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. Many of the jurisdictions that were ‘early adopters’ have either refined their processes and procedures in substantial ways or have proposals pending to do so, typically to conform their regime with the pre-merger regimes of other jurisdictions (e.g., Brazil, Canada and the UK). ftis book provides an overview of the process in each of the jurisdictions as well as a discussion 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 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., Bosnia and Herzegovina, colombia, Lithuania, Portugal, spain, Ukraine and the UK). Most jurisdictions require that both parties have some turnover or nexus to their jurisdiction. But, there are some jurisdictions that take a more expansive view. for instance, turkey recently issued a decision finding that a joint venture (‘JV’) that produced no effect on turkish markets was reportable because the JV’s products ‘could be’ imported into turkey. Germany also takes an expansive view, by adopting as one of its thresholds a transaction of ‘competitively significant influence’. although a few merger notification jurisdictions remain ‘voluntary’ (e.g., australia, singapore, the UK and 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. Many jurisdictions can impose a significant fine for failure to notify before closing even where the transaction raises no competition concerns (e.g., austria, the Netherlands, romania, spain and turkey). 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. 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 and serbia) for mandatory pre-merger review by federal antitrust authorities.
Most jurisdictions more closely resemble the European Union model than the Us model. in these jurisdictions, pre-filing consultations are more common (and even encouraged), 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 for the agency to reach a decision. in Japan, however, the Japanese federal trade commission (‘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. some jurisdictions, such as croatia, are still aligning their threshold criteria and process with the EU model. ftere remain some jurisdictions even within the EU 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.
fte 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. fte US is one significant outlier with no bar for subsequent challenge, even decades following the closing, if the transaction is later believed to have substantially lessened competition. Canada, in contrast, provides a more limited time period for challenging a notified transaction.
As discussed below, 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 Japan 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.
for transactions that raise competition issues, the need to plan and to coordinate among counsel has become particularly acute. as discussed in the last chapter, it is no longer prudent to focus merely on the larger mature authorities, with the expectation that other jurisdictions will follow their lead or defer to their review. in the current environment, obtaining the approval of jurisdictions such as china and Brazil can be as important as the approval of the Us or EU. 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 and Carmen Korşinszki1
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 CC’). 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 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 concentrations involving foreign undertakings with Romanian affiliates or reaching the turnover thresholds on the Romanian market through direct sales.
1 Carmen Peli is a founding partner and Carmen Korşinszki is an associate at PeliFilip.
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 will 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
fte impact of the economic downturn continues to influence the market transactional statistics, with no more than 35 mergers being cleared without objection by the CC in 2011,2 while in the first half of 2012 the number of economic concentrations getting a final clearance reached 11.3 ftere were no merger rejection decisions, while all but two cases were approved without remedies. No case was designated for Phase II investigation. Up to June 2012, the CC continued to deal with a number of 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 (six decisions) the market for financial services, the telecommunications and cable TV market, IT and electronic products (three decisions) and the construction and the real estate sectors (six decisions).
- fte Annual Report on the Competition Council activity (2011).
Other decisions referred to mergers in the health-care sector (four decisions), the energy market and heavy industry sector (five decisions) and the transport and logistics services sector (four decisions). Down from the high record of over 80 merger approval decisions in 2008, the decreasing trend – starting with 20094 – has continued with 2011 having the lowest record for the past five years. With a decrease in the merger complexity, the average decision-making time in 2011 has also slightly decreased (2.7 months).
Trends and predictions
Similarly to 2009 and 2010, in 2011 and 2012 (up to June) 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 and the agriculture industry).
ftere were again a few notable transactions to have gained clearance from the CC. In 2011, one of them was the acquisition by Romtelecom – the largest player on the Romanian telecoms market and the local market incumbent– of the assets owned by DTH Television Group SA, as well as Digital Cable Systems SA, two players in the direct-to-home TV programmes retransmission services sector.
Another significant transaction in 2011 occurred in the health-care sector and pharmaceutical industry, with the takeover by Fresenius Medical Care – a major supplier of dialysis equipment and services provider – of two local players in the market for dialysis services. For the clearance of these two transactions, the parties were required to offer structural and behavioural commitments involving the overlapping local markets.
fte CC also issued two sanctioning decisions for gun jumping in the IT sector (Assesoft Distribution/Flamingo International), as well as in the pharmaceutical sector (Labormed Pharma/Ozone Laboraties). Both decisions amounted to fines of up to
€900,000. None of the fines exceeded 0.5 per cent of the parties’ turnover in 2010.
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 and 2010, in 2011 and so far in 2012, 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 Annual Report on the Competition Council activity (2009); 43 merger clearance decisions were adopted by the
ii Mergers in the telecommunications markets5
In 2011, the major local players in the telecommunications market continued to consolidate their market position through acquisition of smaller players. In the first part of 2011, the CC approved several mergers affecting the TV retransmission services market. After closing on a significant takeover transaction in 2010,6 Romtelecom – the incumbent operator in the fixed voice telephony market and part of the Greek group OTE (held by Deutsche Telekom Group) – continued to consolidate its business with the acquisition of two competing providers of direct-to-home TV retransmission services.
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). In a context where the quality of services supplied through both platforms is similar and services are comparable, the similarities in the price structure for TV content packages was also considered to confirm the high degree of substitution between services offered through these technologies. Despite the absence of perfect substitution at local level between services offered through DTH and cable, the fact that all significant players in the market enjoy a nationwide coverage and apply similar prices irrespective of the local market demand or offer, the CC defined the market at national level.
As opposed to the position adopted by other national competition authorities and the European Commission, however, the CC seemed to doubt that TV retransmission services offered through IPTV or web TV platforms would be entirely interchangeable by DTH and cable TV infrastructure given the additional technical conditions needed for the carrying on of the latter, such as a pre-existing internet connection and a minimum connectivity bandwidth. It should be noted that TV retransmission services by internet are still not a realistic market substitute to cable and DTH, which comprise about 95 per cent of Romanian sales.
While in a previous decision Romtelecom group requested the CC to assess the financially difficult situation of the acquired party and to grant derogation to allow implementation of the transaction before its clearance, in the Boom/Romtelecom decision, the target faced similar financial difficulties, but the parties did not make such a request of the CC. However, even in the absence of merging parties’ particular request for derogation, the CC speeded up the authorisation process and cleared the merger in less than two months. ftis decision illustrates how the CC reacts to financial deterioration, by showing its willingness to use its discretion to accelerate the review process in the absence of particular requests or procedures in this respect.
- Decision 16/2011 cleared the taking over by Romtelecom SA of Digital Cable Systems SA (AKTA Satellite brand) and Decision No. 11/2011 cleared the taking over by Romtelecom SA of DTH Television Group SA (Boom brand).
- Decision 19/2010 cleared the merger consisting in the taking of control by SC NextGen Communications SRL of SC New Com Telecomunicatii SA assets.
iii Fines for gun jumping7
Assesoft Distribution/Flamingo International
fte transaction took place in the local national market for wholesale of information technology products, where one of the largest distributors – Assesoft Distribution – acquired one of its competitors. fte merger was notified to the CC in February 2010, although the transaction documents had been concluded between the parties in March 2009.
An ex officio investigation was triggered by the RCC when observing that Assesoft Distribution gained control over the target business since March 2009, long before any merger clearance had been granted. In fact, the following arrangements between the parties were considered to amount to gun jumping:
- the acquiring party started to manage immediately after the signing the business relation with significant suppliers (Microsoft OEM, Microsoft FPP and Intel). In this respect, the seller was deemed to provide the acquirer with any needed information for the accession and use of the order, delivery and payment Also, all benefits arising from the new partnerships (bonuses, discounts, credit notes, marketing funds, etc.) would be transferred to the acquirer; and
- the acquirer took over the business relations with most clients, by way of meetings with distributors’ representatives, the conclusion of new contracts together with deliveries being performed based on the new
fte fine applied to the acquirer amounted to 0.5 per cent of its turnover in 2010. An interesting aspect is that because Flamingo International entered the insolvency procedure during the merger clearance – thereby fact burdening and delaying the approval procedure by more than six months – the CC granted Assesoft Distribution a mitigating circumstance. fte latter also benefited from a fine reduction for having confessed its guilt during the oral hearings.
Labormed Pharma/Ozone Laboratories
In July 2009, Ozone Laboratories Pharma (OLPH) and EG Ozone Laboratories (EG Ozone) – controlled by Labormed Pharma and part of Advent US pharmaceutical group – concluded an asset transfer agreement with Ozone Laboratories. Specifically, the assets involved were medicines, food supplements and medical devices marketing authorisations, several IP rights and commercial agreements. ftis transaction was notified to the CC for clearance in August 2009, with an approval being granted in December 2009.
- Decision 14/2011 for the sanctioning of SC Assesoft Distribution SRL for the violation of Article 15(6) from the Competition Law No. 21/1996; Decision No. 28/2011 for the sanctioning of SC Labormed Pharma SA for the violation of Article 15(6) from the Competition Law No. 21/1996.
fte CC similarly decided to open an ex officio investigation when analysing the merger documents and observing that the acquiring parties took control over the target assets prior to any merger clearance, by means of:
- implementation deadlines that preceded the final clearance date in December 2009;
- effective transfer of a significant number of the acquired marketing authorisations, several trademarks from the relevant assets;
- the acquirer’s taking over of key contracts and conclusion of new contracts with respect to transferred assets;
- implementation of new business and marketing strategy;
- the acquirer’s giving up to several brands from Ozone portfolio and deciding to entry new markets in Moldova; and
- the acquirer’s decision to restructure the entire sale activity,
Even though the acquiring parties were OLPH and EG Ozone, the CC found Labormed Pharma to be the actual infringing party. In fact, Labormed Pharma holds 99.99 per cent in one of the acquiring parties (OLPH), while being a sister company for the second acquiring firm (EG Ozone); however, the CC stated that the activity of EG Ozone is entirely carried out by the Labormed Pharma employees. fte CC applied European case-law precedent (Akzo Nobel and Knauf Gips KG) to find Labormed Pharma was decisively influencing the implementation of the merger and should therefore be held responsible. ftis is the first case where the CC decided to extend company’s liabilities for sister firms’ infringements.
Neither of the two mergers amounted to the creation or consolidation of a signification market position for the acquiring parties, as shown by the CC’s final clearance decisions. However, the assessment of a merger’s market impact is not relevant when assessing the seriousness of unlawful merger implementation cases.
Both decisions show the CC’s thorough assessment of any potential unlawful gun jumping violating the ‘standstill’ requirement applicable prior to merger approval. Labormed Pharma/Ozone Laboratories made clear that the gun-jumping scenarios provided within the New Merger Regulations are not exhaustive, with any act or fact of legal and/ or factual taking of control could be indicative of unlawful merger implementation.
iv Concentrative mergers in the health-care sector cleared with commitments8
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.
- Decisions 19 and 20 from 20 June 2011 cleared the taking over by Fresenius Medical Care Beteiligungesgesellschaft of two local suppliers of dialysis services.
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 the following main commitments to alleviate the CC’s concerns: (1) structural remedies on the downstream market consisting of the sale of Fresenius’ haemodialysis and peritoneal dialysis service capacities to an independent acquirer; and (2) 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 accessories. ftese commitments were considered a sufficient response to the CC’s concerns.
v Particular market definition and market strength assessment
Ringier Romania/Edipresse AS9
fte transaction involved the takeover by Ringier Romania – a large local media services provider – of Edipresse AS – a publishing services provider for magazines. fte merger affected several markets related to the publishing of magazines. In this decision, the CC departed from the European Commission practice10 and took quite a restrictive approach by identifying a different relevant market respective of the themes inherent to every magazine (glossies for women, food for women, children and parents, home and interior design, lifestyle, wedding, etc.). fte CC determined that a more expansive approach would artificially enlarge the relevant market and dilute the market shares of merging parties.
- Decision 63 regarding the economic concentration between SC Ringier Romania SRL and SC Edipresse AS SRL.
- COMP/M. 3420-GIMD/Socprese.
Johnson Controls Romania/Spumotin SA11
In a local merger between a car seating manufacturer – Johnson Controls Romania – and Spumotin – a local car seating foam supplier, the CC restated its particular view regarding the definition of the relevant market when most transactions are concluded by means of a tendering process. In these particular cases, given that the competitive battle between several players actually takes place during the bidding process, the CC finds it relevant to assess each competitor’s market power actually resulting from the tenders instead of looking at suppliers’ rather ‘theoretical’ annual market shares.
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 to 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 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).
- Decision 65 regarding the taking over by Johson Controls Romania SRL of a number of assets held by Spumotin SA.
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 fte 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.
v Gun jumping
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 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
One of the amendments to the Competition Law taking place in August 2011 required merging parties to ask for the approval by the government – on proposal from the Supreme Council of National Defence (‘SCND’) – of all mergers with potential impact on national security. Defence, infrastructure, energy or the electronic communications have in the past been areas of concern for SCND and might – at least theoretically
– need such an approval. fte RCC instructions provide that even transactions below the de minimis threshold should be notified to SCND. ftis new provision raised some confusion for market players as it does not provide further details as to the areas or size of the transactions that would be subject to this scrutiny nor does it exclude any risk of regulatory overlap between the CC and the government.
Another point worth mentioning is that the CC increased the level of sophistication in the antitrust analysis during the merger control procedure by the carrying on of complex assessments even in those cases of economic concentrations with a less significant impact on the market.
fte CC continues its restrictive approach when assessing ancillary restraints to economic concentrations. fte CC looks determined to scrutinise strictly and block the provision of any non-compete clauses imposed on vendors, restrictions in licence agreements, non-disclosure undertakings ancillary to mergers, and agreements that may be indicative of a restriction on competition.
While encouraging firms to request preliminary (informal) consultation before merger notification, the CC shows no leniency to gun jumping without approval, with two substantial fines applied in 2011 to acquiring parties implementing mergers before due clearance.
V OUTLOOK AND CONCLUSIONS
In its 2011 Annual Report, the CC stated a decrease in the budget of the authorisation fees to half of the 2010 income, which confirms the decreasing trend of mergers in Romania.
Signs of market dynamism are shown in a limited number of sectors, with a predominance of the pharmaceutical and health-care industry, the information technology and telecommunications industry, and the energy industry. Economic concentrations are mainly meant either for restructuring purposes (mainly through vertical integration) or for the rescuing of firms struggling with financial difficulties. An increasing trend in the number of transactions is shown in the agricultural sector and related markets, where the presence of foreign investments, the injection of EU and local public funds, as well as the increased popularity of the sector is also reflected in the transactions cleared by the CC in 2011 and in the first half of 2012.
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 and 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 Korşinszki is an associate with PeliFilip, having graduated with merits from the Faculty of Law at the university of bucharest, and holds a Masters degree in eu and international law (French-romanian College of european studies, university Paris I Pantheon-sorbonne) and also a Masters degree in international and european business law (university of strasbourg).
since joining the PeliFilip team, Ms Korşinszki 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.
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 telecommunications company in an intended takeover of the second-placed market player.