Earlier this year, I suggested that the law on when an asset acquisition might amount to a merger was somewhat opaque. The Court of Appeal’s decision in Eurotunnel II  EWCA Civ 487 has brought some additional clarity, although the messy procedural history of that case has caused its own problems.
A quick re-cap on the background. Cross-channel ferry company SeaFrance went into liquidation in 2011. It could not be sold as a going concern, and there was instead an asset sale. Eurotunnel bought three ferries and various other assets.
The OFT (now the CMA) decided to investigate whether the acquisition was a merger. The basic question under the Enterprise Act was whether Eurotunnel had acquired “the activities, or part of the activities” of SeaFrance.
At the risk of stating the obvious, an asset is not an activity. However, there were some features of the asset sale – including the fact that the vessels were maintained ready to sail at short notice, and that a deal had been done to incentivize the re-recruitment of SeaFrance’s staff by any new owner – which the OFT considered meant that the relevant “activities” had been acquired.
In the first challenge to that decision, Eurotunnel I  CAT 30, the CAT held that, to decide whether Eurotunnel had acquired all or part of SeaFrance’s activities, the OFT should have asked three questions: (a) whether Eurotunnel had obtained more than “bare assets”; (b) if so, whether that placed Eurotunnel in a different position than if it had simply gone into the market and acquired the assets; and (c) if so, whether this difference turned what would otherwise be an acquisition of bare assets into an acquisition of the “activities of a business”. The case was remitted to the CMA for it to ask itself those questions.
On the remittal, the CMA applied the new three-stage test, and reached the same conclusion as it has reached before: relevant activities had been acquired. Eurotunnel II was a challenge to that conclusion. The challenge failed before the CAT but succeeded (by a majority) before the Court of Appeal.
The key judgment is that of Sir Colin Rimer. One oddity of the decision was that the parties, and therefore the court, considered themselves to be bound by the CAT’s Eurotunnel I decision, which had not been appealed. That tied the Court of Appeal’s hands: Rimer LJ remarked at  that he was doubtful about the guidance given in Eurotunnel I, and that in his view the legislation is only concerned with the acquisition of a business as a going concern. That approach would bring considerable clarity to this area of the law, but the Court did not receive argument upon it and it does not form part of the Court’s binding reasoning.
Instead, Rimer LJ addressed the narrower question of whether the CMA’s decision was irrational. He accepted that, in principle, an entity might acquire the target’s activities even if the target is not actually trading or carrying out any activities at the moment of the acquisition . He also considered that, had the workforce itself directly transferred to Eurotunnel, that might have been sufficient to justify a decision that the activities had been transferred .
But what swung the balance in this case was the fact that SeaFrance had not only stopped trading, but that (due to the progression of the insolvency proceedings) it had become unlawful for it to continue trading . Furthermore, SeaFrance’s employees had not transferred directly to Eurotunnel . Given those facts, Rimer LJ found it impossible to understand how it could be said that Eurotunnel had acquired SeaFrance’s activities.
The judgment certainly makes it more unlikely that asset sales will be found to engage the merger legislation. On the other hand, this is unlikely to be the final word on this topic – Rimer LJ’s skepticism about Eurotunnel I will surely be taken up on a future occasion.