The CMA has regard to these two factors when considering remedies at both Phase 1 and Phase 2 – first looking at a proposed remedy’s effectiveness in addressing the substantial lessening of competition (SLC) identified, before going on to consider its proportionality, in light of its cost and intrusiveness.

In the Review, numerous stakeholders suggested that the CMA should place a greater emphasis on proportionality than it currently does, including by considering both factors in parallel rather than sequentially, to reduce the prospect of unnecessarily onerous remedies being imposed. 

For its part, the CMA has decided to retain its two-stage approach, whilst expanding the Draft Guidance with a view to: 

1. providing more transparency on its effectiveness evaluation, by expressly linking specific categories of risk to its existing effectiveness criteria for both structural and behavioural remedies; and
2. clarifying the steps it will follow to ensure that a remedy is proportionate, including identifying relevant costs, ensuring a remedy is no more onerous than necessary, and choosing the least onerous effective option. 

Whilst the changes in relation to the CMA’s effectiveness evaluation are largely presentational, the Draft Guidance does appear to place a greater emphasis on the proportionality assessment, in keeping with the corresponding element of the 4Ps framework. Notably, it no longer refers to choosing between “equally effective” remedies: provided the remedies on the table are sufficiently effective, the CMA appears open to selecting the most proportionate one.

Some stakeholders submitted that the CMA should have greater regard to remedies that mitigate an SLC’s adverse effects rather than reverse the SLC entirely (referred to in the Consultation Document as “mitigations”). 

However, the CMA remains firm in holding that its statutory duties and wider policy considerations support the conclusion that mitigations should not be given greater prominence. The CMA appears concerned that doing so in its revised guidance could open the floodgates to mitigation-focused remedy proposals, at the expense of more effective solutions.

Nevertheless, the Draft Guidance does set out some narrow circumstances in which mitigations may be relevant, including where there is no effective and proportionate remedy, and in situations where the least onerous effective option would be disproportionate to the harm stemming from the SLC. 

When the Review was first announced, many stakeholders hoped it would see the CMA embrace behavioural remedies more fully – particularly after the CMA’s Vodafone/Three merger review appeared to indicate a more open-minded approach to this issue.

The Draft Guidance moves the dial on behavioural remedies in certain respects. However, the CMA appears to remain sceptical as to their suitability in many cases – continuing to emphasise that structural remedies address SLCs at source and are more likely to be effective.

Perhaps the most significant change is that the Draft Guidance recognises a wider range of circumstances in which behavioural remedies can be effective. Notably, it no longer says that the CMA will generally only accept behavioural remedies where structural remedies are not feasible, the SLC is time-limited, or a transaction offers substantial RCBs. However, it continues to evince a strong (and perhaps even stronger) preference for ‘enabling’ remedies that promote or unlock competition, over those that instead seek to control market outcomes.

Additionally, the Draft Guidance now recognises that behavioural remedies can be used to lock in rivalry-enhancing efficiencies (as in Vodafone/Three), where they alter incentives in a durable way and can be enforced with sufficient certainty. And, considerably more attention is placed on factors or measures that can mitigate risks associated with behavioural remedies, including: limiting the remedies’ duration; market transparency; alignment with existing commercial practices; and oversight from monitoring trustees, independent adjudicators and/or sectoral regulators. Such additional guidance may well prove helpful to parties in cases in which behavioural remedies are a possibility. 

Despite the stakeholder feedback received in the Review, the Draft Guidance maintains the CMA’s strong preference for divestments of existing standalone businesses over hive-offs. However, unlike the current guidance (which said very little on the subject), the Draft Guidance devotes substantial attention to carve-outs and other complex divestitures – exploring the composition and purchaser risks they raise, whilst also setting out how such risks can be mitigated with a view to increasing their effectiveness. 

The Draft Guidance also highlights evidence that will carry weight in the CMA’s assessment, including: historical performance data for similar divestitures; robust financial and operational data on the in-scope assets, staff and support functions; the views of relevant employees; and independent expert evidence on scale, scope and support requirements. The Draft Guidance also makes clear that early engagement, agreeing to upfront buyer requirements, offering fall-back packages if the intended carve-out fails, and the involvement of monitoring trustees or independent experts in scoping the assets and assessing purchaser suitability, can all increase the prospect of a carve-out remedy being accepted.

Despite suggesting in the Review that it was willing to revisit the requirement that undertakings-in-lieu of reference (UILs) be both “clear cut” and “capable of ready implementation”, the CMA has opted to maintain the current standard. It cites both the limits of its Phase 1 investigation, and the approach of other authorities, as support for maintaining the status quo.

Nevertheless, the Draft Guidance helpfully dispenses with the presumption that behavioural remedies are unlikely to meet that standard. The CMA will consider behavioural UILs where parties fully substantiate their effectiveness and address remedy risks with robust evidence and workable safeguards. 

The Draft Guidance also makes clear that the earlier parties engage on remedies - including in pre-notification - the more likely their proposals are to satisfy the clear-cut threshold. The CMA believes that recent revisions to its Phase 1 process, on which it consulted in the summer, should facilitate such earlier engagement. But it is now proposing further changes to that guidance, including: a more detailed explanation of the Phase 1 remedies process; a greater emphasis on the CMA’s willingness to discuss remedies at the outset of the process on a without prejudice basis; and the opportunity to hold a separate meeting to discuss remedies in Phase 1.

Furthermore, the Draft codifies what has been done in practice in certain local markets cases: where the CMA relies on filters or decision rules to identify local SLCs, divesting enough assets to take the parties below the relevant threshold may be acceptable, without eliminating the local overlap. This is dependent on the parties demonstrating that the purchaser of the sites will be able to compete effectively. 

Responding to stakeholder feedback during the review, the CMA envisages a greater role for third parties such as monitoring trustees and independent experts, throughout the investigation and beyond.

In particular, the Draft Guidance now indicates that, where their appointment and remuneration have been approved by the CMA , evidence from independent experts with relevant industry knowledge could prove influential when assessing the effectiveness of carve-out remedies and other complex divestitures. Such experts, as well as monitoring trustees, could also support the CMA in assessing composition risk and purchaser suitability; much earlier in the process than they have done so traditionally.

The Draft Guidance also notes that the appointment of a monitoring trustee could reduce the risks inherent in behavioural remedies. This is not entirely new – the current guidance makes clear that the CMA may require parties to appoint a third-party monitor to support the CMA in fulfilling its monitoring responsibility. However, the Draft Guidance provides a stronger indication that the use of such third-party monitors, as well as independent adjudicators, could prove persuasive in convincing the CMA that a behavioural remedy will be effective.

Whilst they are very difficult for merger parties to substantiate in practice, the CMA recognises that both rivalry-enhancing efficiencies (REEs) – i.e. in-market pro-competitive effects – and relevant customer benefits (RCBs) – i.e. broader merger-specific benefits that need not fall within the relevant market – can influence the outcome of the remedies process.

The Draft Guidance now recognises specifically that, where REEs are plausible but uncertain in terms of timing or likelihood, a behavioural remedy can be designed to secure them - as in Vodafone/Three. It also sets out more clearly the various ways in which RCBs can influence outcomes, including justifying a no-reference decision where they outweigh the SLC and its adverse effects, or a Phase 2 remedy that only partially addresses the SLC.

The substantive assessment of both REEs and RCBs – including the high bar applying to both – was, however, out of scope of the Review. The CMA will separately be reassessing its approach to REEs in due course, as part of which it will also consider whether there is a need for it to revise its approach to RCBs.