On 10 April 2025, the CMA announced that it had provisionally found that undertakings in lieu of reference (UILs) offered by Schlumberger Limited (SLB) and ChampionX Corporation (ChampionX) could address the competition concerns associated with their proposed merger. 

The UILs are only the second remedies package to be considered by the CMA since it launched a review of its approach to merger remedies in March 2025, with the stated objective of revising and updating its Merger Remedies Guidance by the end of the year. Whilst that review remains under way, the nature of the UILs in this case (which, as the publication of the non-confidential versions of the relevant decisions on 2 May revealed, involve behavioural as well as carve-out remedies) suggests that the CMA may already be shifting in its approach to the assessment of Phase 1 remedies. 

The transaction and the competition concerns identified by the CMA

SLB and ChampionX are both publicly-listed US companies that supply oilfield-related services, equipment and technologies to exploration and production companies around the world, including those operating in the UK North Sea. 

On 2 April 2024 SLB formally agreed to acquire ChampionX for a purchase price of $7.8bn. The transaction was notified to the CMA and a number of other competition authorities worldwide¹. The CMA launched an invitation for third parties to comment on the transaction in late November 2024, before formally opening its inquiry on 29 January 2025.

In its Phase 1 decision, announced on 27 March 2025, the CMA found that SLB’s acquisition of ChampionX gave rise to a realistic prospect of a substantial lessening of competition (SLC) in relation to the supply of: 

• production chemical technologies (PCTs) to oil and gas exploration, development and production companies in the UK (E&P Companies), as a result of horizontal unilateral effects; and
• directional drilling services using rotary steerable systems (RSS) and permanent downhole gauges (PDGs) in the UK, both as a result of vertical effects. Also relevant to the CMA’s analysis in this regard were the supply of polycrystalline diamond (PCD) bearings and quartz transducers.

Theory of Harm 1: Horizontal unilateral effects in the supply of PCTs 

The merged entity would have a market share of 60-70% – more than double the share of the next largest player, in a highly concentrated market, with the merging parties and their two largest competitors accounting for 90-100% of the supply of PCTs in the UK. According to the CMA, the merging parties’ internal documents showed that each regularly identified and monitored the other as one of its few credible competitors. 

Whilst some distinctions could be drawn between the parties’ respective strengths in the supply of speciality chemicals on the one hand and commodity chemicals on the other, the CMA found that, overall, the merged entity would face few constraints in the UK. Accordingly, the merger gave rise to a realistic prospect of an SLC in the supply of PCTs to E&P Companies in the UK.

Theories of Harm 2 and 3: Input foreclosure in the supply of (i) directional drilling services using RSS and (ii) PDGs 

The CMA found that ChampionX held significant market power in the supply of PCD bearings and quartz transducers (in each case with a 90-100% market share), which are both important inputs into the supply of RSS directional drilling services and PDGs respectively.

The CMA was concerned that the merged entity would have the ability and the incentive to foreclose its downstream rivals by engaging in input foreclosure strategies. This would cause significant harm to competition in the relevant downstream markets given that SLB was the UK’s largest directional drilling services supplier (in a market comprising four suppliers) and the UK’s largest PDG supplier (in a market comprising three suppliers). 

Accordingly, the merger gave rise to a realistic prospect of an SLC in the supply of both RSS directional drilling services and PDGs in the UK.

The proposed UILs

In response to the CMA’s SLC findings, SLB and ChampionX offered the following UILs:

1. The divestment of SLB’s UK PCTs business to an upfront buyer, effected by way of an asset transfer of plant, personnel and ongoing customer and supplier contracts for the supply of PCTs in the UK, together with a 10-year licence of all relevant IP and a transitional services agreement (TSA) lasting up to five years (for certain elements relating to continuity of supply; services related to centralised functions are to be provided for at least 12 months).
2. The sale of ChampionX’s subsidiary, US Synthetic Corporation (US Synthetic) – the business that supplies ChampionX’s PCD bearings on a worldwide basis – to a CMA-approved buyer².
3. Entering into a CMA-approved, global licensing arrangement with a third party, for a “commercially reasonable” royalty, covering all essential IP and know-how required to develop the quartz sensors and transducers supplied by ChampionX’s Quartzdyne business. Additionally: committing to a set of CMA-approved baseline terms for the supply of sensors and transducers by ChampionX to all current and future PDG suppliers in the UK (including a dispute resolution mechanism and the appointment of a monitoring trustee); and executing long-form agreements for the supply of quartz transducers to SLB’s key rivals in the supply of PDGs. 

Analysis

A more flexible approach from the CMA?

The CMA currently requires remedies at Phase 1 to be “clear-cut” and “capable of ready implementation”. In practice, this has tended to necessitate the divestment of pre-existing businesses that are capable of operating on a standalone business. 

That the CMA provisionally determined that the above UILs meet the above criteria could, therefore, mark a departure from past practice – potentially signifying a more flexible approach and a greater willingness to explore more complex remedies at Phase 1.

In particular, whilst the second proposed UIL (the divestment of US Synthetic) is both straightforward in nature and appears comprehensively to address the CMA’s concerns regarding the foreclosure of competitors’ access to PCD bearings, the other two sets of UILs warrant closer attention.

A carve-out divestment

While the first proposed UIL comprises a divestment aimed at preserving the current market structure in respect of the supply of PCTs in the UK, it is a structurally complex remedy, involving a carve-out of assets rather than the sale of a stand-alone corporate entity. 

Carve-outs can give rise to both “composition risk” (if the assets are inadequate to operate on a standalone basis) and “purchaser risk” (if the purchaser is not able to integrate the assets and effectively operate the business on a competitive basis). This has limited their use in Phase 1 cases because the CMA’s current process makes it difficult for complex remedies to be properly considered within the timeframe of a Phase 1 review. Here the parties will no doubt hope the lengthy TSA can give the CMA sufficient comfort that these risks (the composition risk in particular) can be addressed. But it is notable that the associated IP is not to be licensed on a perpetual basis, as the need for a continuing relationship between SLB and the divestment purchaser calls into question whether the remedy is truly structural in nature (at least according to the CMA’s remedies guidance, which describes structural remedies as “one-off” interventions which restore or preserve the pre-merger market structure).

Behavioural remedies at Phase 1

The third proposed set of UILs is arguably the most interesting, given it is even more complex than the first and is fundamentally behavioural in nature. The remedy aims to facilitate the creation of an alternative source of supply of quartz sensors and transducers, whilst mitigating input foreclosure concerns in the interim period by ensuring continuity of supply on reasonable terms.

Whilst behavioural remedies are permissible under the CMA’s guidance, the CMA has generally been very reluctant to accept them (the recent remedies in Vodafone/Three being a notable exception). Indeed, its guidance states explicitly that structural remedies are “normally preferable”, and typically the CMA will only use behavioural remedies as its primary source of remedial action at Phase 1 where: (i) structural remedies are not feasible; and/or (ii) the SLC is expected to have a short duration. 

In a potentially positive signal for dealmakers, the provisional decision to accept the third set of UILs departs from this approach. Not only is there no indication that the SLC here is likely to be of limited duration (e.g. because new entry of quartz transducer suppliers is expected, absent the proposed remedy), but structural remedies also appear feasible – on the surface at least. The merging parties could divest ChampionX’s Quartzdyne business, which supplies quartz transducers, thereby addressing the SLC. However, it may be that such a divestment would undermine the commercial rationale for the transaction.

The CMA describes this set of UILs as being “quasi-structural”. That description is often reserved for remedies involving the divestment of IP through a perpetual, royalty-free licence. But neither of those apply here: the terms and duration of the IP licence and the continuity of supply arrangements remain unclear. And the need for a monitoring trustee and dispute-resolution mechanism highlights the potential for challenges in implementing the remedy.

As such, this is likely to be the most contentious element of the remedies package. But if the merging parties and the CMA can agree upon a workable and proportionate solution, it will go some way to convincing interested parties that the CMA is genuinely looking to take a more pragmatic approach to such assessments, and explore whether remedies which are less drastic than a full divestment could potentially address its concerns (at least in cases such as these, where it appears the parties had prepared their remedies well in advance and the CMA has had plenty of time to drill into the details).

Next steps

Having provisionally found that these UILs could address its concerns, the CMA has until 11 June 2025 (or 8 August 2025 if it considers there are special reasons for extending the timetable) to consider the UILs in more detail (including seeking feedback from third parties) and decide whether to clear the deal or refer it to Phase 2. 

This provisional approval does not, therefore, guarantee that the deal will escape Phase 2 scrutiny – particularly as the CMA received several complaints from third parties at Phase 1. However, the fact that the transaction has the potential to be cleared at this stage is noteworthy in itself, and dealmakers should follow the inquiry’s progress with interest.
 

¹ Including the US, Australia, Brazil, Canada, Mexico, New Zealand, Norway, and Saudi Arabia.

² The parties had already identified an affiliate of LongRange Capital LP (LongRange) as a suitable purchaser, and had entered into a binding agreement with LongRange for the sale of US Synthetic, conditional on the closing of the merger. This sale was agreed as a remedy in connection with the US Department of Justice’s review of the transaction. It also forms part of the remedy package offered by the parties to the Norwegian competition authority (NCA), along with the Quartzdyne licensing/supply arrangements. Conditional Phase 2 clearance from the NCA is expected imminently.