Merger Control
In the UK, companies (with the exception of SMEs) pay for the privilege of having their mergers investigated. The fees depend on the turnover of the target in the UK: from £5,000 (target’s UK turnover up to £20 million), to £10,000 (target’s UK turnover between £20 and £70 million), to £15,000 (target’s UK turnover above £70 million).

In August this year, the DTI published a consultation on merger fees, which has so far attracted little attention (http://www.dti.gov.uk/ccp/consultpdf/feesconsult.pdf, comments by 3 November 2004). The main aim is to consult on the alignment of the fees paid for merger control with the Government’s policy of achieving full cost recovery for statutory services. The DTI is consulting in particular on the possibility of:

achieving full cost recovery in phases, or immediately;
making fees payable for the acquisition of a minority stake in some cases;
charging a fee for the investigation of mergers that do not meet the qualifying thresholds for merger control (but where the Secretary of State intervenes, e.g. in the public interest).

The proposals range from the maintenance of the current regime, with fees increased in line with inflation, to a maximum possible fee of £330,000, for the investigation of mergers referred to the Competition Commission when the value of the target’s turnover in the UK exceeds £200m.

Charging companies for merger control is not a necessity. The European Commission does not charge. As for other countries, the DTI document contains some interesting statistics. In Europe, countries such as France, Italy or the Netherlands do not charge either. Where a charge is levied, only in the United States are the fees in any way comparable to the upper range of fees that the DTI is consulting upon (up to US$280,000 for acquisitions valued at more than US$500million).

Other regulatory functions
Sectoral regulation may be next in line as a candidate for "full recovery". The new Energy Act 2004, which received Royal Assent in July this year, contains an interesting provision under the heading "miscellaneous" in s. 188. This allows the DTI to charge for exercising its functions in some areas, such as in relation to offshore oil and gas. Informally, the DTI comments that it has taken the opportunity to obtain the power to charge but has not yet decided whether (or how) to use the power. Ofcom is due to start a consultation on charges and fees for 2005/2006 shortly.

Should the Government implement a policy of full recovery of costs in all areas? For example, in 2001, Ofgem proposed to charge the entire cost of a reference to the Competition Commission under the Electricity Act 1989 to AES and British Energy, the two generators whose refusal to agree to a change in their licence started the reference. The total costs in that case amounted to £887,106. In the event, the costs were apportioned amongst all holders of a generation licence.

Conclusions
However attractive to the Treasury, the option to charge high fees for regulatory intervention can act as a disincentive to merge (or otherwise to exercise the rights that the legislation confers on companies). Particularly in the case of mergers which are referred, the economic and legal issues are often very complex and require specialist advice. A study commissioned by the IBA and the American Bar Association in 2003 showed that the cost to companies of obtaining regulatory clearance is about US$3.7 million in average cross-border deals, raising to over US$11.5 million in complex mergers. The Government should be wary of increasing costs to levels that companies may not be able to afford. Make your views known: you have until 3 November 2004.

For further information, please contact Emanuela Lecchi, Head of EU and Competition (tel: 020 7203 5209). For information on the regulation of the energy sector, please contact Gordon Clark, Assistant Solicitor, Energy Group (tel: 020 7203 5166)

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