Signalling the way forward: What the Hitachi and Thales provisional merger decision could mean to the rail industry in the UK

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Background In August 2021, Hitachi Rail, Ltd ("Hitachi") announced it had agreed to acquire Thales SA's Ground Transportation Systems Business ("Thales" and together with Hitachi, the "Parties") for €1.66 billion (the "Transaction"). In its press release, Hitachi outlined its plans to expand its rail signalling systems offering worldwide through the Transaction, and to become a global leader in the rail signalling market. The Transaction was conditional on the Parties receiving merger control clearance from numerous competition agencies with jurisdiction over the Transaction. As Thales' UK turnover for the financial year 2021 exceeded £70 million, it had surpassed the threshold for the UK merger control 'Turnover Test' to be met, meaning the UK Competition & Markets Authority ("CMA") was one such regulator with jurisdiction to review the Transaction. As a result, despite provisionally expecting the Transaction to close in late 2022, the Parties were instead the recipients of a formal Commencement Notice from the CMA on 14 October 2022, in which the CMA confirmed it had launched a Phase I merger review of the Transaction. Finding that the Transaction may result in a 'substantial lessening of competition' ("SLC") in both mainline and urban rail signalling – meaning that, as a result of the Transaction, competition between participants in these markets would be reduced to such an extent that end-users and ultimately consumers would be harmed – the CMA referred the Transaction to an in-depth Phase II merger review on 23 December 2022, after the Parties opted not to offer any undertakings to the CMA to address the regulator's concerns. On 8 June 2023, the CMA released the provisional findings of its Phase II review.