Reproduced with permission from Law Business Research Ltd. This article was first published in The Merger Control Review,
2nd edition (published in November 2011 – editor Ilene Knable Gotts). For further information please email Adam.Sargent@lbresearch.
perhaps one of the most successful exports from the United states has been the adoption of mandatory pre-merger competition notification regimes in jurisdictions throughout the world. although adoption of pre-merger notification requirements was initially slow
– with a 13-year gap between the enactment of the United states’ Hart-scott-rodino act in 1976 and the adoption of the european community’s merger regulation in 1989 – such laws were implemented at a rapid pace in the 1990s, and many more were adopted and amended during the past decade. china and india have just implemented comprehensive pre-merger review laws, and although their entry into this forum is recent, it is likely that they will become significant constituencies for transaction parties to deal with when trying to close their transactions. indonesia also finally issued the government regulation that was needed to implement the merger control provisions of its antimonopoly Law. ftis book provides an overview of the process in jurisdictions as well as an indication of recent decisions, strategic considerations and likely upcoming developments in each of these. fte intended readership of this book comprises both in-house and outside counsel who may be involved in the competition review of cross-border transactions.
as shown in further detail in the chapters, some common threads in institutional design underlie most of the merger review mandates, although there are some outliers as well as nuances that necessitate careful consideration when advising clients on a particular transaction. almost all jurisdictions either already vest exclusive authority to transactions in one agency or are moving in that direction (e.g., Brazil, france and the UK). fte Us and china may end up being the outliers in this regard. Most jurisdictions provide for objective monetary size thresholds (e.g., the turnover of the parties, the size of the transaction) to determine whether a filing is required. Germany also provides for a de minimis exception for transactions occurring in markets with sales of less than €15 million. ftere are a few jurisdictions, however, that still use ‘market share’ indicia (e.g., colombia, Lithuania, portugal, spain, the United Kingdom). although a few merger notification jurisdictions remain ‘voluntary’ (e.g., australia, singapore, the United Kingdom, Venezuela), the vast majority impose mandatory notification requirements. almost all jurisdictions require that the notification process be concluded prior to completion (e.g., pre-merger, suspensory regimes), rather than permitting the transaction to close as long as notification is made prior to closing. some jurisdictions impose strict time frames by which the parties must file their notification. for instance, cyprus requires filing within one week of signing of the relevant documents and agreements; Brazil requires that the notification be made within 15 business days of execution of the agreements; and Hungary and romania have a 30-calendar-day time limit from entering into the agreement for filing the notification. Many jurisdictions have the ability to impose significant fines for failure to notify (e.g., the Netherlands, spain and turkey). some jurisdictions that mandate filings within specified periods after execution of the agreement also have the authority to impose fines for ‘late’ notifications (e.g., Bosnia and Herzegovina, serbia) for mandatory pre-merger review by federal antitrust authorities. Very little has changed in the Us process in the three decades since its implementation, but some aspects of the Us process have been adopted by other jurisdictions. for instance, canada has recently transformed its procedure to resemble the Us style of review, with a simplified initial filing, a 30-day period to issue a detailed information request and the waiting period tolled until the parties comply with the request. Germany and canada have adopted a procedure, similar to the Us, under which parties can ‘reset the clock’ by withdrawing and refiling the notification. offers to resolve competitive concerns are only considered by the Us after the more detailed investigation has been carried out. fte Us, canadian and (although in other respects following the eU model) swedish authorities must go to court to block a transaction’s completion. Both jurisdictions can seek to challenge a completed merger, even if that transaction has already been reviewed pre-merger by the relevant authority, although in canada, such challenges must be brought within one year of closing, while in the Us there is no statute of limitations.
Most jurisdictions more closely resemble the european Union model. in these
jurisdictions, pre-filing consultations are more common, parties can offer undertakings during the initial stage to resolve competitive concerns, and there is a set period during the second phase for providing additional information and the agency reaching a decision. in Japan, however, the Jftc announced in June 2011 that it would abolish the prior consultation procedure option. When combined with the inability to ‘stop the clock’ on the review periods, counsel may find it more challenging in transactions involving multiple filings to avoid the potential for the entry of conflicting remedies or even a prohibition decision at the end of a Jftc review.
fte permissible role of third parties also varies across jurisdictions. in some jurisdictions (e.g., Japan) there is no explicit right of intervention by third parties, but the authorities can choose to allow it on a case-by-case basis. in contrast, in south africa, registered trade unions or representatives of employees are even to be provided with a redacted copy of the merger notification and have the right to participate in tribunal merger hearings and the tribunal will typically permit other third parties to participate. Bulgaria has announced a process by which transaction parties even consent to disclosure of their confidential information to third parties. in some jurisdictions (e.g., australia, the eU and Germany), third parties may file an objection against a clearance.
in almost all jurisdictions, once the authority approves the transaction, it cannot later challenge the transaction’s legality. other jurisdictions, such as croatia, are still aligning their threshold criteria and process with the eU model. ftere remain some jurisdictions even within the eU, however, that differ procedurally from the eU model. for instance, in austria the obligation to file can be triggered if only one of the involved
undertakings has sales in austria as long as both parties satisfy a minimum global turnover and have a sizeable combined turnover in austria.
it is becoming the norm in large cross-border transactions raising competition concerns for the Us, eU and canadian authorities to work closely with one another during the investigative stages, and even in determining remedies, minimising the potential of arriving at diverging outcomes. regional cooperation among some of the newer agencies has also become more common; for example, the argentinian authority has worked with that in Brazil, and Brazil’s cade has worked with chile and with portugal. competition authorities in Bosnia and Herzegovina, Bulgaria, croatia, Macedonia, serbia, Montenegro and slovenia similarly maintain close ties and cooperate on transactions. in transactions not requiring filings in multiple eU jurisdictions, Member states often keep each other informed during the course of an investigation. in addition, transactions not meeting the eU threshold can nevertheless be referred to the commission in appropriate circumstances. in 2009, the Us signed a memorandum of understanding with the russian competition authority to facilitate cooperation; china has ‘consulted’ with the Us and eU on some mergers and entered into a cooperation agreement with the Us authorities in 2011, and the Us has also announced plans to enter into a cooperation agreement with india.
Minority holdings and concern over ‘creeping acquisitions’, in which an industry
may consolidate before the agencies become fully aware, seem to be gaining increased attention in many jurisdictions, such as australia. some jurisdictions will consider as reviewable acquisitions in which only 10 per cent interest or less is being acquired (e.g., serbia for certain financial and insurance mergers), although most jurisdictions have somewhat higher thresholds (e.g., Korea sets the threshold at 15 per cent of a public company and otherwise 20 per cent of a target; and russia, at any amount exceeding 20 per cent of the target). Jurisdictions will often require some measure of negative (e.g., veto) control rights, to the extent that it may give rise to de jure or de facto control (e.g., turkey).
Given the ability of most competition agencies with pre-merger notification laws to delay, and even block, a transaction, it is imperative to take each jurisdiction – small or large, new or mature – seriously. china, for instance, in 2009 blocked the coca-cola company’s proposed acquisition of china Huiyuan Juice Group Limited and imposed conditions on four mergers involving non-chinese domiciled firms. in Phonak/ReSound (a merger between a swiss undertaking and a danish undertaking, each with a German subsidiary), the German federal cartel office blocked the merger worldwide even though less than 10 per cent of each of the undertakings was attributable to Germany. ftus, it is critical from the outset for counsel to develop a comprehensive plan to determine how to navigate the jurisdictions requiring notification, even if the companies operate primarily outside some of the jurisdictions. ftis book should provide a useful starting point in this important aspect of any cross-border transaction being contemplated in the current enforcement environment.
Ilene Knable Gotts
Wachtell, Lipton, rosen & Katz New York
Carmen Peli, Carmen Korsinszki and Andra Gunescu*
fte merger control regime was introduced in Romania by the Law on Competition, no. 21/1996 (‘the Competition Law’) and the only authority that deals with merger control is the Romanian Competition Council (‘the Competition Council’). fte Competition Law was amended substantially in august 2010 by Government Emergency ordinance no. 75/ 2010, which introduced a number of important changes in the area of merger control, including a new substantive test for assessing merger impact (the SiEC (significant impediment of effective competition) test), the ability of merging parties to notify their mere intention to merge, longer deadlines for the CC to take decisions and a revised authorisation fee.
Under the domestic antitrust rules, an economic concentration is performed through (1) the merger of previously independent undertakings, (2) the creation of a full- function joint venture or (3) the acquisition of control of an undertaking. fte threshold test for examining whether an economic concentration will fall under the scrutiny of the national merger system remains unchanged. Transactions above the following thresholds must be examined by the CC:
- the worldwide aggregate turnover of the parties (e.g., the purchaser and the target) and their groups of €10 million; and
- at least two of the involved undertakings have each registered a turnover in Romania of €4
Economic concentrations occurring outside Romania are subject to notification if the above thresholds are exceeded, and clearance from the CC is also required for economic
* Carmen Peli is a founding partner, Carmen Korsinszki is an associate and andra Gunescu is an associate at PeliFilip.
concentrations involving foreign undertakings with Romanian affiliates or reaching the turnover thresholds on the Romanian market through direct sales.
fte CC’s secondary legislation on the merger control system first enacted in 2004 has also changed. as of august 2010, the old Regulation on merger authorisation (2004) was replaced by the Regulation regarding the economic concentrations approved by the Competition Council order no. 385/2010 (‘the new merger Regulation’). fte new merger Regulation brings practical and procedural clarification with respect to some aspects of merger assessment. in addition, further harmonisation with the EU merger rules was achieved on matters regarding the concepts of economic concentration, merging parties, full-function joint ventures and turnover, and instructions on ancillary restraints; the instructions generally mirror the European rules. fte former instructions on remedies in the event of commitments decisions from march 2004 have also been replaced by new rules enacted by order no. 688/2010 (‘the instructions on Remedies’). new Guidelines on the calculation of the authorisation fee for merger-clearance procedures have also been implemented, while the Guidelines on the calculation of turnover in merger procedures have remained unchanged. fte Rules on the access to files in merger clearance procedures have also been reformed.
as already noted, the clearance test is no longer the creation or strengthening of
a dominant position as a result of which competition might be significantly restricted or distorted, but a more complex analysis on the basis of which concentrations that do not reach ‘dominance’ might be deemed to substantially lessen competition.
on 5 July 2011 there have been a number of other changes regarding the merger control system among which the most relevant are the enforcement of the presumption of dominance for a company or companies exceeding a 40 per cent market share, and the provisions prohibiting mergers contravening public policy.
fte clearance procedure still includes a Phase i analysis and if the CC suspects that the clearance test will not be met, it would start a Phase ii investigation. most transactions are cleared under Phase i, with very few so far having undergone Phase ii.
II YEAR IN REVIEW
- General considerations
ftere have been only 40 decisions clearing mergers in 2010, of which five were decisions of non-intervention, while another five were cleared without objection.1 in 2011, to the end of october, there have been only 19 decisions clearing mergers out of which two were cleared subject to remedies offered by the parties. in 2010 and including the third quarter of 2011, the CC continued to deal with transactions in industries that were particularly vulnerable to the effects of financial crisis and economic downturn, such as the retail sector of fast-moving consumer goods (13 decisions), the market for the distribution and sale of motor vehicles (three decisions), the press distribution market (two decisions), the market for financial services, the telecommunications and cable TV
1 fte annual Report on the Competition Council activity (2010).
market (five decisions), iT and electronic products (three decisions) and the construction and the real estate sectors (six decisions). other decisions referred to mergers in the health-care sector (four decisions), the energy market and heavy industry sector and the transport and logistics services sector (three decisions). Compared with 2009,2 and particularly with 2008 (over 80 decisions), there has been a decrease in the number of economic concentrations.
Trends and predictions
Similarly to 2009, in 2010 and 2011 so far there have been a number of transactions carried out as necessary financial reorganisations or economic consolidation. However, there were also mergers in economic sectors that have not been as badly affected by the general financial downturn (e.g., the medical care sector, the telecoms market).
ftere were again a few notable transactions to have gained clearance from the CC. in 2010, one of them was the acquisition by nextGen Communications of the assets of newCom Telecomunicatii. nextGen Communications is an undertaking controlled by one of the largest players on the Romanian telecoms market; an interesting aspect of case was that the parties also submitted a gun-jumping derogation request prior to the CC’s clearance.
another major transaction in 2010 occurred in the health-care sector, with the acquisition by Centrul medical Unirea SRL3 of Euroclinic medical Centers Sa and Euroclinic Hospital Sa. fte transaction concerned health-care services provided at private hospitals for outpatients and inpatients.
mirroring the 2010 merger clearance trend, the CC has in 2011 been called to scrutinise a number of significant transactions in the telecoms industry (the acquisition by Romtelecom, the local incumbent, of two players in the direct-to-home TV retransmission services sector) and also in the health and pharmaceutical industry (the taking over by Fresenius medical Care, a major supplier of dialysis equipment and services provider, of two local players in the market for dialysis services).
fte retail and distribution market for the fast-moving consumer goods remained particularly vulnerable to the effects of the financial crisis. on the telecommunications market, the tendency is still for small operators affected by the general lack of financing to be acquired by large expanding operators.
Lack of transparency
CC merger clearance decisions still do not generally reflect the merging parties’ market share or any other economic or market data that could serve as guidance for further practice. as in 2009, in 2010 and so far in 2011, the CC’s practice has not been changed as the data on overlapping markets were entirely redacted without being replaced by any guidance such as ranges. fte CC as least stated in the Lidl/Plus decision,4 following
- fte annual Report on the Competition Council activity (2009); 43 merger clearance decisions were adopted by the
- now Regina maria.
- no ComP/m.5790 – Lidl/Plus Romania/Plus Bulgaria.
European Commission practice, that mergers leading to an aggregate share of the merging parties ranging between 25 per cent and 45 to 55 per cent can still be compatible with the common market if other conditions in the market allow for an easy entry onto the market for potential competitors.
ii Mergers in the telecommunications markets5
in 2010 and in the first part of 2011, the CC approved several mergers affecting a number of relevant retail and wholesale markets for mobile and fixed telephony, internet services and TV retransmission services. fte ultimate acquirer in all transactions was Romtelecom, the incumbent operator in the fixed voice telephony market and part of Deutsche Telekom Group.
in the DCS/Romtelecom and Boom/Romtelecom decisions, the CC restated its position regarding the definition of a larger market comprising TV retransmission services supplied through various platforms: the DTH and the cable TV infrastructures (technological neutrality principle). as opposed to the position adopted by other national competition authorities and the European Commission, however, the CC doubted that TV retransmission services offered through iPTV or web TV platforms would be entirely interchangeable by DTH and cable TV infrastructure.
in the NextGen/New Com decision, the CC further examined whether services packages (i.e., double-triple-quadruple play) could amount to a separate market from individual TV programmes retransmission, internet and telephony markets. fte CC quickly assessed whether individual services were substitutable with multiple-play services. it was concluded that given the real opportunity for subscribers to choose between the two types of service and the ability of suppliers to offer the respective services either in packages or independently, the current features of the telecommunications market did not call for the existence of separate multiple-play markets. it was also assessed whether the retail markets for telecommunication services would have a local dimension as opposed to prior CC case law, where such market was considered national. Even though some differences regarding variety of offers exist, the specific local market structure, the existence of barriers to entry in rural areas as opposed to those in urban areas, the CC concluded that, given the high market fluidity, there was no necessity for a local assessment of the relevant markets.
fte decision gave no information about the merging parties’ or their competitors’ position on the many relevant markets. in NextGen/New Com, the CC concluded only that a more
- Decision 19/2010 cleared the merger consisting in the taking of control by S.C. nextGen Communications S.R.L. of S.C. new Com Telecomunicatii S.a. assets; Decision no. 16/2011 cleared the taking over by Romtelecom S.a. of Digital Cable Systems S.a. (aKTa Satellite brand) and Decision no. 11/2011 cleared the taking over by Romtelecom S.a. of DTH Television Group S.a. (Boom brand).
thorough analysis should be carried out on the market for fixed telephony services for assessing whether the merger would lead to the strengthening of Romtelecom’s market position. fte CC carried out an analysis of current market conditions, while also analysing the transaction’s market effects (e.g., Romtelecom continues to face a strong competition coming from market operators such as RCS&RDS and UPC Romania, a significant decrease in the penetration rate and the number of fixed-line services subscribers, the absence of significant barriers to market entry, the even more increased popularity of mobile telephony services). fte decision finally considered that the transaction would not significantly strengthen Romtelecom’s market position.
iii Lidl GmbH acquisition of the retail chain Plus6
ftis transaction is interesting procedurally because it is the first merger to be referred to the CC by the European Commission given that, despite the threshold conditions being reached (the transaction took place also in Bulgaria), a separate assessment of the two mergers at national level would also be advisable. fte Romanian and Bulgarian markets for retail of daily consumer goods were not considered to constitute a significant part of the EU internal market. Lidl operates its business in Romania through Kaufland retail chain stores, while the target company operates through 103 Plus stores.
one specific element of the market defined by the CC was the inclusion of traditional stores within the retail market. fte justification for this already well-established position resulted from the fact that, even though there are differences between the types of point of sale existing on the market, especially between local stores and super/hypermarkets, Romanian consumers on average use over 55 per cent of their resources to acquire daily consumer goods from traditional stores; this does vary according to the conditions in the local markets, however. as this market is generally considered local, the national level statistical information has very little impact.
Merger analysis: SIEC test
fte CC carried out a quite extensive assessment on the market conditions and effects of the transaction. it considered that involved parties’ market shares are not fully indicative of their effective power or the market structure. fte decision also takes into account the evolutive feature of a dynamic market structure and probable market conditions, market innovation and growth rate. fte CC concluded that, even though higher than 25 per cent on some local markets, the merging firm’s position would be continually challenged by potential competition and the traditional retail chains. in assessing whether the transaction took place between two close competitors, the decision reached the conclusion that the merging parties did not have similar businesses, as one of them was a discount store and the other a hypermarket chain. fte decision also considered other market conditions before reaching the conclusion that the merger would not raise
- Decision 46/2010 cleared the merger consisting in the taking of control by Lidl Romania GmbH of the entire share capital of Plus retail chain store.
competition concerns, such as the customers’ ability to switch supplies, other competitors’ market power and the absence of barriers to entry given the international expansion of multinational retail chains. on the supply markets, no risk of potential foreclosure was found as a result of the merger. fte CC did not seem concerned by the rising of entry barriers or the potential creation of entities with significant buying power, even though on separate occasions it expressed certain concerns regarding the competitive relation between suppliers and retailers (i.e., the investigation on the market for retail sale of food products).
iv Gun-jumping and financial distress
as previously mentioned, parties to a merger cannot take any implementing measures until the final clearance of the transaction by the CC. in its practice, the CC has already granted such benefit to merging firms in cases where the target company was in a difficult financial situation. fte NextGen/NewCom decision is also indicative of how the CC will react to market deterioration. a fairly substantive analysis is carried out before assessing whether to grant the derogation. fte CC particularly took into consideration the following aspects:
- fte target company had registered significant financial losses over the past three years from the exploitation, maintenance and operation of the networks and was facing
- it was predicted that in the absence of the derogation, the target company would not have been able to provide quality services to its subscribers, which may have caused them to migrate to other companies operating in the telecoms
- newCom would have been obliged to exit the cable TV retransmission market; in such a case, it is predicted that subscribers would have been the severely affected, with competition in the market being
- fte CC also observed the target company’s business evolution during recent it appears to have acquired numerous local networks and had expanded its business constantly during a period of economic growth, while financing its investment activity through shareholder loans and long-term bank loans. in 2009, due to its negative equity situation and the financial crisis, the company appears to have been forced to sell some of its assets in three consecutive transactions.
- fte situation also pays an increased attention to other financial indicators such as the level of indebtedness, the net losses from the past two years, each month’s cashflow, the financial position of the company, the value of the working capital and the insolvency risk, as well as liquidity
fte CC finally reached the conclusion that, given the target company’s difficult financial situation, most arguments advanced by the target company were in favour of a rapid implementation of the merger by the transfer of networks infrastructure and the client portfolio before the final clearance of the transaction.
fte target company had a similar difficult financial situation in the Boom/ Romtelecom decision. in this case, even in the absence of merging parties’ particular request for derogation, the CC speeded up the authorisation process and cleared the merger in no longer than two months.
v Concentrative mergers in the health care sector cleared with commitments7
in June 2011, Fresenius medical Care, the international dialysis services and equipment provider also acting on the Romanian market, obtained two clearance decisions from the CC for the acquisition of two local dialysis services providers. fte two decisions are the result of an in-depth market analysis where the CC made a first application of the instructions on Remedies.
Market definition and assessment
fte CC carried out a very extensive product and services feature analysis resulting in an extensive definition of the relevant markets. Based on the competition authorities’ practice in Singapore and the US, the CC concluded that the relevant markets affected by the transactions are (1) those downstream markets related to the supply of haemodialysis and peritoneal dialysis services, which were considered to be local markets, and (2) the upstream supply markets of haemodialysis and peritoneal dialysis products and equipment, covering the national territory. fte CC analysed an impressive number of market features to arrive at this conclusion, including the number of patients with chronic kidney failure, patients’ needs, the frequency of several dialysis treatments, required investment, etc. fte CC identified two significant barriers to market entry: the scarce number of patients covered by the national dialysis programmes and the limited number of qualified doctors.
although no information on market share was available, the CC seems to have identified two local markets for the supply of dialysis services where Fresenius would gain a dominant position. ftis position would be also enforced by the fact that the two transactions would have both horizontal and vertical effects as the acquirer was a major player on both the upstream market for the supply of dialysis equipment and the downstream market for the provision of dialysis services. ftis was considered to give rise to potential foreclosures of competition on both upstream and downstream markets.
Structural and behavioural remedies
fte acquiring party proposed following main commitments to alleviate the CC’s concerns:
- structural remedies on the downstream market consisting of the sale of Fresenius’s haemodialysis and peritoneal dialysis service capacities to an independent acquirer and
- behavioural remedies on the upstream market where Fresenius committed to ensure continuous supplies of dialysis equipment and medication, not to refuse to supply competitors or any other acquirer without objective justification, not to impose bundled sales of Fresenius equipment and accompanying ftese commitments were considered a sufficient response to the CC’s concerns.
vi Highly concentrative merger in the energy sector
an interesting concentration in the energy sector was prefigured for 2010 relating to the creation of Hidroenergetica and Electra from existing state-owned players, in the
- Decisions 19 and 20 from 20 June 2011 cleared the taking over by Fresenius medical Care Beteiligungesgesellschaft of two local suppliers of dialysis services.
context of the reorganisation of the national energy sector. Due to some changes in the structure of the concentration, and to the suspension of the merger corporate process, the CC withdrew the statement of effectiveness previously issued with respect to the two mergers. fte two transactions raised serious debate as to how they will affect different markets in the energy sector, leading to a notably high degree of concentration of the market post-merger. fte decision to suspend the procedure was taken by the CC at an advanced phase of the merger investigation, after the proposition of merger remedies by the involved parties.
III THE MERGER CONTROL REGIME
fte current merger control regime, in force since 1997, was amended in august 2010 leading to greater harmonisation with the European regime. ftis was the first update of the rules on merger-clearance procedure since Romania’s accession to the EU in 2007.
i Clearance procedure under the New Merger Regulation
as per the rules in force, economic concentrations exceeding the thresholds must be submitted for approval to the CC. fte new merger Regulation no longer provides a 30-day deadline from the signing of the agreement submit the transaction for the CC’s approval; however, failure to notify the transaction by the merging parties would still be sanctioned by the CC. ftis means that economic concentrations have to be notified ‘promptly’ following the conclusion of the relevant agreement, the announcement of the public bid or the takeover of the controlling shares and prior to their implementation. Failure to notify a transaction and implementation of the concentration before its authorisation (i.e., gun- jumping) are subject to a fine of between 0.5 and 10 per cent of the parties’ turnover.
fte new merger Regulation also allows the involved firms to notify the CC of their intention to merge at any time prior to the conclusion of the transaction. fte parties would, however, need to provide sufficient evidence of such an intention (e.g., a memorandum of understanding, a gentlemen’s agreement, pre-agreements, framework agreements). ftis provision is expected to be frequently used by firms involved in economic concentrations.
fte parties must submit a standard notification form accompanied by attached relevant documentation. fte revision of the merger legislation also brought the content of the notification form in line with that used in the procedure before the European Commission. fte CC may ask questions and it regularly uses this right. once the parties provide all necessary information, the notification shall be declared effective (the CC will immediately communicate the date when the notification became effective to the parties). Upon receiving the notification form and the supporting documents, the CC has 20 days to review it and, if necessary, to request additional information from the parties. Such information must be submitted within 15 days of the date of the request, with a possible further five days’ extension upon reasonable justifications. if after the expiry of these terms, the information provided is not sufficiently clear, the CC can impose fines. Under the new merger Regulation, the CC has 45 days after the notification becomes effective to decide whether the concentration (1) comes under the scope of the merger rules, (2) does not raise serious antitrust concerns or (3) raises competition doubts.
once the entire procedure is finalised, the CC shall issue:
- a non-approval decision if the merger raises serious competition concerns;
- a decision clearing the merger if it ascertains that the analysed transaction is not deemed to create or to consolidate a dominant position threatening competition on the relevant national markets; or
- a commitment decision, which will necessitate remedies being fulfilled by the parties; these will be chosen from a series of remedies provided within the Remedies instructions (e.g., the divestment of a part of the business, the termination of exclusive arrangements, or the transfer of an important technology).
fte merger Regulation also provides a simplified clearance procedure that can be used in limited circumstances and, in any case, only if the aggregate market shares of the parties do not exceed 15 per cent (horizontal relations) or 25 per cent (vertical relations). in its past practice, the CC was reluctant to use this procedure even for relatively small transactions, and the assessment of how the transaction affects the ‘normal course of competition’ requires as much information and time as the regular procedure. Since the adoption of the new merger Regulation, there has been only one merger cleared under the simplified procedure, in the transport logistics market.
ii The enforcement of the SIEC test
Contrary to the dominance test established by the former rules, the new merger Regulation establishes that the assessment test for an economic concentration is the SiEC test: assessing whether an economic concentration significantly impedes effective competition on the Romanian market or on a substantial part of it, particularly following the creation or strengthening of a dominant position. fte CC will thus take into account various criteria for assessing the merger, such as:
- the relevant market structure;
- actual or potential competition;
- the parties’ market position and their economic and financial strength;
- alternatives available to suppliers and users, their access to supply sources and markets;
- legal or factual barriers to entry;
- the trends of offer and demand for the goods on the relevant market;
- the interests of intermediary and end consumers; and
- any evolution of technical and economic progress, to the extent that it benefits consumers and it is not an obstacle to
iii fte presumption of dominance above a 40 per cent market share
one major amendment to the Competition Law in 2011 related to the introduction of the presumption of dominance for companies holding over a 40 per cent market share. ftis new amendment reverses the former dominance presumption by stipulating that whenever a market share exceeds 40 per cent, the firm enjoying this market share is presumed to have a dominant position.
although the CC does not sanction a dominant position per se (only an abuse of such market power on the relevant market), it is interesting to note that the burden of
proof is now on the company presumed to be dominant; once the presumption is made, the company has to rebut it.
iv Access to the file
During the review procedure, access to the file is allowed only to the merging parties (i.e., the buyer’s and seller’s shareholders and the merging company’s managers). fte instructions on the access to the file preclude the access to the file for third parties unless the CC considers it is necessary for the third parties in order to submit their observations; such right does not, however, allow third parties access to confidential information. fte instructions on the access to the file have a narrow interpretation of what constitutes confidential information, but it generally covers business secrets and any sensitive information the disclosure of which would severely compromise the merging parties’ activity. a redacted version of the confidential documents and information must be prepared by the party, pointing out their sensitiveness.
in practice, the CC routinely invites third parties (i.e., the parties’ competitors or commercial partners, regulatory authorities or any other interested entities) to submit observations or any other comments or information whenever a new submission for merger approval is addressed to the CC. interested third parties may challenge the final decision under the regular procedure regarding the resolution of administrative disputes.
fte initiation of a merger clearance procedure stops a transaction and the parties cannot take any further measures to implement it. fte new merger Regulation makes no further reference to ‘reversible’ or ‘irreversible’ steps that can be taken by the acquirer with respect to the target, but lists only the actions that might be considered ‘irreversible’ after implementing a concentration:
- directing the acquired undertaking to enter or exit a market or change its scope of activity;
- using the voting rights granted by the acquired shares to replace the directors, to approve the costs and expenses budget, the business plan or the investment plan of the target;
- changing the corporate name of the acquired entity;
- restructuring, shutting down or spinning off the acquired undertaking or its assets;
- laying off employees of the acquired undertaking;
- terminating material agreements of the acquired undertaking or causing the same to go public; and
- listing the acquired undertaking on a stock
Whenever the CC finds proof of gun-jumping a fine of up to 10 per cent of the turnover from the year preceding the infringement decision may be applied. fte parties may, however, ask the CC to grant derogation and allow implementation of the transaction before its clearance if sufficiently strong financial or economic arguments are made.
vi Challenging Competition Council decisions
fte CC’s decision may be challenged by the parties before the Bucharest Court of appeal within 30 days of its communication. fte Court of appeal’s decision may in its turn be reviewed by the High Court of Cassation and Justice. as a new procedure, in order to avoid the long duration of trials appealing the sanctions applied by the CC, a new provision has been introduced pursuant to which a decision of the CC can be suspended by the Bucharest Court of appeal only if a fee of 30 per cent of the fine established through the contested decision is paid.
vii Authorisation fees
fte calculation of the authorisation fee level was changed in June 2011; its value varies from €10,000 to 25,000. fte levels depend on the target company’s turnover or the merging parties’ cumulative turnovers if a new full-function joint venture is created. For transactions where the target or the parties to the joint venture have a turnover exceeding €250 million, the authorisation fee is capped at €25,000, which will benefit large transactions.
viii Timing of the procedure
in theory it should take between two and three months for the CC to clear a merger raising no dominance concerns; however, in 2010 as in previous years, these time frames were substantially exceeded in reality. For example, it took more than nine months for the CC to clear a horizontal merger between two players on the Romanian market for the wholesale of iT products and services, when the merging parties did not reach an aggregate 15 per cent market threshold. However, it is still worth mentioning that the parties may often be able to accelerate the procedure before the CC by correctly preparing the notification form, promptly responding to the CC’s requests for information and being proactive and proposing solutions (reports, etc.) to alleviate the concerns of the case-handling team.
IV OTHER STRATEGIC CONSIDERATIONS
Following the revision of the merger control rules in 2010, it may be expected that the merger authorisation process will improve, with some of the rules becoming clearer.
With what looks to be the end of the economic downturn, but no strong signs of recovery yet for the end of 2011, the consolidation trend of the retail and distribution sectors is still a market reality.
fte private health services sector is one of the few industries not affected by the economic crisis. Large private health-care services providers continue to expand their businesses through business development and acquisitions of smaller competing players. after having cleared previous transactions between many players in this sector, the CC has begun in 2011 to raise particular concerns regarding expansion of the large players in private health-care sectors; the CC, however, has so far preferred to authorise them subject to both structural and behavioural remedies offered by the merging parties. ftis shows the CC’s particular attention to the growth in the health-care sector where the
emergence of small businesses and the sector efficiencies in patients’ favour must be continuously maintained.
fte latest EU and foreign investment in the agricultural sector reflects the stabilisation of this industry in 2011, and the CC was called to clear a number of mergers between agricultural equipment companies.
V OUTLOOK AND CONCLUSIONS
fte experience with the new merger control rules in force as of august 2010 is considered to have been generally positive for the Romanian business environment. fte introduction in 2011 of the presumption that companies are dominant holding above a 40 per cent market share may lead in the near future to a stricter analysis of economic concentrations involving these companies on the affected relevant markets.
fte past few years have shown an increased level of sophistication in the antitrust analysis during the merger control procedure. fte decisions taken by the CC in 2010 and until the final part of 2011 have consolidated its past practice, bringing some increased certainty, for example, to the application of the gun-jumping in relation to the acquisition of distressed businesses.
a practical path was taken in relation to mergers between retail chains and the market was not analysed locally. as mentioned by the authority, this does not, however, guarantee that future consolidation in this sector will not require local analysis.
Finally, it would be useful if the authority were to provide some guidance in its decisions regarding the range of market shares involving merged companies and their competitors, as this would better explain the authority’s reasoning to those seeking to understand this practice.
About the Authors
Carmen is a founding member of PeliFilip. International league tables place Ms Peli as a top-tier competition lawyer in romania. she has assisted clients in landmark cases in romania, including the first investigations in the pharmaceutical or the telecommunications industries; the first investigation of an alleged collective dominance; Phase II merger control investigations; state aid issues in the context of privatisations; vertical integration and unbundling in the energy sectors.
recent work includes advising a leading international mobile communication operator in relation to two investigations; advising a leading pharmaceutical company in relation to investigations by the Competition Council; advising various clients in relation to structuring of distribution and agency policies, sales, marketing and pricing policies, training, etc.
Ms Peli is a frequent speaker at seminars on romanian and eu competition law matters as well as author of numerous articles on romanian and european antitrust and merger control law.
Carmen Korsinszki is an associate with PeliFilip, having graduated with merits from the Faculty of Law at the university of bucharest, and holds a master’s degree in eu and international law (French-romanian College of european studies, university Paris I Pantheon-sorbonne) and also a master’s degree in international and european business law (university of strasbourg).
since joining the PeliFilip team, Ms Korsinszki has been involved in eu and national advice on matters including vertical and horizontal arrangements, parallel trade, dominance, merger control and state aid. she has also been involved in projects on specific public procurement-related matters. sectors of particular interest include life sciences, telecommunications, energy and the cement market.
About the Authors
she is currently involved in advising a large pharmaceutical supplier in relation to national investigations on the pharmaceutical market, regulatory requirements and contractual and commercial policy. she has also been advising a large telecommunication company in an intended takeover of the second-placed market player.
Andra Gunescu joined PeliFilip in 2010. she holds a law degree from the Faculty of Law at the university of bucharest, and an LLM degree in european law from the Faculty of Law at the university of Maastricht. Ms Gunescu’s main practice areas are competition, mergers and acquisitions, commercial and financing.
In the field of competition, she has provided legal assistance with respect to competition matters to clients from different fields of activity, particularly in the telecommunication and the pharmaceutical sectors.
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