it generally considers as problematic when assessing deals. A higher threshold would probably please UK finance minister Rachel Reeves, who is cutting red tape in a quest to promote growth and may introduce legislation to curtail the CMA’s powers.

A more accommodating regulator would get bankers’ juices flowing. In the past, a combination of Sainsbury's and Asda, which would create a grocer with nearly 30% market share, may have been problematic. But if the CMA eases up on these restrictions the deal could go ahead. Even grander plans might include $215 billion Shell SHEL.L acquiring $93 billion oil rival BP BP.L. Annual cost savings could be around $4.5 billion, Breakingviews has calculated. Meanwhile, $238 billion UK pharma star AstraZeneca AZN.L could in theory swallow up lower-valued $81 billion peer GSK GSK.L. Those deals have a global element, but a friendlier CMA would provide a boost.

It’s too early to judge how laissez-faire the new regime will be. But for bankers and scale-hungry CEOs, there’s only one way to find out.

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CONTEXT NEWS

The Competition and Markets Authority on March 12 launched a review of its antitrust remedies and unveiled a new merger charter, which lays out the principles the watchdog will follow when engaging with businesses.

In February, CMA boss Sarah Cardell said the review would look at how it can strike the “right balance” between different types of remedies, which are the measures that the regulator puts in place to mitigate antitrust harms.

The CMA has said it is looking for feedback on four key areas in relation to its competition reviews, namely pace, predictability, proportionality and process.

The call for evidence will remain open until May 12.