Legal Updates

Commercial – Competition Law – Appointment of Independent CEO

In the recent case of Stericycle International LLC and others v Competition Commission [2006], a number of companies merged without informing the Office of Fair Trading. 

Stericycle was incorporated in the United States. It operated in the UK through a wholly owned subsidiary company. The subsidiary company was a holding company for three further companies.

Another company, which was incorporated in the Republic of Ireland, merged with the subsidiary company in February 2006, as both were active in clinical waste management services. However, the Office of Fair Trading was not notified of the merger before it took place. In June, the OFT referred the merger to the Competition Commission.

The merger resulted in the companies having a share of 65% in the UK market for the high temperature treatment of healthcare risk waste and a share of 55% in the UK market for alternative technologies treatment of healthcare risk waste.

The Competition Commission gave directions under s.81 of the Enterprise Act 2002. The commission wanted the companies to appoint a ‘hold separate manager’ during the period of inquiry into the newly merged company. Such a manager would be appointed from outside either of the businesses and would perform duties in relation to the merged companies as a whole. The commission found that the proposals made by the merged company regarding sales, marketing, operations and finance were not suitable. The merged company applied for judicial review of the decision under s.120 of the Act. They argued that the imposition of a ‘hold separate manager’ was unreasonable and not sufficiently explained by the Commission.

The application for judicial review was refused:-

• The Commission was granted very wide powers by s.81 of the Act. It allowed them to appoint a ‘hold separate manager’ to supervise the activities of the merged company. It was held that the Commission had given reasonable consideration to the relevant requirements in deciding to appoint an independent manager to the merged company.
• It was also held that the Commission had given appropriate reasons for the appointment and that it was reasonable for it to decide that the merged company’s propositions in relation to sales, marketing, operations and finance did not meet the Commissions concerns.
• If a ‘hold separate manager’ had not been appointed, there would be no independent CEO operating at arm’s length from the merged company to whom the executives for sales, marketing, operations and finance could report during the period of the inquiry.
• The Commission had therefore not acted incorrectly in deciding that the appointment of an external manager would facilitate the merged company being directed by an independent mind for the remainder of the inquiry.

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© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.