Fears that mergers and acquisitions activity would be severely curtailed by a ruling last year against the new powers of the Office of Fair Trading receded yesterday after the ruling was in effect overturned by the Court of Appeal.
The regulation of competition policy was thrown into confusion last year after the Competition Appeals Tribunal ruled that the OFT should impose a two-pronged test on all deals and should not have cleared the merger of two hospital software groups, iSoft and Torex.
However, the Court of Appeal said yesterday the test was unnecessary, a ruling that was welcomed by competition lawyers and by the OFT itself. The court said the CAT misinterpreted the new Enterprise Act, which gave the OFT extensive powers over referrals that had previously rested with the Government.
However the legal status of the merger of iSoft and Torex, which has already been completed, remained unclear yesterday because the Court of Appeal also ruled that the OFT had not adequately justified its decision not to refer the deal. The question of referral must now be reconsidered by the OFT.
Competition lawyers had argued that the CAT ruling - which requires the OFT not just to consider if a deal may result in a substantial lessening of competition, but also whether the Competition Commission could possibly take a different view - would mean the OFT had very little discretion over whether to refer cases. Some argued M&A activity could be severely curtailed.
The OFT had argued that it would mean a typical merger reference would cost the public purse about £400,000 and the parties involved about £500,000 in fees.
John Colahan of Latham & Watkins said the CAT judgment had left competition law in a muddle and welcomed the new ruling as restoring clarity. He said: "Provided the OFT does its homework thoroughly and parties present their case clearly, this shouldn't inordinately increase the number of referrals."
The OFT welcomed the judgment, saying it provided "a good basis for the OFT's role in the UK merger assessment".
The iSoft-Torex merger had been turned into a test case for the new legislation as a result of objections from IBA, a tiny Australian software developer whose products are marketed in the UK by Torex. It wanted a full referral on the grounds that the combined group would push rival iSoft products and not put its weight behind IBA software.
IBA's chairman, Gary Cohen, said: "The Decision of the UK Court of Appeal vindicates IBA's approach in challenging the OFT's decision approving the merger."
Analysts said the prospect of a full Competition Commission referral for the deal had receded with yesterday's Appeal Court judgment, and iSoft shares were up 6.5p to 373p.
However, Milan Radia of Bridgewell Securities said that was the most likely outcome.
Mr Radia said: "Our understanding is that this judgment will require the OFT to publish the findings of its second review of the merger between iSoft and Torex."
What was likely to happen next, he said, was for the OFT to refer the deal to the Competition Commission, "given the jostling for position between the two regulatory bodies".Reuse content