ICE/ Trayport forced to divest

The Competition and Markets Authority (CMA) has concluded that the only effective remedy following its Phase 2 review of the completed acquisition by Intercontinental Exchange, Inc. (ICE) of Trayport, Inc. (Trayport) would be entire divestment of Trayport.  This is the first time that the CMA has ordered a divestiture in a vertical merger case.

ICE is the largest operator of exchanges and clearinghouses for the trading of European utilities derivatives.  Trayport develops software for trading energy commodity and utility derivatives.

The CMA’s final report confirms its provisional findings and concludes that the merger would lead to higher fees or less advantageous terms for traders and more limited trading opportunities than would have existed without the merger.

The CMA’s decision follows on 10 months after ICE’s purchase of Trayport for £500 million. 

UK merger control allows the CMA to retrospectively investigate a merger under the voluntary notification regime.  Where a merger is completed without the CMA’s approval the CMA can initiate an investigation into the merger for up to four months from completion or material facts of the merger coming to the attention of the CMA.  For this reason it is not uncommon for parties to a proposed merger to seek upfront clearance from the CMA.

In addition, the CMA has enhanced powers over those of its predecessor to prevent the parties from engaging in activity that would prejudice its ability to restore effective competitive in the event that it concludes that the merger may be expected to give rise to a substantial lessening of competition (SLC).  It may:

• ·         prevent the parties from taking actions which the CMA considers might pre-empt the CMA’s final decision (such as integrating the target business);
• ·         order the reversal of pre-emptive action that has already taken place (i.e. order that businesses which have already been merged be kept separate);
• ·         order the disposal of a business or part of a business if it decides that the merger would give rise to an SLC.

On 12 January 2016, the CMA announced that it had made an initial enforcement order preventing any further completion of the transaction pending its investigation.  This will remain in place until divestment to a purchaser approved by the CMA is completed.

The CMA rejected certain structural and access remedies proposed by the parties, including commitments to provide Trayport products to customers on fair, reasonable and non-discriminatory terms and to ensure operational separation between the two businesses.  The decision is of note because divestments in purely vertical concentrations are more unusual than in mergers between competitors.  It appears that the importance of Trayport’s software to exchange, broker and clearinghouse activities was a key consideration in the CMA’s analysis.