The CAT upheld yesterday the CMA’s decision to prohibit ICE’s acquisition of the energy and commodities trading platform Trayport. The CMA’s original decision found that ICE could use ownership of Trayport to foreclose competitors, shifting liquidity to its own exchanges. It was the first prohibition of a vertical merger by the CMA since its inception, and (as the deal had been completed before notification) the first full divestment ever in a vertical merger by UK competition authorities.
The CAT reviewed the CMA’s assessment of ICE’s incentive to foreclose. A careful analysis of the costs and benefits of foreclosure strategies is necessary in all cases to overcome the basic economic presumption that a combination of complements (such as a in a vertical deal) is typically efficient. The CAT upheld the CMA’s view that it was not necessary to assess incentives with respect to specific individual strategies, but rather it was sufficient for the CMA to make such an assessment across the range of possible strategies – and conclude that a shift of liquidity away from rivals would occur, and that the gains to ICE were likely to exceed the costs. The CAT further expressed support for the CMA’s approach to identifying a substantial lessening of potential and dynamic competition.
Other areas in which the judgment is likely to have implications for future cases is the CAT’s dismissal of the arguments that: evidence on ability and incentive to foreclose should be considered in isolation (a finding that chimes with the economic reality that there is generally an overlap in the evidence required on each of these points); and that foreclosure risk would be mitigated by the risk of antitrust enforcement post transaction (with the CAT ruling that one cannot rely on ex-post policing of anticompetitive transactions because foreclosure would be difficult to observe and prove to the requisite standard in a conduct investigation).
Simon Chisholm of CRA advised the main complainant in the case in front of the CMA.