Judgment

On 8 July 2021, Dye & Durham Limited (“D&D”), through its subsidiary Dye & Durham (UK) Limited (together, the “Applicants”) acquired the entire allotted and issued share capital of TM Group (UK) Limited (“TMG”) (“the Merger”). The Respondent (the “CMA”) was not notified of the acquisition and no clearance had been sought from the CMA for the acquisition.

The CMA commenced a Phase 1 and 2 investigation and concluded in its final report dated 3 August 2022 (the “Final Report”) that the Merger would result in a substantial lessening of competition (“SLC”) in the market for property search report bundles (“PSRBs”). The Final Report found that full divestiture of TMG was the only effective solution to the SLC.

Both the Applicants and the Intervener made a number of submissions on the proposed remedies. The Applicants agreed with the CMA and gave a final set of undertakings on 13 October 2022, which required that they divest ownership of TMG (the “Final Undertakings”) to a purchaser whom the CMA had prior approved. Annex 3 to the Final Undertakings contained the Purchaser Approval Criteria.

On 23 February 2023, roughly half-way through the six-month divestment period, the Applicants submitted a paper titled “Proposal Paper – Twin Track Divestment Process” to the CMA (the “Proposal Paper”). That paper set out a twin-track approach to the fulfilment of the Final Undertakings, which would “see a process for the proposed admission of TMG’s Ordinary Shares to trading on AIM…in parallel to the current private company sale process” (the “AIM Proposal”).

The CMA issued a provisional decision on 8 March 2023 (the “Provisional Decision”) rejecting the AIM Proposal. The Applicants responded to that decision on 13 March 2023 (the “PD Response”).

In its final decision of 29 March 2023 (the “Decision”), the CMA concluded, in summary, that:

1. The AIM Proposal would require a variation to the Final Undertakings. The Applicants had not justified such a variation. Further, the CMA did not consider that a review of the Final Undertakings was appropriate at the current stage of the remedies implementation process;
    
2. The AIM Proposal would not be an acceptable means of the Applicants complying with their obligations under the Final Undertakings. The terms of the Final Undertakings clearly made provision for the disposal of TMG to a single purchaser via a private sale process - in particular, the Final Undertakings require divestment of the shares in TMG to a purchaser approved by the CMA; and
    
3. The CMA could not be satisfied that the AIM Proposal would result in divestment to a suitable purchaser with the characteristics required to restore competition in the relevant market, namely independence, capability and commitment as set out in the Purchaser Approval Criteria.

The Decision rejected the AIM Proposal considering that it involved a capital reorganisation of TMG which would result in TMG’s entire issued share capital being transferred to the ultimate shareholders of the Applicants who would be able to trade their interests in TMG on AIM.

Further, the Decision found that the timetable for remedies implementation was not intended to accommodate new, complex proposals which were not foreseen, or proposed, at the time of the Final Report. The AIM Proposal could require extension of the divestiture period, prolonging uncertainty around TMG’s future ownership.

On 21 April 2023, the Applicants filed an application for review pursuant to s.120 of the Enterprise Act 2002 of the Decision, under four grounds of review. These grounds were:

1. The CMA erred in law in finding that the AIM Proposal would require a variation to the Final Undertakings.
    
2. The CMA erred in finding that the Purchaser Approval Criteria (as defined in the Final Undertakings) were not met, in particular:
    
3. The CMA erred in considering the Purchaser Approval Criteria by reference to TMG itself, or the shareholders of the Applicants. The Applicants argued that under the AIM Proposal, it would be a holding company of TMG (“SpinCo”) which would be listed on AIM;
   
   i) The CMA failed to take into account material considerations and was disproportionate because it failed to balance the perceived risk of the AIM Proposal against its advantages;
   
   ii) The CMA erred in law in failing to avoid undue detriment to the Applicants’ shareholders; and
   
   iii) The CMA was wrong to conclude that the AIM Proposal did not meet the independence, capability and commitment criteria contained in the Purchaser Approval Criteria.
   
   iv) The CMA erred in law in finding that no variation to the Final Undertakings should be given (in the event that Ground (1) fails but Ground (2) is successful). The CMA was wrong to conclude that there was no sustainable basis for such variation.
    
4. This ground of review, regarding the refusal of the CMA to extend the deadline for divesting TMG, fell away at the start of the proceedings following the CMA’s agreement to such an extension.

The Tribunal unanimously dismissed each ground of challenge.

The Tribunal held that the CMA made no error of law in not appreciating that D&D had, in effect, amended its application for approval in the PD Response to add, as an alternative to a direct transfer of shares to the multiple D&D shareholders of TMG shares, their acquiring the shares through a SpinCo which would issue shares in itself to those shareholders as part of a transaction whereby TMG’s shares would be transferred to SpinCo. The AIM Proposal as set out in the Proposal Paper did not fall within the Final Undertakings. The Tribunal considered that, even on the assumption that SpinCo were part of the AIM Proposal, it did not fall within the Final Undertakings which contemplated a private sale to a single purchaser. Further, the Tribunal did not find that there was any unfairness in the CMA’s approach or that it was acting outside any margin of appreciation in its consideration of the PD Response.

The Tribunal found no basis for finding that the CMA was unreasonable in its assessment that there was no sufficient change in circumstances to justify a variation to the Final Undertakings. The Tribunal explained that when parties merge without seeking CMA clearance in advance, they take the risk that the CMA will ultimately find that the merger should be unwound on competition grounds and that the shares in the company acquired should be subject to a compulsory process of divestiture.  In such circumstances, a purchaser will usually, ultimately, be in a position of being a forced seller under an obligation to dispose of its shareholding within a fixed period.

Finally, the Tribunal found that the CMA did not step outside the bounds of reasonableness in its application of the Purchaser Approval Criteria.