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<strong>Merger</strong> Control<br />

<strong>First</strong> <strong>Edition</strong><br />

Contributing Editors: Nigel Parr & Catherine Hammon<br />

Published by Global Legal Group


GLOBAL LEGAL INSIGHTS ­ MERGER CONTROL<br />

FIRST EDITION<br />

Contributing Editors<br />

Nigel Parr & Catherine Hammon, Ashurst LLP<br />

Marketing Manager<br />

Suzanne Millar<br />

Sub Editors<br />

Suzie Kidd<br />

Jodie Mablin<br />

Senior Editor<br />

Penny Smale<br />

Managing Editor<br />

Alan Falach<br />

Publisher<br />

George Archer<br />

Group Publisher<br />

Richard Firth<br />

We are extremely grateful for all contributions to this edition.<br />

Special thanks are reserved for Nigel Parr and Catherine Hammon for all their assistance.<br />

Published by Global Legal Group Ltd.<br />

59 Tanner Street, London SE1 3PL, United Kingdom, URL: www.glgroup.co.uk<br />

Copyright © 2011<br />

Global Legal Group Ltd. All rights reserved<br />

No photocopying<br />

ISBN 978-1-908070-08-1<br />

ISSN 2048-1292<br />

This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other<br />

advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance<br />

upon information contained in this publication. This publication is intended to give an indication of legal issues upon<br />

which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific<br />

situations. The information contained herein is accurate as of the date of publication.<br />

Printed by CPI UK<br />

September 2011


CONTENTS<br />

Preface Nigel Parr & Catherine Hammon, Ashurst LLP<br />

Australia Elizabeth Avery & Gina Cass-Gottlieb, Gilbert + Tobin 1<br />

Austria Astrid Ablasser-Neuhuber & Florian Neumayr, bpv Hügel Rechtsanwälte 7<br />

Brazil Eduardo Molan Gaban, Machado Associados, Advogados e Consultores 11<br />

Bulgaria Peter Petrov, Boyanov & Co. 19<br />

Canada Michelle Lally & Shuli Rodal, Osler, Hoskin & Harcourt LLP 24<br />

China Susan Ning, Huang Jing & Yin Ranran, King & Wood PRC Lawyers 31<br />

Colombia Alfonso Miranda Londoño, Esguerra Barrera Arriaga 38<br />

Cyprus Thomas Keane & Christina Vgenopoulou, Chrysses Demetriades & Co. LLC 45<br />

Czech Republic Ivo Janda & Magdalena Ličková, White & Case LLP 50<br />

Denmark Christina Heiberg-Grevy & Malene Gry-Jensen, Accura Advokatpartnerselskab 54<br />

Estonia Kätlin Kiudsoo & Marti Hääl, Attorneys at Law Borenius 58<br />

European Union Alec Burnside & Anne MacGregor, Cadwalader, Wickersham & Taft LLP 63<br />

Finland Petteri Metsä-Tokila & Leena Lindberg, Krogerus Attorneys Ltd 71<br />

France Pierre Zelenko & Stanislas de Guigné, Linklaters LLP 78<br />

Germany Marc Besen & Dimitri Slobodenjuk, Clifford Chance 86<br />

Greece Emmanuel J. Dryllerakis & Cleomenis G. Yannikas, Dryllerakis & <strong>Associates</strong> 92<br />

Hungary Dr. Judit Budai & Dr. Bence Molnár, Szecskay Attorneys at Law 100<br />

India Farhad Sorabjee, J. <strong>Sagar</strong> <strong>Associates</strong> 107<br />

Ireland Helen Kelly & Bonnie Costelloe, Matheson Ormsby Prentice 113<br />

Israel Dr. David E. Tadmor & Shai Bakal, Tadmor & Co. 119<br />

Italy Mario Siragusa & Matteo Beretta, Cleary Gottlieb Steen & Hamilton LLP 126<br />

Japan Koya Uemura, Anderson, Mōri & Tomotsune 135<br />

Korea Sang-Mo Koo, Jeong-Ran Lee & Mi-Jung Kim, Barun Law 142<br />

Netherlands Kees Schillemans & Emma Besselink, Allen & Overy LLP 148<br />

Portugal Mário Marques Mendes & Pedro Vilarinho Pires, Marques Mendes & Associados 153<br />

Romania Silviu Stoica & Mihaela Ion, Popovici Nitu & Asociatii 158<br />

South Africa Lesley Morphet & Desmond Rudman, Webber Wentzel 166<br />

Spain Jaime Folguera Crespo & Borja Martínez Corral, Uría Menéndez 171<br />

Switzerland Benoît Merkt & Marcel Meinhardt, Lenz & Staehelin 177<br />

Turkey Gönenç Gürkaynak & K. Korhan Yıldırım, ELIG Attorneys at Law 183<br />

Ukraine Denis Lysenko & Mariya Nizhnik, Vasil Kisil & Partners 189<br />

United Kingdom Nigel Parr & Mat Hughes, Ashurst LLP 196<br />

USA J. Mark Gidley & George L. Paul, White & Case LLP 207


PREFACE<br />

We are pleased to present the first edition of Global Legal Insights – <strong>Merger</strong><br />

Control. The book contains 33 country chapters, and is designed to provide<br />

general counsel, government agencies and private practice lawyers with a<br />

comprehensive insight into the realities of merger control, as well as practical, policy and<br />

strategic issues. It will complement The International Comparative Guide to: <strong>Merger</strong><br />

Control, a well established title now in its 7th edition, which has a place on the shelves of<br />

every lawyer advising on transactions with a cross-border dimension. The ICLG to:<br />

<strong>Merger</strong> Control, however, concentrates on black letter law and offers only limited scope for<br />

the various authors to express their own professional judgment on policy and strategy or to<br />

offer insight into the more subtle workings of their home regime. This new work is<br />

therefore intended as a sister volume to the ICLG "ready reckoner", adding colour and<br />

texture to the basics of merger control law.<br />

In producing Global Legal Insights, the publishers have collected the views and opinions<br />

of a group of leading competition law practitioners from around the world in a unique<br />

volume. The authors were asked to offer personal views on the most important recent<br />

developments in their own jurisdictions, with a free rein to decide the focus of their own<br />

chapter. One of the great attractions of comparative analyses is, of course, the possibility<br />

that what is happening in one jurisdiction may inform understanding or influence<br />

innovation in another jurisdiction: we hope that this book will prove insightful and<br />

potentially inspirational reading.<br />

Nigel Parr and Catherine Hammon,<br />

Ashurst LLP


Australia<br />

Elizabeth Avery & Gina Cass­Gottlieb<br />

Gilbert + Tobin<br />

Overview of merger control activity during the last 12 months<br />

The Australian Competition and Consumer Commission (ACCC) is responsible for administering the Competition and<br />

Consumer Act 2010 (Cth) (CCA), including the prohibition on acquisitions of shares or assets that have the effect, or<br />

would be likely to have the effect, of substantially lessening competition in a market in Australia, under s 50 of the CCA.<br />

Although there is no compulsory pre-clearance regime, in practice a well established informal clearance process has<br />

developed, as the statistics below indicate. The degree of recent merger control activity is best illustrated by comparison<br />

with activity in prior years1 .<br />

2010/11 2009/10 2008/09 2007/08 2006/07 2005/06 2004/05<br />

Total 105 168 412 397 390 272 189<br />

Not opposed 99 131 397 380 365 261 178<br />

Opposed<br />

outright<br />

Resolved<br />

during review<br />

through<br />

undertakings<br />

3 8 10 11 17 5 2<br />

6 4 5 6 8 6 9<br />

As the statistics above highlight, there has been a proportionate increase over prior years in the number of mergers resolved<br />

through undertakings. The number of outright oppositions by the ACCC has also increased in the last few years.<br />

Strategic considerations in relation to decisions as to whether to seek ACCC clearance<br />

As there is no statutory requirement to seek pre-merger clearance under Australian law, parties have several options<br />

available to them, allowing for a relatively high degree of flexibility. The strategy that the parties to a transaction adopt<br />

may depend on the parties’ appetite for risk.<br />

These options include:<br />

• Simply proceeding with the transaction without approaching the ACCC. However, this will not prevent the ACCC<br />

from subsequently investigating the merger, including using its statutory powers to compel the production of<br />

documents, information and testimony under oath, as well as making public inquiries to assist in the ACCC’s<br />

investigation. Nor will proceeding with the transaction prevent the ACCC from taking action to prevent the merger,<br />

or seek divestitures in relation to the merger. In the last year, there have been 16 transactions where the ACCC<br />

reviewed the transaction after completion, and some of these reviews are ongoing.<br />

• Seeking informal clearance from the ACCC. If informal clearance is sought, parties generally provide a detailed<br />

written submission explaining the transaction and why it raises no competition concerns. The ACCC will publish<br />

a timetable for conducting its market enquiries and review process.<br />

• Seeking formal clearance from the ACCC under ss 95AC-95AS of the CCA. If granted, a formal clearance decision<br />

provides the parties with legal protection from court action under s 50 of the CCA. If the ACCC refuses the<br />

application, an appeal to the Australian Competition Tribunal is available. Notably, no applications have yet been<br />

made under the formal clearance process, and the ACCC has indicated its preference for applications under the<br />

informal clearance process.<br />

Global Legal Insights ­ <strong>Merger</strong> Control <strong>First</strong> <strong>Edition</strong><br />

—1—<br />

© Published and reproduced with kind permission by Global Legal Group Ltd, London<br />

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Gilbert + Tobin Australia<br />

• Making an application to the Australian Competition Tribunal for authorisation of the merger, under ss 95AT-<br />

95AZM of the CCA, whereby the merger may be immunised from challenge under s 50 of the CCA, if the Tribunal<br />

is satisfied that the proposed merger is likely to result in such a benefit to the public that it should be allowed. There<br />

have been very few merger authorisation applications.<br />

• Seeking a declaration in the Federal Court of Australia that the merger will not result in a breach of s 50 of the CCA.<br />

This procedure has only been used on one occasion, where a party sought a declaration after the ACCC refused to<br />

grant clearance or seek an injunction to stop the acquisition 2 . The Court held that the transaction was not likely to<br />

substantially lessen competition and granted a declaration to that effect.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barrier to entry, nature of<br />

international competition, etc.<br />

As Australia is a smaller economy, many sectors are relatively highly concentrated; duopolies are not uncommon and there are<br />

many sectors with only a few participants. For this reason, there are several sectors that the ACCC monitors closely and expects<br />

to be notified of transactions within the sector, regardless of the increase in concentration or level of competition concern<br />

perceived. These sectors include banking, grocery, retail, petrol, telecommunications and media, among others.<br />

This heightened scrutiny is well illustrated by the ACCC’s 2010 opposition to the proposed acquisition of National Australia<br />

Bank Limited (NAB) by AXA Asia Pacific Holdings Limited (AXA) 3 . Although the parties’ combined share and increase<br />

in concentration was not considered particularly high, the ACCC was concerned that if NAB acquired the retail investment<br />

platform being developed for AXA, then the possibility of that platform providing a strong competitive constraint in the<br />

relevant market would be impaired, compared with the probability of the platform being controlled by a market participant<br />

outside the “big 4” banks, which had made a rival bid for AXA.<br />

Key economic appraisal techniques applied<br />

In assessing whether a proposed acquisition is likely to result in a significant and sustainable increase in market power,<br />

the ACCC considers the various factors as set out in s 50(3) of the CCA. These merger factors include actual and potential<br />

level of import competition, height of barriers to entry, level of concentration, degree of countervailing power, likelihood<br />

that significant and sustainable higher prices or profit margins would result, availability of substitutes, dynamic<br />

characteristics of the market, including growth, innovation and product differentiation, likelihood of removal of a vigorous<br />

and effective competitor, and the nature and extent of vertical integration4 .<br />

The merger factors are not an exhaustive list. The <strong>Merger</strong> Guidelines note other factors that may be relevant to the<br />

assessment can be taken into account, such as strategic or other behavioural considerations, the likelihood of coordinated<br />

conduct and, to the extent that they may be relevant, efficiency enhancing aspects of a merger that affect the competitiveness<br />

of the market5 .<br />

Importantly, the ACCC considers the section 50 factors in the context of particular economic theories of competitive harm.<br />

In this manner, the ACCC clearly articulates the different types of competition concerns arising from different types of<br />

mergers (i.e., vertical, horizontal and conglomerate).<br />

Specifically, the ACCC undertakes its analysis in the context of identifying unilateral and coordinated effects as well as<br />

conglomerate effects that may arise from the proposed type of merger6 .<br />

In determining whether unilateral effects arise and whether they are likely to result in a substantial lessening of competition,<br />

the ACCC considers all of the merger factors identified above and any other relevant factors. In particular, the ACCC<br />

states that it considers whether the broader actual and potential competitive constraints—such as new entrants, imports or<br />

countervailing power—will limit any increase in the unilateral market power of each remaining market participant7 .<br />

When analysing the coordinated effects of mergers, the ACCC will analyse the extent to which the merger may alter the<br />

nature of interdependence between rivals such that coordinated conduct is more likely, more complete or more sustainable8 .<br />

When assessing whether a merger is likely to give rise to coordinated effects, the ACCC first assesses whether conditions<br />

in the relevant market are likely to be conducive to coordinated conduct. The ACCC then assesses the likely effect of the<br />

merger on those conditions. The key conditions identified by the ACCC are9 :<br />

• firms have the ability and incentive to settle on terms that are profitable for all;<br />

• firms can detect deviations from the consensus;<br />

• the threat of retaliation from other firms involved is sufficiently costly to act as a deterrent to deviation; and<br />

• the consensus is not undermined by competitive constraints in the market.<br />

In relation to vertical mergers, the ACCC’s focus of concern is where the merged firm is likely to have the ability and<br />

incentive to use its position in one market to anti-competitively foreclose rivals in another market, in a way that lessens<br />

competition. Similarly, the ACCC considers that conglomerate mergers could raise competition concerns where they<br />

enable the merged firm to alter its operations or product offerings in a way that forecloses rivals and reduces their<br />

competitive constraints10 .<br />

Global Legal Insights ­ <strong>Merger</strong> Control <strong>First</strong> <strong>Edition</strong><br />

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© Published and reproduced with kind permission by Global Legal Group Ltd, London<br />

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Gilbert + Tobin Australia<br />

In the past financial year (since 1 July 2010), the following theories of harm have been articulated in the ACCC’s Statements<br />

of Issues (SOI) or Public Competition Assessments (PCA), and been the basis for opposition, with the frequency noted below 11 :<br />

Theory of harm SOI/PCA Basis for opposition<br />

Unilateral effects 10 5<br />

Coordinated effects 8 6<br />

Conglomerate effects 2 2<br />

Vertical foreclosure 6 2<br />

As the above statistics illustrate, the ACCC most frequently scrutinises and opposes mergers based on unilateral or<br />

coordinated effects theories of harm.<br />

The starting point for analysis of horizontal mergers by the ACCC is the competitive overlap between the merger parties,<br />

the consideration of the sufficiently close substitutes and therefore the dimension of the relevant market or markets,<br />

considered in a purposive fashion and calculations of changes in concentration. The ACCC considers the available evidence<br />

as to the likely sufficiency of post-merger competitive constraints and in particular, whether the merged entity is likely to<br />

be able to impose a SSNIP. In a recent speech, the <strong>Merger</strong>s Commissioner discussed the use of the Upward Pricing<br />

Pressure (UPP) theory by competition regulators in the United States and the United Kingdom in evaluating the potential<br />

unilateral effects of mergers in markets for differentiated products. Dr Walker noted the ACCC’s experience of limitations<br />

in applying UPP theory due to frequent shortcomings in the quality of the data, and the inability to publicly test the data.<br />

Further, Dr Walker commented that a shortcoming of the UPP approach is the inability to determine whether any upward<br />

pricing pressure is likely to result in substantial and sustained price increases12 . For this reason she concluded that the<br />

ACCC does not expect the use of the UPP test to be practical in most cases.<br />

In recent years, the ACCC’s use and analysis of quantitative information has increased, resulting from the increase in<br />

quantitative submissions by interested parties, external economic experts and an increasing depth of economic expertise<br />

within the ACCC13 .<br />

The ACCC’s economic unit considers that a range of quantitative analysis may be useful, including:<br />

• market shares;<br />

• price correlations;<br />

• merger simulations;<br />

• win/loss studies;<br />

• diversion ratios;<br />

• critical loss analysis;<br />

• price elasticities of demand; and<br />

• entry/exit analysis cross-sectional analysis14 .<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

When a transaction raises potential competition issues, these can potentially be overcome by the parties giving the ACCC<br />

a court-enforceable undertaking under section 87B of the CCA.<br />

Undertakings are not mandatory in Australia but are rather offered voluntarily by merger parties. The parties are free to<br />

propose section 87B undertakings to the ACCC at any time throughout the review process15 . The ACCC routinely conducts<br />

market inquiries on section 87B undertakings proposed by the merger parties16 .<br />

Whether parties elect to offer merger remedies upfront, to avoid a second stage investigation, or after an adverse second<br />

stage investigation has been concluded, will depend of the circumstances of the particular case and the imperatives of the<br />

transaction timetable.<br />

The advantage of offering remedies earlier is to reduce the ACCC review time. If parties have a short defined timeline<br />

and they have identified a significant issue upfront that could readily be resolved through agreeing to a remedy (assuming<br />

that remedy would not undermine the rationale for the deal). For example, in 2010, OneSteel Limited proposed to acquire<br />

Moly-Cop Group S.a.r.l from Anglo American plc. The parties owned the only two “grinding media” businesses (for<br />

crushing rocks to extract precious metals) in Australia. This was Moly-Cop’s only interest in Australia. The ACCC noted<br />

that early in the review process, the parties approached it with a court-enforceable undertaking to divest the interest in the<br />

grinding media business it would acquire through Moly-Cop, which enabled the ACCC to focus its market enquiries on<br />

the adequacy of the undertaking offered. On this basis, the ACCC investigation was completed in just over one month17 .<br />

Global Legal Insights ­ <strong>Merger</strong> Control <strong>First</strong> <strong>Edition</strong><br />

—3—<br />

© Published and reproduced with kind permission by Global Legal Group Ltd, London<br />

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Gilbert + Tobin Australia<br />

Key policy developments<br />

Key trends in ACCC merger review include a greater focus on the dynamics of competition and in particular, the<br />

“counterfactual”, otherwise known as the “with and without test”, which compares the future state of competition with<br />

and without the merger18 . This approach is derived from case law in Australia interpreting the meaning of “substantial<br />

lessening of competition” 19 .<br />

On one view, the test merely requires a comparison of the likely state of competition with the merger, to the status quo<br />

(i.e., without the merger). However, there are some situations in which the ACCC may consider that the status quo is not<br />

the appropriate counterfactual, including where there are rival bidders, or potential rival bidders, for the target; the ACCC<br />

may assess the merger against an alternate counterfactual. The ACCC states that “such circumstances are likely to be<br />

rare” 20 .<br />

However, several recent ACCC reviews indicate that these circumstances are not so rare. In Metcash Trading Limited -<br />

proposed acquisition of Interfrank Group Holdings Pty Ltd (Franklins) (2010/2011) 21 , Metcash (Australia’s largest<br />

independent grocery, fresh produce and liquor wholesaler and distributor to independent grocery retailers) proposed to<br />

acquire Franklins, wholesale grocery supplier to 88 stores (80 owned and operated; 8 franchised) from Pick’N Pay.<br />

In its Statement of Issues, the ACCC explored a range of counterfactuals to the acquisition:<br />

• Pick’N Pay continues to operate Franklins (the status quo).<br />

• Franklins sells to an alternative buyer.<br />

• Sale stores are sold off individually and the wholesale business is closed down.<br />

The ACCC considered that the alternative buyer was the most likely counterfactual, stating that “the ACCC is of the<br />

preliminary view that an acquisition of the Franklins business would present a unique opportunity for new entrants as it<br />

overcomes significant hurdles faced in setting up a new wholesale business” 22 . Further, the ACCC stated that the acquisition<br />

would have resulted in “the removal of a large pool of 88 supermarkets…which would otherwise be contestable, either<br />

partly or wholly, by a new wholesale competitor” 23 .<br />

The ACCC subsequently indicated that it intended to oppose the transaction, stating:<br />

Other parties expressed strong interest in acquiring the entire Franklins business, their bids would not raise the<br />

same competition concerns as Metcash’s bid and indeed may enhance competition.<br />

If Pick’N Pay decides to pursue an alternative sale process following the ACCC’s decision, the ACCC would<br />

examine any other bids to ensure competition concerns do not arise, with a particular focus on whether the bids<br />

would reduce (or enhance) the likelihood of effective wholesale competition, to supply independent retailers in NSW<br />

being maintained. 24<br />

Similar analytical approaches have been followed in other recent reviews, including in relation to the proposed acquisition<br />

of NSW electricity retail/generation assets (identified and compared counterfactuals of “bids with some likelihood of<br />

success”); NAB/AXA, AMP/AXA (likely competitive effects of two competitive bids directly compared); the Caltex<br />

acquisition of JV interest in Gladstone Terminal (ACCC considered likelihood of alternative acquisition by an independent<br />

third party, and considered that this “possible” counterfactual, was “not likely to be substantially more competitive than<br />

the proposed acquisition”).<br />

Reform proposal: Creeping acquisitions<br />

Creeping acquisitions are generally defined to be a series of small-scale acquisitions that individually do not substantially<br />

lessen competition in a market in breach of Section 50 of the Competition and Consumer Act (CCA), but collectively may<br />

have that effect over time.<br />

Various models of reform had been proposed since the Government first committed in 2007 to addressing the issue of<br />

creeping acquisitions. These include:<br />

• Aggregation Model<br />

This model would prohibit an acquisition by a corporation if, when combined with previous acquisitions made by the<br />

corporation within a “specified period”, that acquisition would be likely to substantially lessen competition in a market.<br />

• Substantial Market Power Model<br />

This would prohibit a corporation from making an acquisition if it already has a substantial degree of power in a market<br />

and the acquisition would result in ‘any lessening’ of competition in that market.<br />

• Amended Substantial Market Power Model<br />

This would prevent a corporation from making an acquisition if it already has a substantial degree of power in a market<br />

and the acquisition would have, or be likely to have, the effect of enhancing that power.<br />

• Triggering the Application of Creeping Acquisition Laws<br />

This model is similar to the amended substantial market power model but will only apply to declared corporations or<br />

Global Legal Insights ­ <strong>Merger</strong> Control <strong>First</strong> <strong>Edition</strong><br />

—4—<br />

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Gilbert + Tobin Australia<br />

sectors for a set period of time. The model could require mandatory notification to the ACCC of acquisitions above a set<br />

threshold by the declared institution.<br />

The Government then issued a discussion paper canvassing support for the different models but failed to gather any clear<br />

consensus as to whether there was, in practice, a substantive problem to be addressed. All the above models were<br />

considered to be overly interventionist with high costs. Consequently, the Government responded to “specific problems<br />

with specific remedies”, which can be seen in the current amendments.<br />

Recently, the Federal Government has re-introduced its Competition and Consumer Legislation Amendment Bill (Bill)<br />

which proposes to address the issue of “creeping acquisitions” and simplify the unconscionable conduct provisions in the<br />

Australian Consumer Law (ACL). The Bill failed to pass the Senate after it was originally tabled in May 2010 and lapsed<br />

as a result of the Federal election. The re-introduced Bill is practically identical to the original with the addition of some<br />

minor technical amendments.<br />

The proposed amendments in the Bill are designed to clarify the ability of the ACCC or courts to consider multiple markets<br />

when assessing mergers and acquisitions. The changes will prevent businesses challenging a decision on grounds that the<br />

lessening of competition identified was in one or more markets other than the primary market in which the merger or<br />

acquisition would occur. It is not clear when the Bill will be passed.<br />

* * *<br />

Endnotes<br />

1 Based on Statistics in ACCC Annual Reports, 2004-05, 2005-06, 2007-08, 2008-09, 2009-10, and for 2010/11, on<br />

a review of the ACCC <strong>Merger</strong>s Register, as at 30 June 2011. Note that totals may not be precise due to withdrawn<br />

mergers. Some mergers are withdrawn after the ACCC publishes a negative Statement of Issues.<br />

2 Australian Gas Light Co v Australian Competition and Consumer Commission [2003] FCA 1525.<br />

3 See http://www.accc.gov.au/content/index.phtml/itemId/924341/fromItemId/751043.<br />

4 CCA s 50(3). While all the merger factors must be taken into consideration, it may not be necessary for all factors<br />

to indicate that the merged firm would face effective competitive constraints. In some cases a single effective<br />

constraint can be sufficient to prevent a significant and sustained increase in the market power of the merged firm,<br />

while in other cases the collective effect of several constraints may be required. Conversely, the absence of a single<br />

particular constraint is unlikely to be indicative of an increase in market power as a result of a merger. <strong>Merger</strong><br />

Guidelines, paragraph 7.4.<br />

5 <strong>Merger</strong> Guidelines, paragraph 7.62.<br />

6 <strong>Merger</strong> Guidelines, section 5.<br />

7 <strong>Merger</strong> Guidelines, paragraph 5.3.<br />

8 <strong>Merger</strong> Guidelines, section 6.<br />

9 <strong>Merger</strong> Guidelines, paragraphs 6.5-6.7.<br />

10 <strong>Merger</strong> Guidelines, paragraphs 5.18-5.27.<br />

11 It should be noted that the ACCC does not issue an SOI or PCA in all reviews, hence, this table represents a small<br />

sample of of ACCC decisions. Where the ACCC issued both an SOI and a PCA in a transaction, the relevant theory<br />

of harm has been counted only once.<br />

12 See Dr J Walker, Developments in Competition Law, presented at the RBB Economics Australia Conference<br />

Sydney, 8 June 2011, at 10-11.<br />

See http://www.accc.gov.au/content/index.phtml/itemId/993868/fromItemId/8973.<br />

13 Presentation by Graeme Woodbridge, ACCC Competition and Consumer Economics Unit, at RBB Economics<br />

Australia conference, 8 June 2011.<br />

14 Id.<br />

15 <strong>Merger</strong> Process Review Guidelines, paragraph 4.79<br />

16 <strong>Merger</strong> Review Process Guidelines, paragraph 4.79.<br />

17 See http://www.accc.gov.au/content/index.phtml/itemId/963258/fromItemId/751043.<br />

18 See ACCC <strong>Merger</strong> Guidelines, paragraphs 3.16-3.19.<br />

19 See, e.g., Australian Gas Light Co v ACCC (No 3) (2003) 137 FCR 317; Dandy Power Equipment Pty Limited v<br />

Mercury Marine Pty Ltd (1982) 44 ALR 173.<br />

20 See, e.g., ACCC <strong>Merger</strong> Guidelines, paragraph 3.19.<br />

21 http://www.accc.gov.au/content/index.phtml/itemId/956971/fromItemId/751043.<br />

22 http://www.accc.gov.au/content/index.phtml/itemId/956971/fromItemId/751043.<br />

23 http://www.accc.gov.au/content/index.phtml/itemId/956971/fromItemId/751043.<br />

24 As Metcash determined to complete the transaction, the matter is currently before the Court, on the ACCC’s<br />

application for an injunction to prevent the merger from proceeding.<br />

Global Legal Insights ­ <strong>Merger</strong> Control <strong>First</strong> <strong>Edition</strong><br />

—5—<br />

© Published and reproduced with kind permission by Global Legal Group Ltd, London<br />

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Gilbert + Tobin Australia<br />

Elizabeth Avery<br />

Tel: +61 2 9263 4362 / Email: eavery@gtlaw.com.au<br />

Elizabeth is a partner in Gilbert + Tobin’s Competition & Regulation practice. She advises on<br />

enforcement and cartel litigation and investigations, merger clearances and ongoing strategic/operational<br />

counselling. Her industry expertise includes financial services, resources, infrastructure, technology,<br />

retail, travel and hospitality. She has a particular focus on multijurisdictional matters.<br />

Prior to joining Gilbert + Tobin, Elizabeth was an associate of Weil, Gotshal and Manges in New York<br />

for seven years, advising on antitrust issues in litigation, government investigations, mergers and other<br />

advisory work.<br />

Elizabeth is a Vice Chair of the International Antitrust Committee of the American Bar Association’s<br />

Section of International Law.<br />

Elizabeth obtained a Master of Laws from New York University, where she won the antitrust prize. She<br />

also holds a BA and LLB (Honours) from the University of Sydney. Elizabeth is admitted in New York,<br />

and in Australia.<br />

Gina Cass-Gottlieb<br />

Tel: +61 2 9263 4006 / Email: gcass-gottlieb@gtlaw.com.au<br />

Gina is a senior partner in Gilbert + Tobin’s competition and regulation practice. Gina is consistently<br />

ranked as one of Australia’s leading competition and regulatory lawyers by Chambers Global and Asia<br />

Pacific Legal 500 and is named in the Best Lawyers International List.<br />

Gina leads Gilbert + Tobin’s work in obtaining or opposing competition clearances for mergers and joint<br />

ventures in Australia and New Zealand. In addition to her expertise in all areas of competition law advice<br />

for major corporations, Gina specialises in economic regulatory advice and representing clients before<br />

the ACCC, NZCC, ASIC, ACMA and other regulators.<br />

Gilbert + Tobin<br />

2 Park Street, Sydney NSW 2000, Australia<br />

Tel: +61 2 9263 4362 / Fax: +61 2 9263 4111 / URL: http://www.gtlaw.com.au<br />

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Austria<br />

Astrid Ablasser­Neuhuber & Florian Neumayr<br />

bpv Hügel Rechtsanwälte<br />

Overview of merger control activity during the last twelve months<br />

In the first half of the year 2011, 129 concentrations (transactions coming within the ambit of Austrian merger control)<br />

have been notified with the Austrian Federal Competition Agency (Bundeswettbewerbsbehörde, the “BWB”). If this trend<br />

continues, we will see approximately the same number of notifications as in 2010 (238). In 2009, possibly under the<br />

impression of the international financial downturn, there were only 212 notifications (the activities report 2009 by the<br />

BWB is not clear as it speaks of 212 notifications in one context and 213 notifications in another; our own research revealed<br />

the former figure). This is significantly fewer as compared to the years before: 273 concentrations were notified in 2008<br />

(own research; pursuant to the BWB’s respective activities report, it was between 268 and 275) and 340 in 2007 (again,<br />

according to own research; pursuant to the BWB’s activities report for the second half of 2007, it was 342 notifications).<br />

Besides, the Official Parties have dealt with cases in the context of merger control, which were not strictly speaking<br />

notifications, such as requests for guidance on whether or not the effects doctrine (i.e., no duty to notify under certain<br />

circumstances even though the turnover thresholds set forth in the Austrian Cartel Act are met) is applicable. For the first<br />

half of 2011, there is no figure available yet as to how many such cases the BWB handled. In 2010, the BWB dealt with<br />

22 such cases according to its activities report for 2010. This compares to 25 such cases in 2009, 38 in 2008, and 34 in<br />

2007 (the source are the respective activities reports).<br />

Austrian law distinguishes between phase I and phase II proceedings. Following notification with the BWB, concentrations<br />

are reviewed in phase I by both Official Parties (Amtsparteien), i.e. the BWB and the Federal Cartel Prosecutor<br />

(Bundeskartellkartellanwalt, the “FCP”). Phase II proceedings take place before the Cartel Court (Kartellgericht, a<br />

specialised division of the Court of Appeals Vienna) upon the request of the BWB and/or the FCP. If none of the Official<br />

Parties applies for phase II proceedings within four weeks of notification, the merger is regarded as cleared.<br />

Such phase I clearance is, by far, the most common outcome of merger control proceedings in Austria. In recent years<br />

(including the first half of 2011), between 75% (2008) and almost 79% (2007) of notified mergers were cleared that way<br />

(this and all following figures arrived at on the basis of own research). Only in 2009 were fewer mergers cleared the<br />

“normal” way (68%); that year saw a quarter of all mergers being cleared in an expedient manner.<br />

The expedient clearance means that the Official Parties, prior to the expiration of phase I, expressly waive their right to<br />

request phase II proceedings. According to best practice, they do so, at the earliest, 14 plus a few days after publication<br />

of the fact that the respective merger has been notified. This “waiting period” is explained by the fact that any undertaking<br />

that regards its legal or economic interests affected by the merger can, within 14 days as of such publication, submit written<br />

observations on the merger to the Official Parties. The few additional days the Official Parties tend to wait before they<br />

may issue a waiver is to also allow observations that might have been sent on the last day of this 14-day period (by ordinary<br />

mail) to arrive at the offices of the Official Parties. In the years 2007, 2008, 2010 and the first half of 2011, the Official<br />

Parties issued waivers in between 14% (2007) and 20% (2008) of the cases.<br />

If a merger raises concerns, the notifying parties can offer, the Official Parties can request and the Cartel Court can impose<br />

conditions and/or remedies. Such conditions/remedies can be given both in phase I and phase II. In absolute terms, there<br />

are not many clearances subject to conditions (e.g., in the first half of 2011, only three) and approximately as many of<br />

them were arrived at during phase I as during phase II proceedings (e.g., both in 2008 and 2009, there were three conditional<br />

phase I and three conditional phase II clearances). However, in relative terms, there is a rather high likelihood that phase<br />

II proceedings end in a conditional clearance. Between 2007 and 2009, between 37% (2008) and almost 43% (2009) of<br />

phase II clearances were subject to conditions; in the first half of 2011, both phase II clearances were subject to conditions<br />

(i.e. 100%). 2010 was an exception to this rule, seeing 6 phase II clearances with only one subject to conditions.<br />

From 2007 to today, there has not been any prohibition decision. However, this can also partly be explained by the fact<br />

that, in critical cases, either remedies are the solution or notifying parties may withdraw the notification (and abandon the<br />

proposed merger).<br />

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pv Hügel Rechtsanwälte Austria<br />

Between 2007 and the end of June 2011, between 2% (2009) and almost 4% (first half of 2011) of notified mergers ended<br />

neither in phase I nor phase II clearance but in some other manner (withdrawal, transferral to the European Commission,<br />

etc.); 2008 formed an exception where only two cases (0.7%) ended in such different manner.<br />

New developments in jurisdictional assessment or procedure<br />

In the first half of 2011, and in 2010, no significant new developments occurred in the substantive assessment of notified<br />

mergers.<br />

However, the trend to run economic assessments in combination with market inquiries continued. For instance, in a case<br />

notified in March 2011 (BWB/Z-1387 Pfeifer) concerning the food wholesale market, the BWB checked the proposed<br />

market definition using both a SSNIP test and a turnover-distance analysis. The case ended in a conditional clearance in<br />

phase II.<br />

Several merger cases concerned debated questions such as whether a successive acquisition of up to 100% can be notified<br />

as the acquisition of 100% from the outset (BWB/Z-1138 Air Berlin) or whether the acquisition of 24% plus certain rights<br />

may qualify as a notifiable concentration (investigation triggered by BWB/Z-1138 Air Berlin).<br />

Further, the Cartel Court of Appeals (Kartellobergericht, i.e. the Austrian Supreme Court) clarified some questions. For<br />

instance, the court made it clear that even undertakings (and parts thereof) closed in insolvency proceedings can qualify<br />

as (parts of) undertakings within the meaning of Austrian merger control (i.e. their acquisition triggers a filing obligation<br />

above the thresholds) if their re-opening – even only after acquisition by a new investor – is not improbable (decision of<br />

Oct 4, 2010, 16 Ok 6/10).<br />

Upon the initiative of the BWB, a cooperation between the competition authorities of Austria, the Baltic States, Bulgaria,<br />

Croatia, Hungary, Poland, Romania, Slovakia, Slovenia, and Switzerland, the so-called “Marchfeld Forum”, became<br />

operational in March 2010. A database allows participating competition authorities to see whether an undertaking has<br />

notified a merger with one of them. Further, the current consultation of DG Competition, regarding the collaboration of<br />

national competition authorities in merger cases (until May 27, 2011, interested parties could submit observations), may<br />

trigger some changes, be it only an intensified information exchange between competition authorities throughout the EEA.<br />

This in turn may make it more likely that when a merger is notified in one European country, but not in Austria, that the<br />

BWB and/or the FCP also (i) learn about a merger and (ii) if they consider it to come within the ambit of Austrian merger<br />

control, can investigate it.<br />

In this context, it can also be mentioned that, upon application by the BWB, the Cartel Court recently handed down a fine<br />

for a belated notification (decision of April 7, 2010, 25 Kt 1/10). While the fine was small (EUR 5,000), this was due to<br />

the facts of the case; the Cartel Court found that the merger did not give rise to competition concerns, there were arguments<br />

that the effects doctrine applied (i.e. the involved undertakings had their corporate seats in Germany and not Austria) and,<br />

moreover, there were further mitigating circumstances (inter alia, the undertaking concerned helped in clarifying the facts<br />

of the case).<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition, etc.<br />

A sector that has for some time now been under close and special review by the BWB is motor fuels. Already in July<br />

2008, the BWB issued its first interim-report on specific issues in the motor fuels sector. The BWB undertook several<br />

further investigations, such as of the specific situations in Salzburg and of motorway petrol stations, and published<br />

respective reports. In July 2010, it published a report on its Platts price assessments, which is available on the BWB’s<br />

homepage (www.bwb.gv.at) in English. In its most recent report on the sector (published in April 2011), the BWB looks<br />

at the structure of the market on all the various levels (upstream, midstream and downstream). Last but not least, the<br />

BWB publishes a monthly newsletter on the price developments.<br />

Older sector enquiries concerned the food retail, gas and electricity markets. The latter was followed by a report on green<br />

electricity (Ökostrom) in June 2010.<br />

<strong>Merger</strong>s in these areas are typically closely looked at by the BWB, such as the concentration BWB/Z-1318 M-Preis notified<br />

in December 2010 concerning the food retail sector, which was only cleared in phase II proceedings.<br />

In food wholesale, the merger BWB/Z-1387 Pfeifer triggered a close analysis of the market definition (see also “New<br />

developments in jurisdictional assessment or procedure” above) that even led, as far as can be seen for the first time, to a<br />

publication on the BWB’s homepage on how the market in a certain sector will be defined in the future merger cases.<br />

Pursuant to that publication, the relevant product market is to be separated in a pick up wholesale (Abholgroßhandel) for<br />

smaller retailers and a delivery wholesale (Zustellgroßhandel) for bigger retailers. The geographic scope of the pick up<br />

wholesale was found by the BWB to be 30km around the relevant place of business and 100km regarding the delivery<br />

wholesale.<br />

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pv Hügel Rechtsanwälte Austria<br />

Key economic appraisal techniques applied<br />

The BWB has several people who are professional macro or micro economists; the BWB has also formed an organisational<br />

department (Stabseinheit) focused on economic questions.<br />

The BWB employs all sorts of economic analysis (see also “new developments in jurisdictional assessment or procedure”<br />

above). Already in 2006, the BWB had commissioned a study on the economic techniques to delineate the relevant market<br />

and apply the Herfindahl-Hirschman index. Further, it can be mentioned in this context that, where a merger concerns<br />

sectors subject to specific regulation (e.g. telecoms), the BWB closely collaborates with the experts from the sector<br />

regulators.<br />

In phase II proceedings, the appointment of a court (economic) expert to analyse the competitive impact of the merger in<br />

question is the rule rather than the exception (unless remedies are offered and accepted by the Official Parties at an early<br />

stage).<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

As elaborated above (see “Overview of merger control activity during the last 12 months”), approximately as many<br />

remedies were offered or requested during phase I as during phase II proceedings in the recent past.<br />

Many different remedies have been offered, accepted or imposed. They may roughly be categorised as either structural<br />

or behavioural in nature or as a mixture of the two, what maybe called hybrid.<br />

While structural measures (e.g. selling-on several of the acquired super market stores) are, for example, in the recent<br />

publication following the merger BWB/Z-1387 Pfeifer, said by the BWB to be apt to remedy competition concerns, the<br />

other types of remedies are more common.<br />

In the years 2007 to 2009 and the first half of 2011, either approx 17% (2008 and 2009) or 33% (2007 and the first half of<br />

2011) of all remedies were structural in nature. In 2010, there were no structural remedies. In 2009 and 2010 most<br />

remedies were behavioural ones, namely 67% in 2009 and 100% in 2010. In the other recent years, hybrid remedies were<br />

most common. Such remedies ranged from an obligation not to manage nor influence the management of some ownproduction<br />

facilities (BWB/Z-862) to a prohibition to do further acquisitions in certain geographic areas (BWB/Z-1387).<br />

See further “Key policy developments” below.<br />

Key policy developments<br />

In this context, it can be mentioned that, in May 2010, the BWB resolved to review all clearances under conditions to see<br />

whether the respective obligations and/or prohibitions were complied with as well as whether the remedies were effective<br />

in tackling the indentified competitive concerns. In a first phase, the BWB has focused on 12 remedies.<br />

See further “Reform proposals” below.<br />

Reform proposals<br />

In 2010, the Social Partners (Sozialpartner), comprising of, in particular, the interest groups Austrian Federation of Trade<br />

Unions (Österreichischer Gewerkschaftsbund), Austrian Economic Chamber (Wirtschaftskammer Österreich), Federal<br />

Chamber of Labour (Bundesarbeitskammer), and Austrian Chamber of Agriculture (Landwirtschaftskammer Österreich),<br />

presented a study entitled “Future of Competition Policy in Austria” (“Zukunft der Wettbewerbspolitik in Österreich”).<br />

In this study, the Social Partners suggest a number of amendments to the current Austrian merger control regime. Inter<br />

alia, they propose to introduce a provision pursuant to which also the acquisition of appreciable competitive influence<br />

(wettbewerblich erheblicher Einfluss) shall constitute a concentration. Further, they are in favour of a ministerial approval<br />

(Ministererlaubnis), pursuant to which even a merger that would pose several competition concerns can be cleared by the<br />

competent minister if there are other overriding political reasons for such clearance. On the other hand, a much debated<br />

increase of the current turnover thresholds (in order to make fewer concentrations notifiable in Austria) did not find the<br />

support of the Social Partners. To the contrary, they suggest the introduction of further multiplication rules<br />

(Multiplikatorregelungen), pursuant to which concentrations in certain sensitive sectors (the study mentions cinemas,<br />

pharmacies, and asphalt mixing plants) are caught by merger control, even though the turnover of the undertakings<br />

concerned is rather low.<br />

There are now working groups that further evaluate the mentioned proposals and it will have to be seen which of them<br />

may become law.<br />

Acknowledgment<br />

The authors are grateful to Georg Galoppi, who helped in the preparation of this chapter.<br />

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pv Hügel Rechtsanwälte Austria<br />

Astrid Ablasser-Neuhuber<br />

Tel: +43 1 260 50 205 / Email: astrid.ablasser@bpv-huegel.com<br />

Astrid, head of the competition law practice group, has been involved in almost all important cases in<br />

Austria in the last years.<br />

She has been practising EU competition law in Vienna/Brussels since 1998, has profound expertise in<br />

national and European antitrust and merger control law and represents clients in antitrust and merger<br />

cases before the Austrian and European competition authorities and before the European courts. Before<br />

joining bpv Hügel Rechtsanwälte, she worked with several antitrust authorities (European<br />

Commission/<strong>Merger</strong> Task Force, Brussels; legal assistant to the president of the Austrian Cartel Court,<br />

Vienna) as well as in the competition department of Linklaters, London.<br />

She is a member of the board of Studienvereinigung Kartellrecht and president of the Competition Law<br />

Commission of the UIA. Other functions include being a member of the board of the Austrian Federation<br />

for the Protection of Intellectual Property (ÖV) and an international rapporteur of the International<br />

League of Competition Law (LIDC).<br />

Florian Neumayr<br />

Tel: +43 1 260 50 206 / Email: florian.neumayr@bpv-huegel.com<br />

Florian is vice-head of bpv Hügel Rechtsanwälte’s competition and procurement law practice groups.<br />

He advises on all aspects of Austrian and EU anti-trust, abuse of market dominance, merger control and<br />

procurement law. A special focus of his is litigation and, in particular, defence against private<br />

enforcement. He has a considerable track record in representing national and international clients before<br />

Austrian as well as European courts and authorities.<br />

Following law school and an LL.M. in international commercial law, Florian earned a PhD in<br />

procurement law. He is a regular speaker at seminars and conferences, the content of several of which<br />

he has been responsible for. He has authored numerous publications. Florian is honorary fellow of the<br />

Centre for International Legal Studies and an active member of the Austrian bar, the Association of<br />

Competition Lawyers (Studienvereinigung Kartellrecht), the Spanish Austrian Laywers’ Association,<br />

UIA and LIDC. He has been highly regarded in numerous national and international rankings.<br />

bpv Hügel Rechtsanwälte<br />

ARES-Tower, Donau-City-Straße 11, 1220 Vienna, Austria<br />

Tel: +43 1 260 50 0 / Fax: +43 1 260 50 133 / URL: http://www.bpv-huegel.com<br />

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Brazil<br />

Eduardo Molan Gaban<br />

Machado Associados, Advogados e Consultores<br />

Overview of merger control activity during the last 12 months<br />

Since the enactment of Law No. 8884/94, Brazil has been experiencing the consolidation of its merger control system. The<br />

big expectation of a deep renovation of the Brazilian Antitrust Law, which will bring a pre-merger control system, among other<br />

features, to Brazil, did not curb the consolidation and technical evolution of the merger review. This is evidenced in recent<br />

decisions, such as the one related to the merger between Sadia and Perdigão (analysed in more detail later).<br />

As one of the ‘BRIC’ economies, it goes without saying that the economic growth in Brazil brings an additional component<br />

to the context of its merger control: the complexity of the transactions submitted to the Brazilian System of Competition<br />

Defence (local acronym, SBDC) is getting high, as is, consequently, the expertise of the authorities in charge of the<br />

competition defence in the country. This can be observed within the Administrative Council for Economic Defence (local<br />

acronym, CADE), where an Economic Studies Department was created to handle difficult and complex economic and<br />

econometric matters on CADE’s behalf. Therefore, the antitrust private practice is evolving through a technical path<br />

requiring a deeper knowledge of the several theories and tools available worldwide, whether economic or legal, in order<br />

to handle the difficult and complex transactions at hand.<br />

According to CADE’s 2010 Annual Report, which was released to the public in the beginning of 2011 (see Endnote 1),<br />

the number of ‘acts of concentrations’ saw a 57.5% increase, in comparison with the number registered in 2005. Since<br />

2005 CADE has seen an increase in the number of technical staff, who were also given more responsibility, resulting in a<br />

rise in the number of cases analysed per year (which rose from 497 in 2005, to 660 in 2010), as well as the average time<br />

taken, within CADE, to analyse the cases, which went from 81 days, in 2005, to 40 days, in 2010.<br />

Days<br />

300<br />

250<br />

200<br />

150<br />

100<br />

50<br />

0<br />

Source: CADE 2011<br />

252<br />

171<br />

81<br />

Average Length of Analysis of Acts of Concentration (in days)<br />

In addition to this, the staff increase, the reformulation and the enhancement of cooperation between the components of<br />

the SBDC (i.e., SEAE, SDE, ProCADE, MPF (see Endnote 2) and CADE), eliminated the overlapping activities and<br />

granted a significant reduction on the average length of analysis of acts of concentration, which went from 252 days in<br />

2005, to 165 days in 2010.<br />

The depth and strength of the decisions can also be regarded as an achievement. Both in merger and conduct controls, CADE<br />

has imposed severe decisions of veto (such as the cases Saint Gobain/Owens in the fibreglass market, and Polimix/Tupi within<br />

the cement and concrete industries), of partial approval with heavy commitments of selling assets (such as the case<br />

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226<br />

162<br />

199<br />

151<br />

165<br />

115<br />

182<br />

138<br />

156<br />

115<br />

136<br />

64 48 50 44 41 45<br />

2005 2006 2007 2008 2009 2010 2011<br />

Discovery Phase CADE<br />

91<br />

(Jan-May)<br />

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Machado Associados, Advogados e Consultores Brazil<br />

Sadia/Perdigão, which involved circa 35% of the parties’ production capacity in Brazil comprising production facilities,<br />

distribution centres and an important portfolio of products and brands), and high fines (such as the case of the abuse of dominant<br />

position of AMBEV with its points of sale, circa R$352 million, and the Industrial and Hospital Gases cartel conviction, circa<br />

R$2.6 billion ). The latter led CADE to be awarded the prize of ‘Agency of the Year, Americas: Brazil’s CADE’ (Global<br />

Competition Review, Best Agency of the Americas 2011).<br />

Although, based on the provisions of the 1988 Federal Constitution (Article 5, item XXXV), any individual can take action<br />

before the courts in order to review CADE’s final decisions, none of those decisions were reverted in the courts. A good part<br />

of this result should be attributed to the improvement of the technical approach carried out by the Brazilian antitrust authorities<br />

in the several existent proceedings, both in merger review and conduct control. It is worth mentioning that preliminary<br />

injunctions are not granted in order to suspend the efficacy of CADE’s decision until the plaintiff makes a judicial deposit<br />

amounting to the totality of the fine imposed. This is applicable in both conduct cases and merger review cases, where fines<br />

are usually imposed for non-compliance with a decision of, for example, selling assets. In addition to this, according to CADE’s<br />

2010 Annual Report, 84% of the cases taken to courts to challenge CADE’s decision were decided in CADE’s favour.<br />

Following the best practices recommendations of OECD, ICN, UNCTAD, the World Bank and other multilateral international<br />

organisations on Antitrust/Competition, transparency and predictability are also topics under the SBDC’s focus. This can be<br />

seen, in particular, within the Brazilian merger review system, where, for example, they are open to third party participation in<br />

complex cases. The asymmetric information between the antitrust authorities and the several segments of the economy is<br />

accurately assumed by the Brazilian authorities once third parties are given the opportunity to actively participate within the<br />

merger analysis. This includes consumer protection associations, competitors, related industries’ associations among others,<br />

which allows for a better understanding of different markets’ dynamics, how a given transaction would affect them, and what<br />

the ideal remedies for the case would be.<br />

The transparent, technical, and open nature of antitrust actions in Brazil resulted in more proximity between the SBDC and the<br />

sector regulators (such as ANATEL, ANEEL, ANTT, BACEN, etc.) (see Endnote 3), spreading some expenditure and antitrust<br />

expertise to the merger review in those branches. To clarify, once a transaction affects regulated markets in Brazil, the<br />

responsible Agency participates, at some point, in the antitrust analysis of the merger, usually giving a technical, but nonbinding,<br />

opinion that will be regarded by CADE in the antitrust scrutiny of the case. Good examples of this phenomenon are<br />

the cases in the banking sector (the acquisition by the consortium Santander/Fortis/RBS of the ABN/Amro Bank group, the<br />

merger between Itau and Unibanco, the acquisition by Banco do Brasil of the Nossa Caixa, etc.), and cases in the<br />

telecommunication sector (the acquisition by Oi of Brasil Telecom, etc.).<br />

Predictability can also be seen in the merger review system by some evolving settlements in CADE’s case law, such as the<br />

recent case related to supply agreements. According to recent case law (Rumo/ALL in 2009, Monsanto/Iharabras in 2010, and<br />

Monsanto/Dow in 2010), there is no need to submit supply agreements to the SBDC if there is an: (i) inexistence of transfer of<br />

rights over assets; (ii) inexistence of corporate, structural or control related to amendments; and (iii) inexistence of contractual<br />

or actual exclusivity. Hopefully, other similar settlements will be reached in the near future regarding private equity funds’<br />

transactions with no impact on competition. The SBDC’s transparency allows private players to participate in the constant<br />

renovation of the proceedings and rules within the Brazilian system.<br />

Thresholds and procedures<br />

Under Brazilian Law, the general concept of ‘concentration’ is very broad. Article 54 of Law No. 8884/94, which governs<br />

antitrust and competition cases, refers to “any form of market concentration”, including in its scope, cooperatives agreements,<br />

contracts, informal arrangements and other arrangements.<br />

Within the Brazilian system there is a twofold criterion that, if met (whether in a horizontal or vertical merger), triggers a<br />

mandatory submission, requiring the parties to file the transaction before the SBDC. The criteria are revenue and market share,<br />

more specifically where one of the parties involved registered gross revenue of more than R$400 million in the previous year,<br />

and/or the resulting market share derived from the transaction is higher than 20% in some of the relevant markets.<br />

Brazilian Law requires the relevant authorities to approach market concentration cases on a case-by-case basis, assessing the<br />

specific circumstances of each transaction before concluding if it is anticompetitive or not. This approach, inspired by the rule<br />

of reason, considers that not all market concentration is illegal or unacceptable, and not every collaboration among competitors<br />

or market players is a cartel. It is essential in ensuring that only conducts that are actual or potential restraints on trade are<br />

deemed to be unlawful.<br />

That is not to say, however, that CADE takes these cases lightly, in fact, in recent years, CADE has taken a more rigid view on<br />

mergers. Although (and possibly because) Brazilian law does not allow per se offences, CADE has been inclined to view<br />

arrangements among competitors as quasi-per se offences, imposing their enforcement actions on any and all transactions in<br />

violation of the terms of Law No. 8884/94.<br />

Besides laying out offending behaviour and sanctions to be imposed on such conduct, Law No. 8884/94 governs the standards<br />

for review of transactions that yield a market concentration and the procedures that should be carried out when investigating<br />

these cases. Article 54, paragraph 4 of this law states that all agreements that meet the aforementioned twofold criteria of<br />

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revenue and market share are required to notify the SBDC of the transaction. The notification can be made: (i) prior to the<br />

signing or execution of the relevant contractual arrangements; (ii) prior to the conclusion of the transaction; or (iii) within 15<br />

business days of the conclusion of the contract. Once such notification is submitted, paragraph 6 (of the same Article) requires<br />

that SEAE responds. SEAE will issue a non-binding Technical Opinion on the transaction, and based on the principle of<br />

reasonability, within thirty days.<br />

Vertical and horizontal mergers are reviewed based on objective criteria set out in the Brazilian Horizontal <strong>Merger</strong> Guidelines<br />

(which were inspired by the US FTC Horizontal <strong>Merger</strong>s Guidelines of 1992). The idea behind these Guidelines, which were<br />

released by SEAE and the SDE in 2001, is to provide greater clarity to market players with regard to applicable rules which<br />

they are bound by. The Guidelines’ idea of divulging the main stages of merger review that SEAE and the SDE should follow,<br />

namely the concepts, procedures and principles, allows for greater transparency and clarity.<br />

By disclosing the objective criteria and the systematic analysis that both SEAE and the SDE are required to follow at each<br />

stage, the discretion of their acts is consequently limited, and thus the fundamental applicability of the rule of reason and the<br />

transparency of the Public Administration in antitrust cases is established.<br />

The analysis basically follows five main stages, and is based on the Harvard School’s “structure-conduct-performance” (S-C-<br />

P) paradigm:<br />

(i) determination of the relevant market;<br />

(ii) determination of share and market control;<br />

(iii) probability of exercise of market power;<br />

(iv) review of efficiencies yielding from the transaction; and<br />

(v) the assessment of the resulting costs and benefits to Society’s welfare.<br />

The first stage requires the relevant market to be established. In determining the relevant market, SEAE uses a so-called<br />

“hypothetical monopolist test”, which identifies market share by analysing if a (hypothetical) monopolist can impose a small<br />

but significant increase in price in the product market and still profit from it. The answer to this must be ‘yes’ for the market<br />

to have been correctly identified, and the investigation can go forward in assessing if antitrust laws are being violated.<br />

The next stage is to analyse the impact that the transaction has on consumer welfare and on competition. When a transaction<br />

does not generate a market concentration of more than 20% (or more than 10% in a market where the combined market share<br />

of the four principle players is equal to or higher than 75%), it tends to be favourably considered by the authorities. In these<br />

cases, the procedure is stayed and the last three stages are not analysed. Alternatively, if the market concentration surpasses<br />

the threshold, the analysis moves onto the third stage.<br />

At this point, it is important to note that a transaction that merely results in high market share and power is not a per se violation<br />

of antitrust laws. In theory, one has to actually and unilaterally abuse this power in order to offend the antitrust and competition<br />

principles. However, due to the preventative nature of antitrust and competition authorities, the mere potential of abuse often<br />

prompts the authorities to either determine a full or partial divestiture order, and/or impose behavioural remedies. This third<br />

stage of the analysis considers the presence of barriers to entry, cost structures, vertical integration and product differentiation.<br />

Once these conditions are favourable, resulting in a market that is inelastic to price changes, companies can exercise price<br />

variation (through restriction of output) at their leisure.<br />

The authorities will then measure the net effect of the three efficiencies (innovation, production/productivity efficiencies<br />

and allocative efficiencies) against the costs to competition. In doing this, they consider factors such as the index of<br />

economies of scale and scope, fixed costs, average production levels and costs, work productivity, introduction of new<br />

technology, the appropriation of positive externalities and the elimination (or internalisation) of negative externalities, to<br />

name but a few of the benefits of an increase in market share and power. If the net effect is equal or superior to the costs<br />

to competition, the authorities are required to recommend clearance of the transaction. In practice, clearance at this stage<br />

is very rare. In 2004, the merger between Nestlé Brasil Ltda. and Chocolates Garoto S/A, was rejected by CADE, setting<br />

a narrow precedent requiring efficiencies to be of such nature that the result thereof is a reduction in the prices of the<br />

relevant products. This scenario can be observed in the graphs below:<br />

Decisions on Acts of Concentration (Jan/2004 - May/2011)<br />

Source: CADE 2011<br />

93.2%<br />

6.7%<br />

0.1%<br />

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Unconditional Approval<br />

Approval with conditions<br />

Rejected<br />

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Machado Associados, Advogados e Consultores Brazil<br />

701<br />

651<br />

601<br />

551<br />

501<br />

451<br />

401<br />

351<br />

301<br />

251<br />

201<br />

151<br />

101<br />

51<br />

1<br />

15<br />

30<br />

615<br />

Besides that, there are two basic types of procedures within the Brazilian <strong>Merger</strong> Control System: the summary procedure<br />

(or fast track); and the regular procedure. The fast track procedure comprises of a very brief analysis, which is applied<br />

when the transactions do not represent either horizontal or vertical overlaps, or represent overlaps that are not meaningful<br />

(e.g., less than 20% if horizontal). SEAE decides, in the first phase of the antitrust analysis, if a given transaction should<br />

receive a summary treatment. CADE is likely to follow SEAE’s opinion, which is grounded on the clear list of thresholds<br />

set out in SEAE/SDE Joint Ordinance No. 01/2003.<br />

If the fast track procedure is adopted, the full analysis usually takes up to 45 days to be concluded.<br />

On the other hand, the regular procedure is adopted if any important horizontal or vertical overlaps are found. In this<br />

procedure, the five stages of the guidelines are applicable. The length of this procedure varies upon the complexity and<br />

importance of the overlaps. The graph below shows the trend in the application of these procedures.<br />

Type of Procedure Adopted on Acts of Concentration (2005 - May 2011)<br />

Source: CADE 2011<br />

Decisions on Acts of Concentration (2010 and 2011)<br />

Terminated or<br />

Non examined*<br />

Examined<br />

24.8%<br />

75.2%<br />

Finally, and in order to clear an act of concentration that results in significant market share, with the probability of the<br />

exercise of market power, and based on yielding efficiencies, it is necessary to demonstrate that the impact of the transaction<br />

on Society’s welfare would be positive.<br />

Once this analysis has been done, SEAE and the SDE are required to emit their non-binding Technical Opinion, containing<br />

their recommendations, which range from the unconditional clearance of the transaction, to the conditional clearance of<br />

the transaction, to the full divesture thereof.<br />

It should be noted that the role of antitrust and competition laws, as well as of the relevant authorities, is to ensure the free<br />

functioning of a market structure, as well as the free initiative of its players, with the ultimate aim of protecting economic<br />

efficiencies and, consequently, consumer welfare. As such, transactions are approved only when:<br />

(i) there is a lack of control of a significant share of the market;<br />

(ii) despite significant market share, it is improbable that the player will exercise control; and<br />

(iii) despite the exercise of control, the ultimate effect of the transaction is positive to the market and to consumer<br />

welfare.<br />

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2010<br />

1<br />

27<br />

* Cases filed before to the CSBDC, but held out of the CADE’s jurisdiction scope<br />

Source: CADE 2011<br />

588<br />

Rejected<br />

Approval with<br />

conditions<br />

Unconditional<br />

Approval<br />

2<br />

Terminated or<br />

Non examined* 0<br />

9 19<br />

265 Examined 246<br />

2011 Jan- May<br />

Fast Track<br />

Regular<br />

Rejected<br />

Approval with<br />

conditions<br />

Unconditional<br />

Approval<br />

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Sanctions for failure to notify<br />

If an undertaking fails to comply with the Law No. 8884/94 (Article 54), not submitting a transaction to the Brazilian<br />

antitrust authorities, all involved parties are subject to the following penalties:<br />

(i) a fine that varies from circa R$120,000 (USD 72,000) to R$1.2 million (USD 723,000);<br />

(ii) introduction of an investigation against the parties when the non-compliance also implies an antitrust violation<br />

pursuant to Articles 20 and 21 of Law No. 8884/94; and<br />

(iii) the lack of efficacy (legal validity) of the transaction because CADE’s approval has not been given in the case and<br />

it is required by Law for the matter.<br />

Approach on remedies upon the recent case law<br />

The biggest example of remedies at stake within 24 months at SBDC was that of Sadia/Perdigão. The case relates to<br />

Perdigão’s acquisition of Sadia, through a takeover, creating BRF-Foods (BRF). The transaction was submitted to the<br />

SBDC on June 9, 2009, and on July 8, 2009, in an attempt to assure that the operation be reversed, an Agreement to<br />

Preserve Reversibility of the Transaction (a type of consent decree) was reached between CADE and the Applicants.<br />

The Applicants, through a series of measures imposed on them, agreed to, basically, comply with the following:<br />

(i) Maintain Perdigão and Sadia’s administrative, production and commercial structures relating to commercial<br />

activities independent and autonomous from one and other.<br />

(ii) Abstain from exchanging: (a) competition-related information that could affect the independent and autonomous<br />

management, or could be interpreted as a strategy to integrate their activities, except in certain cases; and (b) the<br />

adoption of uniform commercial policies.<br />

Later, on October 29, 2010, SEAE issued their non-technical Opinion, suggesting that the operation be conditionally<br />

approved, with severe structural restrictions (such as temporary licensing of the main brand (Sadia or Perdigão) as well<br />

as the sale of a group of production assets; or the sale of a block of assets corresponding to the combating brands as well<br />

as the sale of a block of production assets), as well as behavioural restrictions (the Applicants are required to disclose and<br />

submit any information, on a rolling basis, about their fidelity and bonus programmes, as well as their points of sales to<br />

CADE, in an attempt to keep CADE informed about their promotions).<br />

The SDE, agreeing with SEAE’s Opinion, also suggested that the operation be approved conditionally.<br />

The records were then sent to CADE for judging. It is important to note that, in virtue of a request made by the Applicants,<br />

the Reporting-Judge, Mr. Carlos Ragazzo, determined that the records should be sent to ProCADE for them to reconsider<br />

and come to a decision with regard to the confidential treatment given to the information contained in SEAE’s Opinions,<br />

as well as a list of competitors and clients, which could be found in the records. After analysis of the documents, ProCADE<br />

suggested the creation of new, public, versions of the official letters and documents contained in SEAE’s records, as well<br />

as a new version of the Opinion submitted by the SDE, with the aim of avoiding a procedural turmoil, and respecting the<br />

principles of the legal process and the legal defence. This suggestion was approved by the Reporting-Judge.<br />

Once this matter was solved, ProCADE issued a new Opinion, where it basically stated that the remedies, as suggested by<br />

SEAE, would not be sufficient to combat the problems identified as a result of the transaction. In the end, they agreed to<br />

approve the transaction, as long as there were restrictions that would allow a third economic agent to balance BRF’s market<br />

power, and/or would allow the benefits generated from the transaction to be passed onto the consumers. If such measures<br />

were not imposed, ProCADE recommended for the transaction to not be approved.<br />

On June 8, 2011, in Plenary Session, the Reporting-Judge issued his vote, opting to not approve the transaction.<br />

Besides having a big concentration in the innumerous markets in question, the Reporting-Judge concluded that the transaction<br />

would result in: (i) barriers to entry; (ii) lack of competition; and (iii) the presence of a dominant player who would be too<br />

strong to be challenged by its competitors. Notwithstanding this, other questions also contributed to the decision to not approve<br />

the transaction, such as: (i) the question of the necessity of an integrated operation with the market (in the three types of meat:<br />

red meat; pork; and turkey) and the reflexes arising from this assumption, i.e., the need to sell the vertically integrated capacity<br />

of BRF; (ii) the need to preserve non-discriminatory access to the distribution channels (i.e., points of sale); and (iii) the<br />

existence of a dominant player in the brand and product portfolio (i.e., or the transaction resulted in a portfolio power that was<br />

too strong). The result of this analysis justified the adoption of a significant structural remedy that would involve the sale of<br />

production capacity, relevant brands, and products in a vertically integrated manner from upstream markets to the point of sale,<br />

combined with behavioural commitments with regard to the distribution channels.<br />

After reading the Opinion, CADE’s Council Member, Mr. Ricardo Ruiz, stayed the judgment to better examine the case.<br />

The Applicants, who were not happy with the decision of the Reporting-Council Member, began to negotiate with the<br />

authorities, attempting to have the transaction approved conditionally.<br />

On July 13, 2011, after numerous negotiations, an Instrument of Commitment to Performance was reached between the<br />

Applicants and CADE, where, in an attempt to limit the damage that would be felt by Brazilian consumers, the Applicants<br />

agreed to adopt the following conditions, imposed on them within the national territory:<br />

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(i) Sale of the following brands: (a) Rezende; (b) Wilson; (c) Texas; (d) Tekitos; (e) Patitas; (f) Escolha Saudável; (g) Light<br />

Ellegant; (h) Fiesta; (i) Freski; (j) Doriana; and (k) Delicata.<br />

(ii) Sale of: (a) 10 food processing factories; (b) 2 pig slaughterhouses; (c) 2 poultry slaughterhouses; (d) 4 feed<br />

factories; (e) 12 chicken farm matrices; and (f) 2 poultry hatcheries.<br />

(iii) Sale of 8 Distribution Centres.<br />

(iv) Suspension of the use of the Perdigão brand in certain products, in the national territory, and for a period of at least<br />

3 years.<br />

(v) Suspension of the use of the Perdigão brand in the sale of salamis, in the national territory, and for a period of at<br />

least 3 years.<br />

(vi) Suspension of the use of the Perdigão brand in certain products, in the national territory, and for a period of at least<br />

5 years.<br />

(vii) Not to use any other brands, for a period of 5 years (already existing or yet to be created).<br />

(viii) Suspension of the use of the Batavo brand in certain products, for a period of 4 years.<br />

The Council Members Olavo Chinaglia, Alessandro Octaviani, and Marcos Paulo Veríssimo accepted Ricardo Ruiz’s<br />

decision. The Reporting-Judge, Carlos Ragazzo, in turn, maintained his opinion that the transaction should be completely<br />

vetoed. And so, with 4 votes for, 1 vote against and 2 abstentions (President Fernando Furlan and Council Member Elvino<br />

Mendonça) the transaction was approved by CADE, conditioned upon the aforementioned restrictions.<br />

Key policy developments and reform proposals<br />

There are high expectations over the passing of the Bill 06/09 (local acronym PL No. 06/09), which ultimately intends to<br />

eliminate the overlap between the SDE, SEAE and CADE. The overhaul of the system will take the responsibility for<br />

reviewing concentration acts from the SDE and SEAE, and the, newly created, General Superintendence will take over.<br />

The General Superintendence will be given the power of both approving simple concentration acts and investigating the<br />

more complex ones, however it will be CADE’s Board (the Tribunal) who will approve the latter.<br />

It is worth noting that, currently, there is an ongoing debate between the Brazilian Senate and the other House of<br />

Congressmen. The figures below represent the proposal of the Brazilian Senate, which is more negatively seen by the<br />

Brazilian antitrust community.<br />

A long awaited change that is proposed by the Bill is the new time limits which will be applied to pre-merger notifications.<br />

The Bill attempts to impose a 50-day limit on the General Superintendence, from the date of the notification, to determine<br />

whether the transaction is deemed complex, in which case additional investigation will be required. This additional<br />

investigation will then need to be carried out within 90 business days, and the General Superintendence will then have 10<br />

days to either approve the transaction or recommend that it be rejected (partially or fully) by CADE. The idea is that,<br />

even if CADE requests further information, the process should take no longer than 120 days (extended to a maximum of<br />

210 days). The other House of Congressmen’s proposal suggests 240 days, extended to a maximum of 330 days.<br />

Another change, viewed by economists and antitrust lawyers alike as less positive, is the requirement that, before there is a<br />

requirement for the transaction to be submitted for CADE’s approval, one of the parties (the buyer) must have had a gross annual<br />

income, in the last financial year, of R$1 billion or more, and the other party must have had a gross annual income, in the last<br />

financial year, of R$40 million or more. The problem with these new thresholds is that by requiring that one of the players to<br />

have had a gross annual income of R$1 billion, entire relevant sectors of the Brazilian economy would be given antitrust<br />

immunity, which conflicts with the ideal of social welfare within the 1988 Federal Constitution. On the other hand, the other<br />

House of Congressmen’s proposal suggests a more reasonable threshold of R$400 million and R$30 million, respectively.<br />

Some other concerns for the Bill include the fact that the General Superintendence will hold excessive power, as well as<br />

the fact that, although the new system is likely to function well with simpler cases, it is unlikely that the more complex<br />

cases will receive the technical and speedy assessment that they require. The Bill provides for the hiring of a further 200<br />

CADE technicians, however, this process is not automatic. It depends on the good will of the Ministry of Planning,<br />

therefore, it is likely to be slow, affecting the transactions that require assessment during the transition period.<br />

Concluding remarks<br />

In the 2010 OECD Peer Review, it was concluded that “the Brazilian competition policy has registered a constant and<br />

notable progress, becoming more efficient especially in merger review”. In the very same review, somebody also said<br />

that, although the Brazilian system is far from perfect, it is doing very well. However, based on this dualism of thoughts,<br />

the SBDC currently faces some very important challenges for the future.<br />

<strong>First</strong>ly, the anxiety derived from the likely approval of the Bill 06/09, restructuring the whole system brought bad results<br />

for the ongoing merger control in Brazil. This can be specially observed within SEAE, at least during the past 6 months,<br />

when a great part of the technicians that were prepared and fully dedicated to the scrutiny of antitrust mergers left the staff<br />

because of the new roles given to SEAE by Bill 06/09.<br />

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Bill 06/09 provides that SEAE no longer carries out merger analysis, but only develops competition advocacy activities<br />

and monitors regulated sectors. Unfortunately, Bill 06/09 did not foresee the transfer of knowledge, which was acquired<br />

in the last 17 years, to the new SBDC. For obvious reasons, this problem led to some losses in the technical analysis and<br />

also in the speed of the merger reviews. Hopefully this is a problem that will soon be solved.<br />

Secondly, due to regular problems in the length and bureaucracy of the legislative proceeding, Bill 06/09 is facing some<br />

obstacles in its conclusion and emersion into the system. As it still faces such problems, the SBDC’s main achievements<br />

are at risk, most notably its efficiency, reflected by its technical and speedy approach.<br />

Thirdly, there is no consensus for a “plan B” among the different authorities within the SBDC if Bill 06/09 is not passed<br />

in Congress. One exception is CADE’s chairman, who has a clever plan should Bill 06/09 fail in Congress. He plans on<br />

implementing a new, shorter and more narrowed Bill, to renovate only the most important points in the Brazilian Antitrust<br />

Law, such as the staff increase and the pre-merger notification system.<br />

Although optimism prevails among the authorities with the likely passing of the Bill, the private sector remains sceptical<br />

and afraid of the short term results. So, will the passing of this Bill be the right path for the Brazilian antitrust community<br />

to take towards the development of its system?<br />

Endnotes<br />

1 Available at: . Access on 28 July 2011.<br />

2 Secretariat for Economic Monitoring of the Ministry of Finance, local acronym SEAE, Secretariat of Economic<br />

Law of the Ministry of Justice, local acronym SDE, CADE’s General Attorney’s Office, local acronym ProCADE,<br />

and Federal Prosecution Office, local acronym MPF.<br />

3 National Agency of Telecommunication, local acronym ANATEL, National Agency of Energy, local acronym<br />

ANEEL, National Agency of Terrestrial Transportation, local acronym ANTT, and Brazilian Central Bank, local<br />

acronym BACEN.<br />

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Machado Associados, Advogados e Consultores Brazil<br />

Eduardo Molan Gaban<br />

Tel: +55 11 3819 4855 / Email: egaban@machadoassociados.com.br<br />

Eduardo is a partner at Machado Associados, heading their Antitrust/Competition Department. He<br />

graduated in Law from PUC/SP, where he also got his Masters in Economic Law and where, as Visiting<br />

Fulbright Scholar at NYU School of Law, he concluded his Ph.D.<br />

Eduardo has over 11 years’ experience in Antitrust/Competition Law. Before joining Machado<br />

Associados, he worked in specialist Antitrust firms, and was an advisor at the Administrative Council<br />

for Economic Defence. He is recognised as one of the leading Antitrust/Competition lawyers, handling<br />

complex and high-profile cases in merger review, conduct control and antitrust litigation.<br />

Eduardo has authored numerous articles, and two books: “Direito Antitruste: o Combate aos Cartéis”<br />

(awarded the “Economic Culture Trophy 2008 – Best Law Book”), and “Estudos de Direito Econômico<br />

e Economia da Concorrência”.<br />

Eduardo lectures Antitrust Law at the Superior School of Advocacy, and Paulista Law School. He<br />

frequently lectures at institutions preparing students for public contests, and has lectured at MBA,<br />

UNINOVE and FAAP Law School.<br />

Machado Associados, Advogados e Consultores<br />

Av. Brigadeiro Faria Lima, 1656 – 11th floor, 01451-001 São Paulo, SP, Brazil<br />

Tel: +55 11 3819 4855 / Fax: +55 11 3819 5322 / URL: http://www.machadoassociados.com.br<br />

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Bulgaria<br />

Peter Petrov<br />

Boyanov & Co.<br />

Overview of merger control activity during the last 12 months<br />

In 2010 the Bulgarian Commission for the Protection of Competition (the “CPC” or the “Commission”) initiated 37<br />

proceedings relating to the control of concentrations and adopted 35 decisions on merger control. The number of<br />

merger control decisions was remarkably lower than that achieved in previous years. By comparison in 2009 the CPC<br />

initiated 54 proceedings; in 2008 – 81; and in 2007 – 74.<br />

The significant decrease was the result of two factors: firstly, the major contributing factor was the global economic<br />

slowdown which resulted in Bulgaria, as in other parts of the world, in a significant decrease of merger activity.<br />

Secondly, the new jurisdictional thresholds for Bulgarian merger control almost doubled the turnover threshold at the<br />

end of 2008, and introduced a second cumulative turnover threshold as regards the different parties to the transaction<br />

or the target. This, coupled with decreased turnovers, contributed to fewer mergers being caught by merger control.<br />

Nonetheless, the case-law on competition approval of mergers became much more varied over this period.<br />

Out of 35 decisions, under Chapter Five of the Protection of the Competition Act (the “PCA”) “Control on<br />

Concentrations between Undertakings”, the CPC authorised 19 concentrations, it declared that in 10 cases the<br />

transaction was not notifiable, as it either did not constitute a concentration or did not reach the notification thresholds,<br />

and in 5 cases the CPC imposed sanctions on undertakings who failed to notify and obtain clearance in respect of a<br />

notifiable transaction.<br />

In one of its decisions, the CPC requested partial referral, under Article 9 (2) of Council Regulation No. 139/2004 –<br />

the EU <strong>Merger</strong> Regulation (“EUMR”), of a concentration notified to the European Commission, on the grounds that<br />

the CPC expected that the transaction would affect competition in a market within Bulgaria, which presents all the<br />

characteristics of a distinct market and which does not constitute a substantial part of the internal market of the EEA.<br />

It should be noted that the decreased workload from regular merger cases has allowed the CPC recently to step up its<br />

enforcement practice in respect of cases which were not notified to it in previous years, even though the respective<br />

transaction did constitute a notifiable concentration. While in each of 2007 and 2008 only 3 sanctioning decisions<br />

were issued for failure to notify a merger, in 2009 12 sanctioning decisions were imposed for breaching the notification<br />

obligation. In 2010, 5 sanctioning decisions were issued.<br />

2010 saw another notable change – in that year more merger decisions were appealed by third parties (competitors<br />

and other undertakings) then in all previous years of Bulgarian merger control. <strong>Merger</strong> clearance decisions were<br />

appealed on 4 occasions before the Supreme Administrative Court by third parties. This shows the increasing awareness<br />

of competitors that they may be able to influence the merger clearance process by challenging the competition<br />

authority’s assessment in the courts. On three of these occasions the appellant, however, withdrew the appeal. The<br />

fourth case was resolved by the court by a definitive judgment, discussed below.<br />

The first eight months of 2011 have seen a rise in merger control activity. For that period the CPC already adopted 37<br />

decisions on mergers under Chapter Five of the PCA. Additionally, during that period it also initiated proceedings on<br />

3 occasions for failure of the parties to notify a transaction triggering merger control thresholds.<br />

New developments in jurisdictional assessment or procedure<br />

Throughout the years the Commission has continually expanded its case-law on the range of transactions, which may<br />

be considered to fall within the definition of a concentration and therefore be subject to assessment under merger<br />

control rules.<br />

Thus, by its Decision No. 45/29.01.2009, Case KZK-744/2008, Maxima Bulgaria, the CPC imposed a sanction on a<br />

daily consumer goods retailer because it considered that the entry into four long-term rent agreements for supermarkets<br />

constituted a notifiable concentration and the respondent had failed on its obligation to receive prior authorisation<br />

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Boyanov & Co. Bulgaria<br />

from the Commission. Upon judicial review, in two instances, by Judgment No. 9867/20.07.2009 and by Judgment<br />

No. 1509/05.02.2010, the Supreme Administrative Court disagreed with the Commission and annulled the decision<br />

because it noted that a long-term rent agreement could constitute a concentration only where it lead to the acquisition<br />

of all or part of an undertaking and thereby achieving a structural change in the relevant market. As none of the<br />

landlords in the case in question operated in the fast moving consumer goods markets, the leased properties did not<br />

constitute the acquisition of control by way of the long-term lease of assets over parts of the undertaking of the landlord.<br />

In several earlier decisions, the CPC held that the granting of a concession to operate an existing facility could constitute<br />

a concentration within the meaning of the PCA and would therefore be subject to notification and clearance by the<br />

Commission. In its Decision No. 944/19.07.2011 on Case KZK-551/2011, the CPC reconfirmed this view and cleared<br />

the acquisition by LUKOIL Neftohim Burgas AD of sole control through a contract for the concession on the<br />

Operational Port Area Rosenets, which is part of port Burgas – a public transport port facility of national importance.<br />

The concession was granted by the Bulgarian government for a period of 35 years. The case provides an interesting<br />

insight into the interplay of the Commission’s jurisdiction since, in addition to being the authority in charge of merger<br />

control, it has powers of administrative review over decisions issued by other authorities in public concession<br />

procedures.<br />

Finally, the CPC has asserted merger control jurisdiction in several of Europe’s state rescue efforts, which involved<br />

the acquisition of control by the respective governments over financial undertakings in difficulty. In 2009 it cleared<br />

the concentration arising as a result of the acquisition of sole control over Bayern LB by the Free State of Bavaria<br />

(Case KZK-107/2009), and in 2010 in Decision No. 1552/07.12.2010, on Case KZK-1012/2010, the CPC authorised<br />

the acquisition by the Minister for Finance of Ireland of direct or indirect control on Allied Irish Banks Public Limited<br />

Company (AIB), Ireland, via the National Pension Reserve Fund of Ireland. The operation was also reviewed under<br />

merger control rules by the competition authorities in Austria and Germany. The main reasons for the CPC exercising<br />

jurisdiction in these transactions are the marginal differences between the EUMR and Bulgarian law in respect to<br />

attribution of turnover for the purposes of calculation of the merger control thresholds.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The main economic sectors in the Bulgarian markets that were the focus of the Commission’s attention in merger<br />

control cases were:<br />

• Trade with fast moving consumer goods – 2 decisions in 2010.<br />

• Media – 2 decisions in 2010.<br />

• Electronic communications – 2 decisions in 2010.<br />

The trade in fast moving consumer goods in supermarkets, hypermarkets, discount and general convenience stores has<br />

been the focus of the Commission’s attention over the past few years. This has been occasioned not only by a number<br />

of acquisitions, reflecting some operators’ expansion strategy, but also by a major investigation in this sector on antitrust<br />

grounds.<br />

In 2010, the CPC exercised its power under Article 9 (2) of the EUMR by requesting partial referral of Case<br />

COMP/M.5790 – LIDL/Plus Trei Romania / Plus Trei Bulgaria from the European Commission. The European<br />

Commission agreed with the request for referral on the grounds that the concentration was likely to affect competition<br />

in several local retailing markets in Bulgaria, which presented all the characteristics of distinct markets and which, by<br />

reason of not being national in scope, did not constitute a substantial part of the common market.<br />

After reviewing the case, in its Decision No. 1199/30.09.2010, on Case KZK-574/2010, the Commission confirmed<br />

that the relevant fast moving consumer goods retail market was local, limited to the settlement where the relevant store<br />

was located. It found, however, that “modern trade” has not developed into a distinct relevant market in the country<br />

due to the early stage of development of the retail market, where modern and traditional trade formats still compete to<br />

a large extent. In fact, the Commission found that traditional trade accounted for more than 70% of purchases of<br />

consumers of daily consumer goods.<br />

The CPC’s initial concerns were centred around the fact that the resulting group may have high shares in several local<br />

markets, on the basis of commercial space, out of the total space available to modern trade retailers in the relevant<br />

settlement area. Its analysis during the proceedings showed that to the extent that modern trade did not represent a<br />

distinct product market in Bulgaria, an assessment based on commercial space available to modern trade retail formats<br />

would be exaggerating the parties’ combined strength in the market, since it failed to take account of the space available<br />

to traditional trade outlets. The CPC further found that commercial space is not a reliable measure of market power<br />

in itself in dynamic, rapidly evolving markets such as the retail market in Bulgaria that are subject to low barriers to<br />

entry, since inherently, and especially in smaller settlements, commercial space was bound to give high shares to the<br />

first entrants with modern trade retailing formats. Therefore it held that the only reliable criterion to estimate the<br />

parties’ market power was turnover and, based on that criterion, the transaction did not raise concerns.<br />

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Boyanov & Co. Bulgaria<br />

The CPC’s assessment of the merger was challenged before the Supreme Administrative Court by a major competitor<br />

over allegations that it failed to take into account Lidl’s imminent expansion into Bulgaria, and also that it failed to<br />

adjust market share data based on turnover, by reference to commercial space, but relied on data that the Decision<br />

itself recognised may be distorted in some areas. The Supreme Administrative Court, in Judgment No. 11012/2011,<br />

rejected all the arguments and upheld the Commission’s assessment of the relevant market and the methodology of its<br />

analysis. In particular the court confirmed that the Commission was correct to use national average consumption data<br />

to estimate the total size of the market, even though this data was likely to underestimate consumption in more affluent<br />

areas, and overestimate consumption in less developed residential areas, since the hypothetical differences in<br />

consumption would not yield a different result in terms of the existence or lack of dominance. The court further<br />

confirmed that turnover was the real measure of market power. Finally the judgment underlined that the Commission<br />

had done a prognostic analysis taking into account Lidl’s imminent expansion into Bulgaria, but that when assessing<br />

a merger the competition authority’s analysis was limited to the effects that the merger itself would bring about in the<br />

structure of the market, and not to the effects of other factors that would materialise even in the absence of the merger,<br />

such as one of the parties’ organic expansion plans. The judgment was not appealed and has come into effect.<br />

2010 also saw the biggest media merger in Bulgaria – the USD 400 million acquisition of bTV, the leading national<br />

free-to-air television channel, by CME. In its Decision No. 385/08.04.2010, on Case KZK-177/2010, the CPC<br />

authorised the acquisition on account of the fact that while the transaction would strengthen the existing dominant<br />

position of the target in the television market, it would not result in a significant impediment to effective competition.<br />

The concentration resulted in the local combination of CME’s existing free-to-air and pay-TV channels with those of<br />

Balkan News Corporation, including bTV. The CPC found that the distinction between free-to-air and pay-TV channels,<br />

in terms of their business model, was blurred in Bulgaria, since both of them derived revenues from advertising.<br />

Advertising revenues was the principle basis on which the authority reviewed the market and held that viewer share<br />

was only a secondary informative criterion, that had an interplay with advertising through the “currency” of gross<br />

rating points (GRPs), which was the “commodity” purchased by advertisers to ensure the reach of their advertising.<br />

The authority discounted publicly available data on gross advertising revenue, and conducted its own market study in<br />

respect of net advertising revenue, which it considered the more reliable measure of the parties’ market power. As a<br />

result, it held that the target’s share of advertising revenue was in excess of 58%, however, taking into account CME’s<br />

pre-existing minor share of slightly more than 1%, the transaction would not bring about a tangible change in the<br />

structure of the market. It also held that the combined group would continue to be subject to the significant competitive<br />

pressure of the second biggest operator in Bulgaria – MTG.<br />

Key economic appraisal techniques applied<br />

The CPC’s assessment of mergers, including its officially published Methodology, remains largely focused on market<br />

definition and market share analysis. Nonetheless, the CPC has always underlined that market shares are only the<br />

starting point of the analysis and a number of other factors, in particular the structure of the market and the nature and<br />

key driving forces of competition in it, may be decisive in respect of its final conclusions as regards the effects of the<br />

merger. In this respect, the increasingly sophisticated analysis that the Bulgarian competition authority employs,<br />

particularly in complex cases, drives it more and more towards more modern merger assessment techniques that<br />

increasingly move away from the focus on delineating markets and estimating shares, towards a more global view of<br />

the sources and effects of competition.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

In accordance with the PCA, the CPC may impose remedies, directly related to the implementation of the concentration,<br />

which are necessary to maintain effective competition and mitigate the negative impact of a concentration on the<br />

affected market.<br />

In a phase 1 (accelerated) proceeding, remedies can be offered only by the notifying party, where they are called<br />

“changes” to the concentration. Presumably, such remedies may also be offered with the notification itself. If accepted<br />

by the Commission, they can be attached as conditions and obligations to the clearance decision following phase 1<br />

review.<br />

If the review of the merger extends into a phase 2 proceeding, the CPC may, on its own discretion, impose conditions<br />

and obligations attached to its clearance decision. While no strict procedure exists, the practice of the Commission<br />

shows that even though it is not required by law to discuss proposed remedies, it does so in the interest of finding a<br />

workable solution to competition concerns. Such remedies may also be proposed by the notifying party and accepted<br />

by the Commission.<br />

It should be underlined that the imposition of remedies is not linked directly to the merger test – creation or<br />

strengthening of dominant position –, which would significantly impede effective competition. This has made it<br />

possible for the Commission to impose remedies even in cases which do not lead to the creation or strengthening of<br />

dominance, but which for various other reasons, could reduce effective competition (see Decision No. 63/25.03.2004<br />

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Boyanov & Co. Bulgaria<br />

on Case KZK-11/2004). Thus the Commission, by using remedies, on occasions has moved closer to a ‘significant<br />

impediment of effective competition’ test, even though its national competition law still maintains the dominance test<br />

in the review of concentrations.<br />

So far, the CPC’s preference has been more towards behavioural, rather than structural remedies. This is due to the<br />

fact that local markets are usually less mature and more dynamic and competition concerns related to mergers are less<br />

severe, so that behavioural remedies, in most cases, are sufficient to address them.<br />

* * *<br />

Acknowledgment<br />

The author would like to acknowledge the assistance of his colleague, Meglena Konstantinova, an associate with<br />

Boyanov & Co. who works in the field of competition law, in the preparation of this chapter.<br />

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Boyanov & Co. Bulgaria<br />

Peter Petrov<br />

Tel: +359 2 8055 055 / Email: p.petrov@boyanov.com<br />

Peter Petrov is a partner with Boyanov & Co. and leads the firm’s competition practice. He has<br />

represented clients a number of landmark merger cases in Bulgaria, in the finance, telecommunications,<br />

energy, pharmaceuticals, manufacturing, media, consumer goods, healthcare, tobacco, services and other<br />

industries. He is also actively involved in investigations of cartels and other prohibited agreements as<br />

well as dominance abuse, defending clients before the Bulgarian competition authority and the courts,<br />

as well as in competition advocacy work.<br />

Boyanov & Co.<br />

82, Patriarch Evtimii Blvd., Sofia 1463, Bulgaria<br />

Tel: +359 2 8055 055 / Fax: +359 2 8055 000 / URL: http://www.boyanov.com<br />

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Canada<br />

Michelle Lally & Shuli Rodal<br />

Osler, Hoskin & Harcourt LLP<br />

Overview of merger control activity during the last 12 months<br />

Competition law practitioners in Canada continue to watch closely the Competition Bureau’s (“Bureau”) implementation<br />

of Canada’s new merger review regime. In March 2009, the Canadian Competition Act (“CA”) merger review process<br />

was amended to align it more closely with the U.S. merger review process under the Hart-Scott-Rodino Antitrust<br />

Improvements Act.<br />

Under the new Canadian regime, there is a two-track approach to merger review. Notifiable transactions are subject to a<br />

30-day statutory waiting period following the filing of a pre-merger notification, which can be suspended by the<br />

Commissioner of Competition (“Commissioner”) through the issuance of a Supplementary Information Request (“SIR”)<br />

(the equivalent of a U.S. Second Request). Where an SIR has been issued, a second 30-day waiting period must be<br />

observed, which only commences when a complete response to the SIR has been submitted by each party. The parties<br />

can complete the transaction upon expiry of the second 30-day waiting period unless the Commissioner applies to challenge<br />

the transaction and/or obtains an order from the Competition Tribunal (“Tribunal”) to prevent or delay completion of the<br />

transaction. The new merger review regime preserves the right of the Commissioner to challenge a merger (whether or<br />

not previously notified) after closing, although this discretionary review period has been reduced to one year following<br />

closing, down from three years under the prior regime.<br />

The new merger review regime did not change the jurisdictional thresholds for merger review. Accordingly, the number<br />

of transactions subject to review continues to be primarily a reflection of the level of domestic and international merger<br />

and acquisition activity with a material Canadian component.<br />

Between April 1, 2010 and March 31, 2011, examinations were commenced in respect of 236 matters (some of these<br />

reviews continued beyond March 31), of which 218 were subject to review on a mandatory basis. This represents a small<br />

increase in the number of merger examinations as compared with the prior fiscal year, in which there were 216<br />

examinations, of which 200 were the result of a mandatory review requirement. In the 2008-2009 fiscal year, 239 merger<br />

examinations were undertaken, of which 207 were reviewed on a mandatory basis.<br />

In the 2010-2011 fiscal year, the Bureau issued only five SIRs (i.e. it undertook only 5 formal second stage reviews).<br />

However, it is uncertain how many other transactions were subject to an informal second stage review through a negotiated<br />

process involving a voluntary production of information and an agreement to delay closing for a specific period of time<br />

(see further discussion below).<br />

In the 2010-2011 fiscal year, formal remedies were obtained in only four matters. All four matters were resolved on<br />

consent, as is typically the case in Canada for transactions notified to the Bureau on a mandatory basis (see further<br />

discussion below).<br />

In the 2010-2011 fiscal year, one application to the Tribunal was filed and notably this was in respect of a transaction that<br />

was not subject to mandatory notification. In January 2011, the Commissioner filed an application with the Tribunal to<br />

challenge the acquisition by CCS Corporation of Complete Environmental Inc., the owner of a proposed secure landfill<br />

site in north east British Columbia1 . The case is being followed closely, as there is very little merger litigation in Canada<br />

(it has been years since there was a litigated merger case). In addition, the case is of interest because the Commissioner’s<br />

theory of the case is focused on the prevention of competition.<br />

New developments in jurisdictional assessment or procedure<br />

There have been no material changes in the jurisdictional thresholds for merger review in the past year (a minor increase<br />

in the transaction size threshold for pre-merger notification from C$70 million to C$73 million in book value of Canadian<br />

assets of the target or gross revenues generated from Canadian assets took effect in February 2011).<br />

The primary impact of the new merger review process has been on the procedural aspects of merger review. The Bureau<br />

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Osler, Hoskin & Harcourt LLP Canada<br />

continues to refine its approach and procedures under the new regime. Practitioners and observers have been following<br />

the Bureau’s approach in a number of areas:<br />

(i) How often and in what circumstances will the Bureau resort to the issuance of a SIR?<br />

One of the principal concerns raised about the amended merger review process was that the Bureau would resort to issuing<br />

SIRs in a large number of transactions, imposing burdensome costs on merging parties. Since March 2009, a total of only<br />

11 SIRs have been issued, suggesting considerable restraint by the Commissioner in the use of the new second phase<br />

power. However, it is uncertain how many other transactions were subject to an informal second stage review through a<br />

negotiated process involving a voluntary production of information and an agreement to delay closing for a specific period<br />

of time.<br />

In this regard, the Bureau has indicated that, in appropriate cases, the Bureau may be prepared to forgo issuing an SIR and<br />

allow the initial 30-day waiting period to expire in exchange for a timing agreement. According to the Bureau, a timing<br />

agreement would typically contain the following provisions: (i) the Bureau is continuing its review beyond the expiry of<br />

the applicable statutory waiting period; (ii) the parties will cooperate with the Bureau to address additional information<br />

requests; and (iii) the parties will refrain from completing the transaction for an agreed-upon period of time. No guidance<br />

has been issued by the Bureau on the circumstances in which a timing agreement may be available. In our experience,<br />

timing agreements are unlikely to be available in cases that appear on their face to raise material competition concerns<br />

where a remedy involving Canadian assets or Canadian-based remedies may be required. In these circumstances, the<br />

Commissioner can be expected to be very reluctant to permit the initial waiting period to expire.<br />

(ii) To what extent will the practice of pulling and re-filing become a feature of the Canadian merger review process?<br />

While Bureau representatives were initially resistant to having the U.S. practice of pulling and re-filing a notification in<br />

an effort to avoid the issuance of an SIR become part of the Canadian process, this practice has been used in a number of<br />

cases in Canada. In addition, the Bureau has effectively acknowledged that this practice has its place in a two-stage review<br />

process by including in its November 2010 Fees and Service Standards Handbook for <strong>Merger</strong>s and <strong>Merger</strong>-Related Matters<br />

(“Fee and Service Standards Handbook”) a new rule permitting merging parties to withdraw a notification once and refile<br />

without paying a second fee, provided that the notification is re-filed within 5 business days.<br />

(iii) Does the advance ruling certificate exemption continue to play a significant role in the Canadian process?<br />

Canada continues to have a unique fast track procedure for uncomplicated matters. Parties may seek clearance for<br />

transactions through the “advance ruling certificate” (“ARC”) process as an alternative to filing a formal pre-merger<br />

notification. ARCs are typically granted in cases where the merger at issue is clearly unlikely to result in a substantial<br />

lessening or prevention of competition. Where an ARC is issued, it exempts the transaction from the pre-merger notification<br />

provisions of the CA and bars the Commissioner from challenging the transaction solely on the basis of information that<br />

is substantially the same as that which provided the grounds for the issuance of the ARC, so long as the transaction is<br />

completed within one year of issuance of the ARC. Where an ARC is requested but the Commissioner is prepared to issue<br />

clearance only if she can retain her one year discretionary right to re-open the review, the Commissioner may instead issue<br />

a “no-action” letter, together with a waiver of the obligation to file a formal pre-merger notification.<br />

Filing a request for an ARC does not trigger the commencement of any statutory waiting period. Accordingly, if a premerger<br />

notification is not also filed, the parties must await clearance in the form of an ARC or no-action letter, prior to<br />

closing. For this reason, parties rarely proceed by filing a request for an ARC or no-action letter in a case that may raise<br />

competition concerns, without also filing a formal pre-merger notification.<br />

Following the adoption of the new merger review regime, the ARC process has continued to be widely used and the Bureau<br />

continues to issue ARCs or no-action letters in appropriate cases. Typically, an ARC will be issued in an uncomplicated<br />

case (e.g. a financial buyer with no overlapping investments) within 2-3 weeks of filing.<br />

(iv) To what extent does the Bureau’s merger review process align with the new statutory waiting periods?<br />

Under the previous merger review regime, merging parties were required to file either a “short form” or a “long form”<br />

notification, which had statutory waiting periods of 14 and 42 days, respectively. The Commissioner did not have the<br />

unilateral power to issue an SIR or extend the statutory waiting period, and had to apply to court for an injunction in order<br />

to delay closing, and injunctions were difficult to obtain. As a result, there were a significant number of cases where the<br />

Bureau’s review was ongoing when the statutory waiting period expired. For this reason, it became common practice for<br />

parties to delay closing until the Commissioner indicated by way of an ARC or a no-action letter that the Bureau’s review<br />

had been completed and no challenge would be made.<br />

Under the new merger review regime, there is no requirement that the Commissioner provide any affirmative decision or<br />

complete her review of a transaction within the statutory waiting period, and she has up to one year after closing to<br />

challenge a transaction (except where an ARC is issued). Accordingly, the parties will not receive affirmative comfort<br />

from the Commissioner prior to or upon the expiry of the waiting period unless the Commissioner’s review is complete<br />

and the parties have requested such comfort by way of an ARC or a no-action letter.<br />

Based on experience with the new merger review process to date, in many cases, parties are continuing to wait for<br />

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Osler, Hoskin & Harcourt LLP Canada<br />

affirmative comfort from the Commissioner before completing the transaction rather than simply closing upon the expiry<br />

of the statutory waiting period, even where an SIR has not been issued and even where there is no timing agreement. In<br />

other words, parties do not regard the expiry of the initial waiting period without an agreement with the Bureau to delay<br />

closing as sufficient comfort to close a transaction.<br />

To a significant degree, the continued practice of seeking affirmative comfort from the Bureau is in response to indications<br />

from the Bureau that expiry of the initial waiting period cannot be regarded as a signal that a proposed transaction does<br />

not raise significant competition concerns in respect of which remedies may be required. In this regard, the Bureau review<br />

process typically begins with an assessment of the level of “complexity” of the review required. The purpose of this<br />

assessment is to provide the parties to the transaction with a sense of the expected (but non-binding) practical timeframe<br />

for the Bureau’s review.<br />

Under the previous merger regime, the Bureau had three levels of complexity; however, the new regime as set out in the Fees<br />

and Service Standards Handbook only contemplates two levels of complexity. “Non-complex” transactions are those that “are<br />

readily identifiable by the clear absence of competition issues” as there is no/minimal overlap. “Complex” transactions are<br />

those between competitors, or between customers and suppliers, where there are indications that the transaction may, or is<br />

likely to, create, maintain or enhance market power. Non-complex transactions have a 14-day service standard whereas complex<br />

transactions have a 45-day service standard. Where a SIR is issued, the applicable service standard terminates 30 days after<br />

the parties comply with the SIR (i.e., is aligned with the statutory waiting period). 2 However, there are many transactions<br />

designated as “complex” where no SIR is issued. In these cases, the Bureau’s practical timeframe for review extends well<br />

beyond the 30-day waiting period. In addition, it is important to note that the applicable service standard only commences<br />

once the Bureau is satisfied that it has all of the information necessary to conduct its analysis, and can be suspended if the<br />

parties do not respond to subsequent questions from the Bureau in a timely manner.<br />

Accordingly, as a practical matter, parties can expect to be faced with an SIR or at the very least a demand for a timing<br />

agreement for transactions that are likely to raise serious competition concerns. However, the expiry of the initial 30calendar<br />

day waiting period in Canada does not amount to substantive comfort that the Commissioner has concluded that<br />

a transaction does not raise competition issues, as the Bureau’s review may well be ongoing at the time.<br />

(v) Can the merger review process be expedited through pre-filing dialogue?<br />

The Bureau does not have a formal pre-merger notification consultation process but encourages consultation prior to, or<br />

as soon as possible after, submission of a merger notification. The <strong>Merger</strong> Review Process Guidelines explain that early<br />

consultation can facilitate a more efficient review process, and may reduce the scope of, or necessity for, a SIR. 3<br />

It is standard practice for the Bureau to communicate with market participants (e.g., customers, suppliers and competitors).<br />

At least some market contacts will be made for even non-complex mergers with no or minimal overlap “unless it is very<br />

clear that there is no need to go to the market”. 4 The applicable service standard or statutory waiting period will usually<br />

not commence until such time as the Bureau is able to conduct market contacts.<br />

(vi) What are the penalties for gun jumping?<br />

The March 2009 amendments to the CA enhanced the penalties for actual or likely non-compliance with the waiting<br />

periods, including structural penalties such as dissolution or divestiture, and a monetary penalty of up to C$10,000 per<br />

day where parties have not complied with the filing requirements. However, we are not aware of any action having been<br />

taken in Canada under the new gun jumping provisions.<br />

In addition, failure to notify the Bureau of a transaction “without good and sufficient cause” is a criminal offence under<br />

the CA and punishable by a fine of up to C$50,000 (the equivalent of the filing fee). Proceedings may be commenced not<br />

only against a corporation but also against individual officers and directors. Failure to notify may also serve as the basis<br />

for an interim injunction to prevent a transaction from proceeding.<br />

Set out below is a chart illustrating the timeline for merger review under the CA:<br />

Statutory Waiting Periods<br />

Filing of<br />

Pre-<strong>Merger</strong><br />

Notification<br />

30-day<br />

waiting period<br />

Clearance<br />

or<br />

Issuance of SIR<br />

or<br />

Enter Timing<br />

Agreement<br />

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or<br />

Bureau has not<br />

completed review<br />

but no timing<br />

agreement<br />

(parties free to close)<br />

30-90 days<br />

(or longer)<br />

(parties to abide<br />

by terms of timing<br />

agreement)<br />

(parties legally<br />

entitled to close)<br />

Compliance with<br />

SIR<br />

30-day<br />

waiting period<br />

(can be<br />

extended<br />

through timing<br />

agreement)<br />

Clearance<br />

or<br />

Application for<br />

Interim Order<br />

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Osler, Hoskin & Harcourt LLP Canada<br />

Note:<br />

• Additional non-binding “service standard” review periods have been published by the Bureau to estimate the length<br />

of the actual substantive review (14/45 days if there is no SIR depending on complexity, or the same as the statutory<br />

waiting period if an SIR is issued).<br />

• The statutory waiting period is not triggered if only a request for an ARC is filed.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

In a transaction that potentially raises significant Canadian competition issues, it will be much more difficult to avoid the<br />

issuance of an SIR. This may be possible if a clear remedy with a suitable up-front buyer that would clearly resolve all<br />

potential concerns is offered and an agreement is concluded prior to expiry of the initial waiting period. In rare cases,<br />

closing into a hold separate after the initial waiting period may be accepted, for example, together with an undertaking to<br />

implement any remedies requested by the Commissioner.<br />

In cases that raise potentially less serious or extensive concerns in Canada, and/or where potential concerns in another<br />

jurisdiction where the transaction is being reviewed are more significant and any remedies would have to be implemented<br />

in that foreign jurisdiction, the Commissioner may be prepared to allow the initial waiting period to expire, typically<br />

subject to the conclusion of a timing agreement.<br />

As a general matter, the Bureau’s focus is on securing its own remedy to resolve competition concerns in Canada.<br />

Canadian-focused remedies are more likely “when the matter raises Canada-specific issues, when the Canadian impact is<br />

particularly significant, when the asset(s) to be divested reside in Canada, or when it is critical to the enforcement of the<br />

terms of the settlement”. 5 For example, the IESI-BFC/Waste Services transaction raised competition issues primarily or<br />

exclusively in Canada and not in any foreign jurisdictions. 6<br />

In the case of international mergers, the Bureau frequently cooperates with foreign competition authorities. However, the<br />

Bureau’s focus continues to be on the Canadian aspects of remedies. For example, while it can be expected that the Bureau<br />

coordinated with other jurisdictions in reaching a settlement in Novartis/Alcon (Novartis agreed to divest certain assets<br />

and licences for certain ophthalmic products, injectable miotics and ocular conjunctivitis drugs in Canada) 7 and<br />

Teva/ratiopharm (the parties agreed to sell assets and associated licences of either Teva or ratiopharm relating to the sale<br />

and supply of certain dosage forms of acetaminophen oxycodone tablets and morphine sulfate sustained-release tablets in<br />

Canada) 8 , Canadian remedies were obtained in these cases.<br />

In some cases, however, the Bureau has accepted a foreign remedy as sufficient to resolve concerns in Canada and did not<br />

obtain a separate Canadian settlement. A recent example is Danaher Corporation’s acquisition of MDS Inc.’s analytical<br />

technologies business, where the Bureau primarily looked to the FTC’s consent decree as sufficient to resolve concerns in<br />

Canada. 9<br />

Similarly, in the Nufarm/AH Marks transaction, the Bureau relied primarily on a consent decree between Nufarm and the<br />

United States Federal Trade Commission (“FTC”) to adequately resolve competition concerns in Canada. The Bureau<br />

indicated that it worked closely with FTC staff throughout the investigation to arrive at a proposed settlement order that<br />

restores competition in both Canadian and the U.S. 10<br />

In addition to Canadian-focused remedies, the Bureau strongly prefers structural remedies to behavioural remedies, and<br />

has stated that it views behavioural remedies as generally inadequate because of:<br />

• the difficulty in determining the appropriate duration of a behavioural remedy given the difficulty in gauging how<br />

long it will take for new entry or expansion to be established in the affected markets;<br />

• the direct costs of monitoring the activities of the merged entity, and the merged entity’s adherence to the terms of<br />

the remedy;<br />

• the costs to other market participants, who must rely on a third party (or process) to enforce adherence to the<br />

behavioural remedy; and<br />

• the indirect costs associated with any efforts by the merged entity to circumvent the remedy. 11<br />

That said, however, behavioural remedies have been accepted on occasion and in a number of recent cases. For example,<br />

in the 2010 merger of Ticketmaster Entertainment, Inc. and Live Nation, Inc., Ticketmaster agreed to sell its subsidiary<br />

ticketing business, as well as license its ticketing system for use by Anschutz Entertainment Group, the second largest<br />

promoter of live events in Canada and the United States. Ticketmaster is also forbidden from retaliating against any venue<br />

owner who chooses to use another company’s ticketing or promotional services, and is subject to restrictions on anticompetitive<br />

bundling. 12<br />

In an even more recent example, Commissioner of Competition v. The Coca-Cola Company, 13 the Commissioner agreed<br />

to remedies that were largely behavioural in nature in a vertical transaction. In 2010, The Coca-Cola Company sought to<br />

acquire the North American business of its primary bottler, Coca-Cola Enterprises Inc. Prior to the acquisition, Coca-<br />

Cola Enterprises Inc. was a publicly traded company that produced, marketed and distributed products, primarily for The<br />

Coca-Cola Company and Dr. Pepper Snapple Group, Inc. Following the acquisition, The Coca-Cola Company would<br />

provide these services, and the Bureau was concerned that the acquisition could allow The Coca-Cola Company to gain<br />

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access to Dr. Pepper’s marketing plans or other commercially sensitive information. In order to resolve concerns, The<br />

Coca-Cola Company agreed to certain information use restrictions and restrictions related to accessing relevant personnel.<br />

The consent agreement reached with The Coca-Cola Company will be in effect for 20 years, and an independent monitor<br />

has been assigned to ensure that The Coca-Cola Company complies with the above restrictions.<br />

While it is of interest that behavioural remedies have been accepted in two recent cases, it is too early to conclude that<br />

purely behavioural remedies may be accepted as sufficient to resolve concerns in Canada more generally. In this regard,<br />

in Ticketmaster, the behavioural remedy supplemented a structural remedy. Coca Cola involved a vertical merger with a<br />

fairly limited concern primarily related to access to commercially sensitive information.<br />

Key policy developments and reform proposals<br />

In September 2010, the Bureau announced a public consultation to consider the merits of revising the MEGs. The purpose<br />

of the consultation is to assess whether the MEGs accurately reflect current practice at the Bureau, the potential impact of<br />

the revised Horizontal <strong>Merger</strong> Guidelines in the United States, and address other legal and economic developments. In<br />

February 2011, the Bureau announced that it would be making “moderate” changes to the MEGs and released a draft for<br />

public consultation in June 2011.<br />

The proposed revisions to the MEGs do not reflect a material change in the Bureau’s substantive approach to merger<br />

review and include:<br />

• clarification of the role of market definition whereby the Bureau explains that merger review is an iterative process<br />

and while market definition generally forms a part of that process, it is not the required first step of the analysis nor<br />

is it a mandatory step in the analysis;<br />

• more detailed discussion of unilateral effects and acknowledgment that the Bureau has considerable discretion in<br />

deciding which economic or other analytical tools should be used in the review process. One such economic tool<br />

discussed in the proposed revisions is the diversion ratio. The proposed revisions also state that the Bureau<br />

considers whether the merger removes a vigorous and effective competitor, whether buyers are price sensitive, the<br />

likely competitive response of rivals by way of expansion or repositioning of products, entry, past buyer-switching<br />

behaviour in response to pricing changes, information based on customer preference surveys, win-loss records and<br />

estimates of own-price and cross-price elasticities. The proposed revisions refer to the use of qualitative evidence<br />

such as ordinary-course documents created by the merging parties or first-hand observations of the industry by<br />

market participants, as well as quantitative evidence such as statistical analyses of price, quantity, costs or other<br />

data;<br />

• further guidance on the analysis of coordinated effects;<br />

• expanded discussion of the Bureau’s approach to monopsony power, countervailing power, interlocking directorates<br />

and minority interests;<br />

• elimination of the two-year timeframe for potential entry into the market when the Bureau is assessing whether such<br />

new entry will constrain the merged entity from exercising market power;<br />

• elaboration on the Bureau’s approach to non-horizontal mergers; and<br />

• more detailed discussion of efficiencies.<br />

Final revised MEGs are expected to be published in the Fall of 2011.<br />

* * *<br />

1<br />

Endnotes<br />

Commissioner of Competition v. CCS Corporation, Complete Environmental Inc., Babkirk Land Services Inc.,<br />

Karen Louise Baker, Ronald John Baker, Kenneth Scott Watson, Randy John Wolsey, and Thomas Craig Wolsey (CT-<br />

2011-02), see http://www.ct-tc.gc.ca/CasesAffaires/CasesDetails-eng.asp?CaseID=336.<br />

2 Fees and Service Standards Handbook for <strong>Merger</strong> and <strong>Merger</strong>-Related Matters (November 1, 2010) at 4 and 11<br />

(“Fee and Service Standards Handbook”), see http://www.competitionbureau.gc.ca/eic/site/cb-<br />

3<br />

bc.nsf/eng/03295.html.<br />

<strong>Merger</strong> Review Process Guidelines (September 18, 2009) at 6, see http://www.competitionbureau.gc.ca/eic/site/cbbc.nsf/eng/03128.html.<br />

4 Fees and Service Standards Handbook at 11.<br />

5 Information Bulletin on <strong>Merger</strong> Remedies in Canada (September 22, 2006) at 22 (“Remedies Bulletin”), see<br />

http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02170.html.<br />

6 Competition Bureau, “Competition Bureau Requires Significant Divestitures in Waste Services <strong>Merger</strong>” (June 29,<br />

2010), see http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03256.html.<br />

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7 Competition Bureau, “Competition Bureau Secures Divestitures in Novartis’ Acquisition of Alcon” (August 9,<br />

2010), see http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03274.html.<br />

8 Commissioner of Competition v. Teva Pharmaceutical Industries Ltd., Merckle GMBH, CT Arzneimittel GMBH and<br />

ABZ-Pharma Holding GMBH (CT-2010-007), see http://www.ct-tc.gc.ca/CasesAffaires/CasesDetailseng.asp?CaseID=330.<br />

9 Competition Bureau, “International Remedy Resolves Canadian Concerns in Danaher Acquisition of MDS” (March<br />

8, 2010), see http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03209.html.<br />

10 Competition Bureau, “Competition Bureau Requires Divestitures in Herbicide <strong>Merger</strong>” (July 28, 2010), see<br />

http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03264.html.<br />

11 Remedies Bulletin at 5-6.<br />

12 Commissioner of Competition v. Ticket Master Entertainment Inc. and Live Nation Inc. (CT-2010-001), see<br />

http://www.ct-tc.gc.ca/CasesAffaires/CasesDetails-eng.asp?CaseID=324.<br />

13 Commissioner of Competition v. The Coca-Cola Company (CT-2010-009), see http://www.cttc.gc.ca/CasesAffaires/CasesDetails-eng.asp?CaseID=332.<br />

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Osler, Hoskin & Harcourt LLP Canada<br />

Michelle Lally<br />

Tel: +1 416 862 5925 / Email: mlally@osler.com<br />

Michelle is the Chair of the firm’s prestigious Competition Law and Foreign Investment Group and<br />

Chair of the National Competition Law Section of the Canadian Bar Association.<br />

Michelle’s practice has a particular emphasis on mergers & acquisitions and competitor collaborations.<br />

She also provides strategic counselling advice to clients with leading industry positions on the application<br />

of the abuse of dominance and pricing vertical restraint provisions of the Competition Act. In addition,<br />

she represents both immunity applicants and targets of domestic and multinational conspiracy<br />

investigations.<br />

As well, Michelle has extensive experience representing parties (both non-Canadian acquirers and<br />

targets) confronted with the regulatory review process under the Investment Canada Act, Canada’s<br />

foreign investment legislation. She regularly makes submissions and engages in dialogue with the<br />

Competition Bureau, the Department of Public Prosecutions and Industry Review Division of Industry<br />

Canada.<br />

Shuli Rodal<br />

Tel: +1 416 862 4858 / Email: srodal@osler.com<br />

Shuli is a partner in the firm’s Competition and Foreign Investment Group. Shuli specialises in helping<br />

clients navigate the process of merger review before the Competition Bureau as well as foreign<br />

investment reviews under the Investment Canada Act. In addition, she provides competition law advice<br />

on compliance matters arising under the criminal and civil provisions of the Competition Act and<br />

represents clients before the Competition Bureau.<br />

Shuli is the author of numerous articles on competition and foreign investment law and is actively<br />

involved in commenting on policy and legislative developments in the competition law and foreign<br />

investment fields, in Canada and internationally.<br />

She has appeared before the Canadian Parliamentary Committees responsible for Industry, Science and<br />

Technology and Canadian Heritage. She is currently Vice Chair of the Legislation and Policy Committee<br />

of the Competition Law Section of the Canadian Bar Association and is a member of the firm’s Student<br />

Committee.<br />

Osler, Hoskin & Harcourt LLP<br />

Box 50, 1 <strong>First</strong> Canadian Place, Toronto, Ontario, M5X 1B8, Canada<br />

Tel: +1 416 862 5925 / Fax: +1 416 862 6666 / URL: http://www.osler.com<br />

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China<br />

Susan Ning, Huang Jing & Yin Ranran<br />

King & Wood PRC Lawyers<br />

Overview of merger control activity during the last 12 months<br />

In 2010, China’s Ministry of Commerce (“MOFCOM”) accepted approximately 110 merger control notifications filed in<br />

accordance with the Anti-Monopoly Law of China (“AML”). This is slightly more than the number (87 cases) in 2009.<br />

There is no comparable figure for 2008, the year when the AML was enacted (official data suggests that from 1 August<br />

2008 when the AML was enacted to the end of June 2009, MOFCOM accepted 58 merger control filings).<br />

The number of merger control notifications has been steadily rising for the last two years. One of the major reasons for<br />

the increase is that more and more companies doing business in China are becoming aware of the merger control regime<br />

in China and start to acknowledge the potential influence of MOFCOM in international commercial transactions.<br />

Since MOFCOM has no legal obligation to publicise its clearance decisions, there is no data available as to how many<br />

notifications are cleared in the first stage. Nevertheless, it is fair to say that nowadays only a very small proportion of<br />

notifications are cleared within the first stage, which spans for 30 calendar days. Most notifications are cleared in the<br />

second stage, which spans for 90 calendar days (in special circumstances, the second stage can be extended for another<br />

60 calendar days). The reason is that, as China does not have a simplified procedure for merger control yet, all notifications<br />

are reviewed with full details, even if the transaction only has a de minimis connection with China. Although MOFCOM<br />

is planning to formulate a fast track review system, there is no timetable as to when such a mechanism would be in place.<br />

In 2010, all 110 cases were cleared without conditions, except for the following merger.<br />

Acquisition of Alcon Inc. by Novartis AG1 Novartis and Alcon are both global suppliers of pharmaceutical products. MOFCOM imposed conditions in relation to<br />

two products: (1) Ophthalmic anti-inflammatory and anti-infective combination products; and (2) lens care products.<br />

In relation to the first product, Novartis was required to cease to supply its ophthalmic anti-inflammatory and anti-infective<br />

combination product (“Infectoflam”) in China by the end of 2010 and for a period of 5 years. In addition, Novartis was<br />

prohibited from supplying a different version or type of product like Infectoflam under a different brand-name in China.<br />

In relation to the second product, Novartis was required to terminate its distribution agreement with Haichang (the largest<br />

manufacturer and supplier of lens care products in China) within 12 months after the closing of the transaction.<br />

In 2011, up till September, there has been another conditional clearance.<br />

Acquisition of Silvinit by Uralkali<br />

On 2 June 2011, MOFCOM announced the first conditional merger clearance for 2011. Uralkali’s proposed acquisition<br />

of Silvinit (both are potash producers based in Russia) was cleared with the following four behavioural conditions:<br />

(a) the combined entity should continue to maintain its current sales practices and procedures. The combined entity<br />

should continue to supply potassium chloride to China via direct trade. In addition, the combined entity should<br />

continue to channel potassium chloride to China via rail or sea in a reliable and diligent manner;<br />

(b) the combined entity should continue to meet China’s demands for potassium chloride (both in terms of volume and<br />

range of potassium chloride products), including potassium chloride containing 60% and 62% of potassium oxide.<br />

In addition, the combined entity should continue to supply its customers in China with the types and quantities of<br />

potassium chloride required for a variety of uses, including for agricultural use, industry use and “special industry”<br />

use;<br />

(c) in relation to price negotiations with Chinese customers, the combined entity should keep to the usual consultation<br />

processes (including taking into account the history of customer transactions and the unique features of the Chinese<br />

market). The usual negotiations, including price negotiations in relation to spot trading or trading by contract (six<br />

months or a year) should apply; and<br />

(d) every six months (or upon request), the combined entity should report to MOFCOM about its implementation of<br />

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King & Wood PRC Lawyers China<br />

the conditions. MOFCOM possesses the power to supervise and inspect the implementation of the above restrictive<br />

conditions. MOFCOM also has the right to impose sanctions on the combined entity, should it fail to adhere to any<br />

of the above conditions.<br />

As of September 2011, MOFCOM has not yet imposed any sanctions against a company for failure to notify a notifiable<br />

concentration.<br />

New developments in jurisdictional assessment or procedure<br />

Under the AML, a transaction will be notifiable if, among other things, (i) it is a “concentration of business operators”<br />

under the AML, (ii) the thresholds as set forth in Article 3 of the Provisions of the State Council on Notification Thresholds<br />

of Concentrations of Undertakings (August 3, 2008) (“Thresholds Provisions”) have been triggered, and (iii) the<br />

exemption provided in Article 22 of the AML does not apply.<br />

As the AML is rather new, many issues remain unclear under the current legal framework. Set forth below is information<br />

drawn upon our experiences dealing with MOFCOM and should not be directly relied upon.<br />

(1) How to determine “control” under the AML<br />

To judge whether a transaction is a notifiable “concentration” under the AML, the major test would be whether the acquiring<br />

party will obtain “control” over the target through the transaction. Experiences have shown that MOFCOM would normally<br />

consider the following factors:<br />

Percentage of voting rights acquired<br />

If the acquiring party obtains equity or assets representing more than 50% of the voting rights of the target, the acquiring<br />

party will be deemed to have obtained control over the target.<br />

Other power acquired<br />

If the acquiring party obtains equity or assets representing no more than 50% of the voting rights of the target, MOFCOM<br />

would then look at the following factors:<br />

• Appointment of directors or senior management<br />

MOFCOM would take in account the number of directors or senior management of the target the acquiring party<br />

could nominate.<br />

• Veto rights against major business decisions<br />

If the acquiring party has veto rights against major business decisions of the target, it will be considered as having<br />

control over the target. There is no clear indication under the AML or its implementing rules on the exact scope of<br />

major business decisions. Nevertheless, it is recognised that acquisition of veto rights designed for protection of<br />

minority shareholder interests shall not be deemed to give rise to “control” over the target.<br />

Typical minority shareholder protection rights include veto rights against: (i) amendment to the articles of<br />

association; (ii) mergers and de-mergers; (iii) registered capital increases or decreases; or (iv) liquidation and/or<br />

winding up of a company.<br />

• Control over key resources<br />

The acquiring party could be considered as having control over the target if it will be providing key resources to the<br />

target, such as: major raw materials; important R&D support; essential distribution channels, etc.<br />

• Mutual consensus<br />

Even if the acquiring party appears to have no controlling power over the target either on a contractual basis or<br />

through internal corporate governance mechanisms, control may nevertheless be established if there are sufficient<br />

facts suggesting the existence of a mutual consensus between the acquiring party and the target. If there are more<br />

than one acquiring party with each having minority interests in the target, MOFCOM would consider the likelihood<br />

for the acquiring parties to act in concert by looking at: whether they constantly invest together; and what their<br />

investment motives are, etc.<br />

MOFCOM would assess the above factors in its totality before making the final judgment.<br />

Companies could seek MOFCOM’s opinions over jurisdictional issues through a pre-filing consultation procedure. It is<br />

not possible to make an anonymous inquiry with MOFCOM though. Normally, basic information of the transaction, such<br />

as the introduction of the parties, transaction structure, industry involved, etc. needs to be provided to MOFCOM for<br />

purposes of such pre-filing consultations with MOFCOM.<br />

(2) Whether establishment of a joint venture constitutes “concentration” under the AML<br />

The AML does not clearly provide that the establishment of a joint venture (“JV”) constitutes a “concentration” under the<br />

AML. If more than two parent companies of the JV obtain control over the JV, such establishment would be considered<br />

as a “concentration”.<br />

Unlike the European Union, MOFCOM does not distinguish between a full-functional JV and a non-full-functional JV.<br />

In other words, even if a JV is just an R&D centre of the parent companies with no access to the market, it may still be<br />

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King & Wood PRC Lawyers China<br />

subject to the merger control regime if the turnover thresholds are triggered.<br />

(3) MOFCOM’s attitude towards mergers with no competition concerns<br />

To date, China has not yet implemented a fast track review procedure. All mergers are reviewed with full details. Therefore,<br />

it is not unusual to see a merger with no overlapping product dragged into the second stage review period.<br />

Because the clock will not start to click unless MOFCOM officially accepts a filing, MOFCOM will take this opportunity<br />

to engage in substantive review and sometimes discussions with the filing parties to spread the timing pressure at later<br />

stages. It is common for MOFCOM to have several rounds of supplementary information requests before it officially<br />

accepts a filing. In practice, it is not easy to convince MOFCOM to waive any information request simply for the reason<br />

that the transaction will have a minor impact in China.<br />

(4) Enforcement against pre-mature implementation<br />

Consummation or implementation of a notifiable concentration without first obtaining antitrust clearance from MOFCOM<br />

is a breach of the AML. However, the AML does not contain provisions as to what conduct constitutes pre-mature<br />

implementation that should be avoided.<br />

A number of actions are likely to indicate that a concentration has been consummated or closed. Key indicative of a<br />

consummated concentration include registration of shares, obtaining a business licence and the appointment of directors.<br />

While awaiting for antitrust clearance, filing parties to a notified concentration will inevitably engage in some preparatory<br />

work – but there is no clear-cut line between preparatory work that is “necessary” and preparatory work that would<br />

constitute implementation of the concentration. Some examples of preparatory work that are very likely to be deemed as<br />

constituting implementation of a concentration include: entering into a transfer agreement of land use rights or a lease<br />

agreement for a manufacturing plant that is not conditioned upon obtaining MOFCOM’s clearance decision; and appointing<br />

key management personnel.<br />

Some pre-clearance cooperative conducts between the filing parties may also need to be assessed under the relevant<br />

horizontal agreement provisions of the AML.<br />

In addition, currently there is no legal basis for carve-out under the AML and its implementing rules. Since MOFCOM<br />

reviews a notified merger in its entirety, the merger shall not be implemented in any jurisdiction before obtaining<br />

MOFCOM’s approval, even if part of the transaction related to China could be carved out.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The only conditional clearance decision in 2010 relates to the acquisition of Alcon Inc. by Novartis AG, which concerns<br />

the pharmaceutical industry. Up till September 2011, among all the mergers MOFCOM cleared, only seven were cleared<br />

with conditions. Two out of the seven conditional clearances, i.e. the acquisition of Alcon Inc. by Novartis AG, and the<br />

acquisition of Wyeth Corp by Pfizer Inc. 2 , involved the pharmaceutical industry.<br />

However, it does not mean that MOFCOM has a focus on the pharmaceutical industry. Market share and market<br />

concentration levels are still the major factors MOFCOM considers in the review process.<br />

MOCOM generally adopts a consistent approach to market definition. For example, for the pharmaceutical industry,<br />

MOFCOM considers that medicines within the same ATC-3 category should belong to the same relevant product market3 .<br />

Nevertheless, MOFCOM would consider the possibility of a wider or narrower relevant product market during the review<br />

of any case.<br />

In its competitive assessment process, MOFCOM will examine the status of competition in the relevant product market<br />

both in China and on a global scale. It would mainly focus on the impact of a concentration on the China market. However,<br />

even if the relevant geographic market is defined as the China market, MOFCOM will still be vigilant if the parties’<br />

combined share in the global market is high. In the decision regarding acquisition of Alcon Inc. by Novartis AG, MOFCOM<br />

states that “(a)ccording to the notification documents, the combined market share of the parties post-merger (in the product<br />

market of lens care products) is almost 60% in the global market, which is much higher than the other competitors. The<br />

combined market share of the parties in the China market is almost 20%. The merged enterprise will become the second<br />

largest in the China market. Haichang Contact Lens Co., Ltd. is the biggest manufacturer and supplier in the China market,<br />

whose market share exceeds 30%”. Clearly, the parties’ high market share in the global market contributed to MOFCOM’s<br />

finding that the concentration will cause competition concerns in the lens care products market of China.<br />

Key economic appraisal techniques applied<br />

In September, 2011, MOFCOM released the Provisional Rules on Assessment of Competitive Effects of Concentration of<br />

Business Operators, which confirmed that the Herfindahl-Hirschman Index (“HHI”) and the Concentration Ratio Index<br />

(“CRn”) can be used to measure market concentration level. Please see “Key policy developments” below for details.<br />

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Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

For reasons explained above under “Overview of merger control activity during the last 12 months”, in China, it is very<br />

common for a case to enter into second stage investigation. Entering into second stage in most cases does not mean that<br />

remedies are likely to be imposed.<br />

If MOFCOM has competition concerns over a merger, it will normally discuss its concerns with the parties, instead of<br />

directly proposing any remedies. The parties should then explore the possibility for remedies, and make proposals to<br />

MOFCOM. In practice, MOFCOM will negotiate in detail with the parties about the content of the remedies. This<br />

negotiation may take 2-4 weeks before MOFCOM and the parties reach an agreement.<br />

Key policy developments<br />

(1) New divestiture interim rules<br />

On 5 July 2010, MOFCOM enacted the Interim Rules on Implementing the Divestiture of Assets or Businesses in<br />

Concentration of Business Operators (MOFCOM 2010 Announcement No. 41, the “Divestiture Rules”), which set out<br />

the rules and procedures to do with divesting assets.<br />

The objective of the Divestiture Rules is to ensure that any divestiture or assets or business pursuant to the merger control<br />

regime is conducted smoothly.<br />

According to the Divestiture Rules, business operators who are required to divest assets pursuant to the merger control<br />

regime (known as “divestiture obligors”) would have to divest their assets within a time limit stipulated in a merger control<br />

decision made by MOFCOM (including finding a purchaser and entering into the relevant sales agreements).<br />

Divestiture obligors may appoint a “supervision trustee” and a “divestiture trustee” to assist in the divestiture process.<br />

The former will supervise the divestiture process and the latter would assist with locating a purchaser as well as assist<br />

with the actual sale process.<br />

Supervision trustees and divestiture trustees must be equipped with the resources and capabilities necessary for conducting<br />

trust businesses; and not possess substantial interests in any of the business operators participating in the merger under<br />

scrutiny.<br />

In addition, supervision trustees and divestiture trustees may be the same natural person or legal entity; and purchasers of<br />

divested business must satisfy the following requirements:<br />

• they must not possess substantial interests in any of the business operators participating in the merger under<br />

scrutiny;<br />

• they must be equipped with the necessary resources and capabilities and must be willing to maintain and develop<br />

the business to be divested; and<br />

• the purchase of the business to be divested must not result in elimination or restriction of competition.<br />

These rules provide some sort of structure from which business operators can expect to divest their assets pursuant to a<br />

merger control decision issued by MOFCOM. These regulations are largely consistent with the divestiture regulations in<br />

more experienced antitrust jurisdictions such as the European Union.<br />

In practice, it is important to work closely with MOFCOM when a business has been told to divest pursuant to a merger<br />

control decision. Regular consultations with MOFCOM will ensure that the divestiture process goes smoothly. It may<br />

take up to 6 months for a business to find a suitable purchaser for the divested business and to reach the relevant agreements<br />

for the sale. It is also noteworthy that MOFCOM has stipulated that divested businesses should be transferred to the<br />

purchaser within 3 months after the execution of the sales and other agreements, although this time limit may be extended<br />

with MOFCOM’s consent.<br />

(2) New competition assessment rules<br />

On 5 September 2011, MOFCOM enacted the Provisional Rules on Assessment of Competitive Effects of Concentration<br />

of Business Operators (MOFCOM 2011 Announcement No. 55, the “Competition Assessment Rules”), which elaborated<br />

on the factors to be considered by MOFCOM in assessing the competitive effects of a business concentration as listed in<br />

Article 27 of the AML.<br />

Under Article 27 of the AML, factors to be considered when assessing the competitive effects of a concentration include:<br />

(i) market shares and market control power of the merging parties in the relevant market; (ii) concentration levels of the<br />

relevant market; (iii) impact of the concentration on market entry and technological development; (iv) impact of the<br />

concentration on consumers and other relevant operators; (v) impact of the concentration on national economic<br />

development; and (vi) other factors that should be considered.<br />

On such basis, the Competition Assessment Rules set out the basic methodology for its competitive analysis and the basic<br />

elements for application of each factor in a merger review process. The rules appear to identify market share/market<br />

control power and market concentration levels as the most important factors to be considered by MOFCOM in assessment<br />

of competitive effects of a concentration.<br />

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Article 4 of the Competition Assessment Rules outlines the basic methodology MOFCOM applies in assessing competitive<br />

effects of a concentration:<br />

(i) MOFCOM will first evaluate whether the concentration will create or strengthen the capability, incentive and<br />

likelihood for a single operator to unilaterally exclude or restrict competition;<br />

(ii) if there are only a limited number of operators in the relevant market, MOFCOM will also evaluate whether the<br />

concentration will create or strengthen the capability, incentive and likelihood for relevant operators to jointly<br />

exclude or restrict competition; and<br />

(iii) finally, where the operators are not actual or potential competitors in the same relevant market, MOFCOM will<br />

focus on whether the concentration is likely to exclude or restrict competition in the upstream/downstream market<br />

or adjacent market.<br />

MOFCOM did not use such terms as “unilateral effects/coordinated effects” (as in the U.S.) or “non-coordinated<br />

effects/coordinated effects” (as with the European Commission). Neither did it explicitly refer to “foreclosure effect”<br />

(likely caused by a vertical merger) or “leveraging effect” (likely caused by a conglomerate merger). However, it appears,<br />

both from the Competition Assessment Rules and its own practices, that MOFCOM adopts essentially the same<br />

methodologies as its counterparts in major foreign antitrust jurisdictions.<br />

Article 5 of the Competition Assessment Rules outline the elements that are relevant for assessment of whether the merging<br />

parties have “market control power”:<br />

(i) market share of the merging parties in the relevant market and the state of competition in the relevant market;<br />

(ii) degree of substitutability of the merging parties’ products or services;<br />

(iii) production capability of non-merging parties in the relevant market, and the degree of substitutability of their<br />

products or services with those of the merging parties;<br />

(iv) ability of the merging parties to control the sales market or the procurement market for raw materials;<br />

(v) ability for merging parties’ purchasers to switch suppliers;<br />

(vi) financial and technological capabilities of the merging parties; and<br />

(vii) purchasing power of the merging parties’ downstream customers.<br />

The Competition Assessment Rules also confirm that market concentration level can generally be measured by the<br />

Herfindahl-Hirschman Index (“HHI”) and the Concentration Ratio Index (“CRn”). It appears that MOFCOM is willing<br />

to rely more on these economic tools in determining the concentration levels in its merger review process. However, the<br />

Competition Assessment Rules do not provide a scale of measurement for any competitive assessment by HHI or CRn.<br />

The Competition Assessment Rules have also explicitly identified (without furnishing any details though) public interests,<br />

economic efficiency, bankruptcy defence and countervailing buyer power as additional factors that MOFCOM will weigh<br />

in during its review process.<br />

Reform proposals<br />

On 13 June 2011, MOFCOM published the “Interim Rules on Investigating and Penalizing Violation of Notification<br />

Obligations for Concentrations between Business Operators (Draft for Comments)” (the “Investigation and Penalty<br />

Draft Rules”), which outline the investigation procedure, should business operators fail to notify MOFCOM of notifiable<br />

concentrations.<br />

According to the Investigation and Penalty Draft Rules, MOFCOM may investigate and impose remedies on notifiable<br />

concentrations which have not been reported to MOFCOM (notification obligation). MOFCOM may, by itself, investigate<br />

into notifiable concentrations which have not been notified according to Article 39 of the AML (MOFCOM’s investigative<br />

powers including carry out inspections at the premises of the business operators; compelling information from business<br />

operators and making copies of relevant documents). Third parties may also report a suspected violation of the notification<br />

obligation to trigger an investigation (MOFCOM will keep the identities of these third parties confidential).<br />

When MOFCOM decides to commence an investigation into a concentration, it shall notify the business operators involved<br />

in writing. Upon receipt of this written notice, business operators must submit relevant materials and documents within<br />

15 days after receipt of the notice. Relevant materials and documents include information regarding: whether the<br />

transaction in question constitutes a “concentration of business operators”; whether the transaction triggers the notification<br />

thresholds pursuant to the AML; and whether the transaction has been implemented.<br />

If MOFCOM is of the view that business operators have violated the notification obligation and wishes to conduct a further<br />

investigation, MOFCOM will once again inform the business operators in writing. MOFCOM will then commence a<br />

further investigation to determine whether the concentration has or may have the effect of restricting or eliminating<br />

competition. Business operators subject to this further investigation must submit relevant materials and documents within<br />

30 days after receipt of the written notice as described above. During the investigation process, MOFCOM may consult<br />

with stakeholders such as other government departments, trade associations and other business operators and individuals<br />

as required.<br />

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The publication of these Investigation and Penalty Draft Rules shows MOFCOM’s commitment to stepping up enforcement<br />

in relation to a failure to notify notifiable concentrations. The draft rules provide some clarity as to what happens if a<br />

business operator is being investigated for a failure to notify MOFCOM of a notifiable concentration. However, the<br />

following three issues are not clear in the draft:<br />

(i) The Investigation and Penalty Draft Rules provide that business operators could be found in breach of the<br />

notification obligation if they have “implemented” a notifiable concentration. But the term “implement” has not<br />

been defined. If this term is construed broadly, certain preparatory work (i.e. preparation for a concentration) might<br />

be construed as implementing a concentration. On the other hand a narrow interpretation of this term would point<br />

to “closing” a concentration.<br />

(ii) In relation to a situation where a notifiable concentration is subject to a further investigation, pursuant to the<br />

Investigation and Penalty Draft Rules, it is not clear whether there would be a maximum statutory period in which<br />

MOFCOM would complete its review process.<br />

(iii) The Investigation and Penalty Draft Rules contain a provision which sets out the remedies which a business operator<br />

may face for a failure to notify MOFCOM of a notifiable concentration. This provision states “MOFCOM shall<br />

order business operators to: cease implementing the concentration; dispose shares or assets within a stipulated<br />

period; transfer the (relevant) business within a stipulated period; or reinstate the market situation before the<br />

concentration. MOFCOM may also impose a fine of not more than RMB500,000”. This provision is similar with<br />

Article 48 of the AML, except for the term “shall” which has been omitted from Article 48 of the AML. It is unclear<br />

as to the significance of the addition of this term “shall”. One view is that the addition of the term “shall” shows a<br />

stronger compulsion by MOFCOM to impose the above-mentioned remedies.<br />

* * *<br />

Endnotes<br />

1 MOFCOM Announcement [2010] No. 53.<br />

2 MOFCOM Announcement [2009] No. 77.<br />

3 See MOFCOM Announcement [2009] No. 77, and MOFCOM Announcement [2010] No. 53. In MOFCOM<br />

Announcement [2009] No. 77, MOFCOM cited the ATC-3 categories and the names of the two relevant product<br />

markets: J1C (Broad Spectrum Penicillins), and N6A (Antidepressants & Mood Stabilisers). In MOFCOM<br />

Announcement [2009] No. 77, MOFCOM only mentioned the names of the two relevant product markets:<br />

ophthalmic anti-inflammatory and anti-infective combination products; and Lens care products. The relevant ATC-<br />

3 categories of the two product markets are: S1C; and S1K.<br />

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King & Wood PRC Lawyers China<br />

Susan Ning<br />

Tel: +86 10 5878 5010 / Email: susan.ning@kingandwood.com<br />

Susan is a Senior Partner and the head of the antitrust and competition and international trade groups of<br />

King & Wood.<br />

From 2003, Susan began advising on antitrust and competition law issues under the Anti-Unfair<br />

Competition Law and various competition provisions spread over several pieces of legislation.<br />

Susan’s current practice focuses on: advising merger clearance; and advising on Anti-Monopoly Law<br />

(AML) compliance issues. Since the enactment of the AML on 1 August 2008, Susan has, together with<br />

her strong team, undertaken more than 50 merger filings on behalf of mostly multinational companies.<br />

Susan has taken a very active role assisting and counselling the Chinese government on legislation of<br />

the AML and its implementing rules, through which, Susan has maintained a close working relationship<br />

with the antitrust authorities in China.<br />

Susan holds a Bachelor of Laws from Peking University and a Masters in Law from McGill University.<br />

Susan was admitted as a Chinese lawyer in 1988.<br />

Huang Jing<br />

Tel: +86 10 5878 5843 / Email: huangjing@kingandwood.com<br />

Huang Jing is a member of the antitrust and competition group of King & Wood.<br />

Huang Jing’s practice focuses on advising merger clearance; and advising on AML compliance issues.<br />

Since joining the group, Ms. Huang has advised dozens of multinational companies in their merger<br />

filings with the China Ministry of Commerce. The industries involved in the merger filings include:<br />

electronics, mining, pharmaceutical, automobile, chemicals, retail, etc. Ms. Huang has also advised<br />

companies on AML compliance issues related to distribution agreements, pricing, and establishment of<br />

JVs.<br />

Huang Jing joined King & Wood in 2007. She holds a Bachelor of Laws from Peking University and a<br />

Masters in Law from the Chinese University of Hong Kong. Huang Jing is a qualified Chinese Lawyer.<br />

Yin Ranran<br />

Tel: +86 10 5878 5270 / Email: yinranran@kingandwood.com<br />

Ms. Yin joined King & Wood in 2004 and is working for the firm’s antitrust and competition group.<br />

Ms. Huang’s practice focuses on advising merger clearance; and advising on AML compliance issues.<br />

Ms. Yin has advised multinationals in the mining, agriculture, automobile, beverages, and manufacturing<br />

industries in merger filings. Ms. Yin has also advised companies from an extensive range of industries<br />

on business models, distribution arrangements, pricing, and establishment of JVs.<br />

Before joining the firm’s antitrust and competition group, Ms. Yin worked in the foreign investment<br />

department of King & Wood Shenzhen Office (2004-2008) and in Crowell & Moring LLP in Washington<br />

D.C. (2009-2010).<br />

Ms. Yin received her Bachelor of Art and Master of Law degrees from Southwest University of Political<br />

Science and Law and her LL.M. degree from Columbia Law School in New York (Harlan Fiske Stone<br />

Scholar). She is qualified to practice law in the PRC (admitted in 2005) and has passed the bar<br />

examination of the State of New York (in 2009).<br />

King & Wood PRC Lawyers<br />

40th Floor, Office Tower A, Beijing Fortune Plaza, 7 Dongsanhuan Zhonglu, Chaoyang District, Beijing 100020, P.R. China<br />

Tel: +86 10 5878 5588 / Fax: +86 10 5878 5599 / URL: http://www.kingandwood.com<br />

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Colombia<br />

Alfonso Miranda Londoño<br />

Esguerra Barrera Arriaga<br />

Introduction to Colombian <strong>Merger</strong> Control<br />

The <strong>Merger</strong> Control legislation in Colombia is set forth mainly in Law 155, 1959, Decree 2153, 1992, Law 1340, 2009,<br />

Circular No. 10 of the Superintendence of Industry and Commerce, Resolution 69901, 2009, which refers to the economic<br />

thresholds for review, and Resolution 35006, 2010, which contains the guidelines for the presentation of antitrust filings<br />

pursuant to the New Competition Law, 1340, 2009. <strong>Merger</strong> regulations for specific sectors are contained in other statutes.<br />

The Organic Statute for the Financial System (Decree 663, 1993) governs mergers in the financial and insurance sectors.<br />

Legislation for mergers between airlines is basically contained in article 1866 of the Commerce Code and article 3.6.3.7.3<br />

of the Colombian Aeronautic Regulation - RAC.<br />

1.1 The National Competition Authority - SIC<br />

The Superintendence of Industry and Commerce (hereinafter the Superintendence or the SIC) is the National Competition<br />

Authority in Colombia and is also the main authority for merger control. The SIC is an administrative entity controlled<br />

by the Government. The Superintendent can be freely appointed and removed from office by the President of Colombia.<br />

Pursuant to article 2 of Law 1340, 2009, the SIC has been now granted the power to review mergers in all sectors of the<br />

economy with two exceptions: (i) reorganisation operations in the financial sector which are reviewed by the Financial<br />

Superintendence, which must hear the opinion of the SIC and must apply the conditions that the SIC recommends, if any;<br />

and (ii) operational agreements between airlines, which are reviewed by the Aeronautic Authority.<br />

1.2 Scope of Application of the <strong>Merger</strong> Control Regulation<br />

According to article 9 of Law 1340, 2009, merger transactions that have to be informed and require previous authorisation<br />

(waiting period) from the SIC in Colombia are those that: (i) are entered into by companies that are dedicated to the same<br />

activities, or participate in the same vertical value chain; (ii) together or separately had operational income or own assets<br />

in Colombia, in the year previous to the transaction, in an amount that meets the thresholds that the SIC has established.<br />

Right now the notification thresholds are defined in Resolution 69901, 2009, in an amount, in monthly minimum wages,<br />

equivalent to approximately USD $40 million; or (iii) have an individual or joint participation in the relevant market of<br />

20% or more.<br />

If the economic thresholds pointed out in (ii) are met but the market participation threshold is not, then the transaction is<br />

deemed authorised, and needs only to be previously notified (no waiting period) to the SIC. <strong>Merger</strong>s that do not meet the<br />

above-mentioned economic thresholds are not subject to merger control.<br />

Clearance is not required when the transaction is carried out between companies that belong to the same corporate group.<br />

According to article 9 of Law 1340, 2009, all transactions that consist of acquisitions, mergers, consolidations or<br />

integrations (whatever the legal form of the transaction) between companies dedicated to the same activities or participating<br />

in the same vertical value chain, which assets and sales individually or jointly meet the economic thresholds, and have a<br />

20% or more market participation as explained above, require to be informed to the SIC and previously authorised (waiting<br />

period). If the economic thresholds are met but the joint or individual participation of the companies in all the markets in<br />

which they participate is below 20%, the transaction is deemed as authorised and needs only to be notified to the SIC (no<br />

waiting period). The new 2009 law has made it totally clear that the SIC will review both horizontal and vertical<br />

transactions. Currently there is a discussion going on as to whether merger control applies to conglomerate mergers in<br />

which there is no market overlap, but it seems that this is not the case, since the new 2009 law did not refer to those cases.<br />

The interpretation of the SIC is that a merger transaction amounts to an entrepreneurial concentration that needs<br />

authorisation from the competition authority, when the companies involved (two or more) cease to participate independently<br />

in the market and are therefore permanently controlled by the same management or decision centre, whatever the legal<br />

structure designated for that purpose.<br />

The SIC has not issued any particular doctrine on when joint ventures are caught; however, as pointed out above, the<br />

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Esguerra Barrera Arriaga Colombia<br />

interpretation of the SIC is that there is an entrepreneurial concentration when control over two companies or undertakings<br />

that were participating independently in the market is acquired permanently by the same management or decision centre,<br />

whatever the legal structure designated for that purpose. In this sense, only joint ventures that create a sort of permanent<br />

undertaking should be subject to merger control.<br />

Colombian law offers two definitions of control: one is found in the Commerce Code and applies to corporations; the<br />

other is in the Competition Law and refers in a broader way to undertakings. According to the broader definition, control<br />

is the possibility of influencing directly or indirectly the business policy of a company or undertaking, the initiation or<br />

termination of the activities of the company, the variation of the activities to which the company is dedicated, or the use<br />

or disposal of the essential assets needed for the activities of the company.<br />

The definition of corporate control includes both internal and external control. Pursuant to article 261 of the Commerce<br />

Code, internal control shall be considered to exist when a company, directly or through other subsidiaries, owns more than<br />

50% of the capital stock of another company or owns or commands enough voting stock to appoint the majority of its<br />

directors. External control, on the other hand, exists when, by way of a contract or other relationship different from the<br />

ownership of stock, one person or company can exercise a dominant influence over a corporation.<br />

The <strong>Merger</strong> Antitrust Legislation does not apply to transactions that do not imply the acquisition of control.<br />

Overview of <strong>Merger</strong> Control Activity<br />

2.1 Principal cases<br />

In the past few years, the SIC cleared some big acquisitions: the sale of the national telecommunications company –<br />

Telecom, to the Spanish operator - Telefonica; the transaction ‘Procter & Gamble – Gillette’; the sale of the supermarket<br />

chain - Carulla, to the French controlled chain - Éxitoi ; the sale of the main national newspaper El Tiempo, to the Spanish<br />

Planeta Group; the sale of the national steel producer – Acerías Paz del Río, to the Brazilian conglomerate Grupo<br />

Votorantim; the sale of the only PVC resin producer – Petco to the Mexican manufacturer – Mexichem, and the subsequent<br />

sale of the main PVC tube manufacturer – Amanco, also to Mexichem; the acquisition of Petro Rubiales by Pacific Stratus<br />

Energy; the sale of Aluminio Reynolds Santodomingo to the Arfel Group; the sale of Bavaria to SabMiller; the sale of the<br />

drugstore business of Exito/Cafam to Olímpica; and the transaction between Colgate and Unilever for the sale of the<br />

detergent brands, inter alia. In the case of the main cigarette manufacturer Coltabaco, the SIC initially approved the<br />

transaction presented with Phillip Morris as a buyer, but the companies could not comply with the structural conditions<br />

imposed and the merger failed. Now, recently, the transaction was approved with BAT as a buyer.<br />

However, not all of the important transactions were cleared. The SIC objected to the Procter & Gamble – Colgate<br />

transaction, related mainly to the Fab brand, and the Postobón – Quaker transaction, related to the Gatorade brand. In<br />

both cases the main debate between the SIC and the petitioners was related to the definition of the relevant market. In the<br />

P&G – Colgate transaction, the SIC decided, at the last moment, to narrow the relevant market of powder detergents,<br />

departing from the market for washing products (including powder and bar soap) presented by the companies. ii<br />

In the Postobón - Quaker transaction, the SIC narrowed the relevant market to include only isotonic beverages. In this<br />

case the SIC not only forbid the transaction, but also launched an investigation in order to establish whether the parties<br />

had closed the transaction before the SIC approved the deal. iii<br />

2.2 General statistics<br />

The general record of the SIC for merger review is as follows:<br />

Year Informed Notification Authorised Remedies Objected<br />

1998 132 0 132 0 0<br />

1999 118 0 118 0 0<br />

2000 126 0 123 2 0<br />

2001 121 0 93 3 0<br />

2002 104 0 70 9 1<br />

2003 62 0 47 3 0<br />

2004 97 0 90 2 3<br />

2005 103 0 98 3 0<br />

2006 112 0 98 4 3<br />

2007 83 0 62 3 1<br />

2008 81 0 74 2 0<br />

2009 76 13 53 0 0<br />

2010 10 59 32 0 1<br />

2011 36 19 0 0 0<br />

Total 1,261 91 1,090 31 9<br />

From this table we can see that in 13 years the authority has reviewed 1,352 transactions. From the total number of<br />

transactions presented, the authority made a decision in 83.57% of the cases, which means that 16.42% of the transactions<br />

were desisted.<br />

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Esguerra Barrera Arriaga Colombia<br />

The authority cleared 80.62% of the transactions, objected or prohibited only 0.66% and conditioned 2.29%.<br />

It is also important to note that, since the economic threshold was raised in 2006, the number of transactions was reduced<br />

by 25% and when it was raised again in 2009 it was reduced by an additional 22%. Also, since Law 1340, 2009 created<br />

the new notification (no waiting period) procedure, the number of transaction that are informed (waiting period) has<br />

been reduced significantly: in 2009, already 14% of the total transactions were notified; and in 2010 the figure of<br />

notifications was 85% of the total transactions reviewed. This means that in 2010, approximately 85% of the transactions<br />

that met the economic threshold created a market concentration below 20%, or so the interested parties claim, because we<br />

have no statistics as to the number of those notifications that are actually under investigation for failing to inform the<br />

transaction.<br />

New Developments in the Assessment of <strong>Merger</strong>s<br />

The highlights in the evolution of the SIC’s doctrine regarding mergers during the past few years are the following:<br />

• In 2009 the SIC issued Resolution 69901 raising again the economic thresholds for antitrust filing. It is now<br />

mandatory to inform those operations in which the value of the assets or sales of the merging companies in<br />

Colombia (individually or jointly considered) are equal or superior to US $40 million. The application of these<br />

thresholds has reduced the number of informed transactions significantly as previously said.<br />

• Since the Pavco – Ralco transaction, the SIC started to impose structural as well as behavioural conditions in order<br />

to subdue restrictions on competition and authorise complex transactions. Structural conditions require divestiture<br />

of brands, installed capacity, etc. Behavioural conditions, on the other hand, require the elimination of exclusivity,<br />

obligation to supply, etc. Nowadays the SIC applies all kinds of conditions but prefers the structural ones. This<br />

practice will continue, for the new 2009 law allows for the application of conditions. iv<br />

• The Cementos Andino - Cementos Argos transaction was authorised by the SIC based on the Failing Industry<br />

Doctrine. Even though this kind of defence had been considered before, it was only until the cement merger that<br />

the SIC laid down the characteristics and requisites for the application of the Failing Industry Doctrine. v<br />

• The SIC developed a doctrine for the review of vertical concentrations. It also concluded that operations such as<br />

the sale of a brand or the creation of a new company by two previous competitors amount to an economic<br />

concentration that needs authorisation from the SIC. As mentioned before, under the new 2009 law, it is clear that<br />

vertical integrations will be reviewed if they meet the thresholds. It is important to point out that the 20% market<br />

participation threshold will trigger the need to inform (waiting period) the transaction to the authority, if the<br />

threshold is met in any of the vertical markets affected by the merger.<br />

• During the years previous to Law 1340, 2009, the SIC claimed jurisdiction over mergers between public utilities<br />

companies. It also disputed the review of mergers between Cable TV companies. As mentioned before, the new<br />

law leaves no doubt in the sense that the SIC is the merger authority in the mentioned sectors of the economy.<br />

• In recent cases the SIC has challenged the decision of the interested parties to file a short notification (no waiting<br />

period) and has initiated investigations in order to establish if the parties should have filed information which<br />

requires a previous authorisation (waiting period) of the merger, before it can produce effects in the Colombian<br />

market.<br />

• In 2010 the SIC decided the merger between the Regional Port of Buenaventura, TECSA and the Port Operators,<br />

in which it accepted for the first time the efficiency exception provided by the law, for those merger transactions<br />

that create an important concentration of the market but result in efficiencies and reduction of costs that cannot be<br />

achieved otherwise. The transaction was approved without conditions, based on the efficiency exception.<br />

Evolution of the Substantial Review test and Economic Techniques Applied<br />

There is no explanation in the law of the reasoning and analysis that the SIC should use in merger cases, and the guidelines<br />

that the authority issued in 2009 do not shed light to that effect. However, through the analysis of cases, it is possible to<br />

identify some general points in the analysis:<br />

• The SIC defines the general market based on the product market and the geographic market. The product market<br />

will be defined narrowly using the hypothetic monopolist test (SSNIP Test), in order to isolate the group of products<br />

(goods or services) that behave as perfect or imperfect substitutes of the product affected by the merger.<br />

In the supermarket cases, Éxito – Carulla; Éxito – Cafam and Éxito/Cafam – Olímpica, the SIC used the Isochronal<br />

Test in order to define the relevant geographic market of the different supermarket chains within the large cities.<br />

The isochronal was rated at ten (10) minutes for the time of transportation.<br />

• The SIC will consider and evaluate the competitive pressure that arises from perfect and imperfect substitutes, as<br />

well as from potential competition coming from national or international players. In 2011, the SIC authorised the<br />

Caterpillar – Bucyrus transaction, in which the authority considered competitive pressures from a relevant market<br />

larger than Colombia, which comprised of a substantial part of Latin America.<br />

• The SIC will calculate the participation of the merging companies in the relevant market and apply concentration<br />

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Esguerra Barrera Arriaga Colombia<br />

indexes like HHI and CR4 in order to evaluate the effect of the merger. In markets that present a leader – follower<br />

structure, the SIC has also used the Stackelberg Model in order to assess market power before and after the merger<br />

takes place.<br />

• The SIC will then evaluate the different kinds of barriers for entering the market including import tariffs and duties,<br />

transportation costs, excess capacity, cost of building a plant in the country, etc., in an effort to evaluate the<br />

contestability of the market or the likelihood of entry of new competitors.<br />

• If the parties have proposed conditions to the transaction, the SIC will evaluate them and discuss them with the<br />

merging parties. In some cases the SIC will modify substantially the conditions offered by the parties and in general<br />

will prefer structural to behavioural remedies. Most likely, the SIC will require the divestment of part of the<br />

business.<br />

It is not very clear what particular set of circumstances will trigger an objection or a conditioned approval; but most<br />

likely it will be a negative mixture of the above elements. This means that a merger that increases concentration in the<br />

relevant market to a high degree, with no perfect or even imperfect substitutes of the product, no potential competition<br />

in sight, high barriers to entry, scarce contestability and no possible structural remedies, will probably be prohibited.<br />

Having said that, it is important to remember that in its whole history, the SIC has prohibited less than 1% of the<br />

informed mergers.<br />

As said before, for some years now the SIC has been applying reasoning and analysis similar to those developed both in<br />

the European Union and the United States. There is much debate as to the use of economic tools, such as the concentration<br />

indexes, which were prepared for developed economies, without adjustment to the size and specific characteristics of the<br />

Colombian economy. It has to be considered that most markets in a developing economy are small and already<br />

concentrated, but this circumstance does not mean that there is no competition or that it will become impossible for new<br />

competitors to enter the market.<br />

From the patterns of merger cases that have been objected or conditioned, it is possible to deduct that the SIC has moved<br />

from the “Market Dominance Test” it used initially, into a more comprehensive “Substantially Lessening of Competition<br />

Test”. It is now clear under the new 2009 law that the SIC has the capacity to review vertical mergers. There is much<br />

debate in regard to the possibility of the authority to review conglomerate mergers.<br />

Non-competition issues, such as convenience, political considerations, loss of labour, etc., are not relevant in the merger<br />

review process and will not be considered or discussed by the SIC.<br />

As said before, the substantive test for clearance is not described in the law. It has been developed by the SIC based on<br />

the US and EU experiences and guidelines. The SIC defines the relevant market based on the product market and the<br />

geographic market. The product market will be defined narrowly using the hypothetic monopolist test (SSNIP Test). The<br />

geographic market has been defined using the Isochronal Test. The SIC will consider the competitive pressure that arises<br />

from perfect and imperfect substitutes, as well as from potential competition coming from national or international players.<br />

The SIC will calculate the participation of the merging companies in the relevant market and apply concentration indexes<br />

like HHI and CR4 in order to evaluate the effect of the merger. In some cases, the SIC has also used the Stackelberg<br />

Model.<br />

The SIC will study the barriers to entry and the contestability of the market. In its analysis, the SIC will take into<br />

consideration actual and potential competition including imports and the possibility of new entrants to the market. In case<br />

that the data shows that the transaction produces an important increase in concentration and that it can substantially lessen<br />

competition, the SIC will consider possible remedies. Remedies have to be presented and substantiated by the merging<br />

parties.<br />

There is no doubt that, during the past few years, the SIC has gone a long way in the study and control of mergers, as<br />

recent cases indicate. However, there is a great deal of uncertainty as to what kind of analysis the SIC or any of the other<br />

authorities is going to apply in the review of mergers.<br />

In compliance with the new 2009 law, the SIC should issue guidelines for mergers, which help to explain and illustrate its<br />

decision-making process, for the benefit of the parties to the merger. The guidelines that were issued in 2009 only explain<br />

the procedure and the information gathering process, they do not shed light over the substantial test that SIC will apply.<br />

Remedies and Ancillary Restraints<br />

It is important for the merging companies to identify early in the review process if the transaction should be subject to<br />

remedies in order to offer them, at least in a general way, so that the authority is aware of the intention or willingness of<br />

the parties to discuss them. In those cases, when the SIC finds that the proposed transaction may pose undue restrictions<br />

to competition, but believes there are options to correct such distortion, it will authorise the merger provided certain<br />

remedies are undertaken.<br />

Such conditions or remedies have ranged from elimination of exclusivity for distributors to the obligation of producing<br />

for a competitor at variable cost, allowing a competitor to use a percentage of installed capacity, and even the obligation<br />

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to divest part of the business. The SIC has proven to prefer structural remedies, such as divestments, to conduct or<br />

behavioural remedies.<br />

The SIC customarily requires that the parties comply with structural remedies within a certain time limit (generally, less<br />

than one year). Compliance of behavioural remedies is also required for a limited period of time (generally, no more than<br />

three years). Pursuant to article 11 of Law 1340, 2009, the SIC must review periodically if the parties have complied with<br />

the conditions and obligations imposed. Traditionally, the SIC has required that an external auditor verifies the full<br />

compliance of the remedies and presents reports to the authority from time to time. Finally, the SIC requests that the<br />

merging parties put a bank or insurance bond in place to guarantee the full compliance of the remedies.<br />

The SIC has not made distinctions in regard to the imposition of remedies in foreign-to-foreign mergers.<br />

Important Changes in <strong>Merger</strong> Control<br />

Law 1340, 2009, substantially changed merger control.<br />

6.1 Change in the authority<br />

As explained above, Law 1340, 2009 appointed the SIC as the National Competition Authority, with the capacity to decide over<br />

mergers in all sectors of the economy, but for the transactions in the financial sector and the aeronautic sector, which are decided<br />

by the Financial Superintendence and the Aeronautic Authority respectively, with the particularities previously described.<br />

6.2 Change in the thresholds<br />

Law 1340, 2009, added the market participation threshold to the previously existing economic thresholds. As has been<br />

explained above, the market participation threshold divides the transactions in which the interested parties have a joint or<br />

individual market participation equal or superior to 20% of the market, in which they need to be informed (waiting period),<br />

from those other transactions in which the interested parties have a joint or individual market participation below 20% of<br />

the market, in which they need to be notified (no waiting period).<br />

6.3 Procedure is divided into two stages<br />

Pursuant to Law 1340, 2009, the merger review procedure is now divided into two stages. It is considered that mergers<br />

that pose no threat to competition and need no conditions should be decided in Stage I, whereas complex transactions that<br />

restrict competition will pass to Stage II and probably will need conditions in order to avoid objection or prohibition. The<br />

duration of Stage I is one (1) month and the duration of Stage II is three (3) months.<br />

6.3.1 Stage I<br />

SIC Resolution 35006, 2010 points out the specific information that the merging parties must provide to the SIC. The list<br />

is very detailed. It includes information concerning the transaction itself, the companies involved, market conditions,<br />

other competitors, consumers, barriers to entry, and other information that may aid the SIC to properly evaluate the effects<br />

of the transaction. It is important to note that the SIC can abstain from considering the merger until the information is<br />

complete. The main steps in this stage are as follows:<br />

• The petitioners file a pre-evaluation petition, together with a succinct description of the transaction.<br />

• Within the following three (3) days, the SIC will evaluate if the transaction needs to be reviewed. In case it decides<br />

the transaction does not need review, it will end the proceedings.<br />

• If the transaction needs review, within the three- (3) day period, the SIC will order the publication in a newspaper<br />

of ample circulation so that any interested parties can file the information they deem relevant for the analysis of the<br />

transaction.<br />

• The petitioners can request to the SIC to abstain from the publication, for reasons of public order, and the SIC may<br />

accept the petition and maintain the transaction and the procedure confidential.<br />

• The SIC has thirty (30) working days (45 calendar days in most cases) vi to study the transaction and decide whether<br />

the transaction poses no risk to competition, in which it will approve it; or if the review proceedings must continue.<br />

6.3.2 Stage II<br />

• If the procedure continues, the SIC will inform the regulation and the control agencies in the special sectors<br />

involved in the merger transaction. Those entities will have the opportunity to offer the SIC their technical advice<br />

in regard to the transaction under study, within ten (10) working days of the notification, and can also participate in<br />

the proceedings at any point. Their opinion is not binding for the SIC, but if the SIC is going to depart from that<br />

opinion, it must justify that decision.<br />

• Within fifteen (15) days of the continuation of the proceedings, the authorities and other interested parties must file<br />

with the SIC any information they deem relevant for the decision. They can also propose conditions and other<br />

measures that can help to mitigate the anticompetitive effects of the transaction.<br />

• The SIC can request the authorities and interested parties to add, explain or clarify the information they have filed.<br />

• Within this fifteen- (15) day period, the petitioners can know the information filed by the authorities and third<br />

parties, and can disprove it.<br />

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• Within the three (3) months following the date in with the parties have filed all the information requested, the SIC<br />

will have to make one of three possible decisions: simple authorisation; conditioned authorisation (clearance with<br />

remedies); or objection.<br />

• According to Colombian Law, in case the SIC surpasses this deadline, the transaction is considered automatically<br />

approved (positive administrative silence) and the Authority loses competence over the case. However, it must be<br />

pointed out that there have been only a couple of such cases in twenty (20) years, which means it is most unlikely<br />

to occur.<br />

• In case that at any time within the proceedings the parties to the merger remain inactive for two (2) months, the SIC<br />

will consider that the petition for authorisation of the transaction has been desisted.<br />

6.4 Consequences of Gun Jumping<br />

<strong>Merger</strong>s carried out without previous clearance from the SIC are considered an infraction of antitrust laws and the<br />

companies and their administrators are subject to fines. Fines are expressed in minimum monthly wages. The maximum<br />

fine that the SIC may enforce amounts to USD $20 million for the companies and USD $450,000 for the administrators. vii<br />

In addition to that, in case the SIC considers that the transaction produces an undue restriction on competition and must<br />

be prohibited, it could order to reverse the operation. Finally, it must be considered that an operation carried out in violation<br />

of competition laws can be declared by a judge absolutely null and void, which can have important economic repercussions.<br />

It must be pointed out that for merger purposes, the SIC is not a judicial authority. Such a declaration has to be obtained<br />

through an ordinary process before the general jurisdiction.<br />

It is therefore important that a foreign merger does not produce effects in the Colombian territory until it has been approved<br />

by the SIC. There is not yet a clear doctrine in regard to the closing of foreign transactions before obtaining clearance<br />

with the SIC, with a “carve out provision” for Colombia. However, it is advisable to have such a clause and any other<br />

elements that help to assure the SIC that the transaction will not have effects in Colombia before it has been cleared by<br />

the SIC.<br />

6.5 Involvement of other parties or authorities<br />

Third parties have not been admitted to participate in the merger review process, that is, they are not allowed to review<br />

information revealed by the merging parties, they are not notified of the decisions and are unable to file a reconsideration<br />

plea. Although third parties can present documents or express their opinions, the SIC is not compelled to take them into<br />

account. However, if considered necessary, SIC may ask third parties to render testimony or to disclose information that<br />

might prove useful in order to review the transaction.<br />

Pursuant to paragraph 3 of article 4, of Law 155, 1959, all the information included in the antitrust filing by the parties is<br />

strictly confidential. The public official who discloses any information regarding the procedure shall be removed from<br />

office and criminally prosecuted.<br />

The Colombian economy is open to foreign investment. However, there are exchange, tax, labour, securities and special<br />

sector requirements that need to be checked with the local council before entering into a transaction.<br />

Next Steps<br />

Because of the wideness of the <strong>Merger</strong> Control Rules, it is important that the SIC issues additional guidelines that deal<br />

with the substantial test that the authority will apply, including the definitions and requisites for the application of the<br />

Efficiency Exception and the Failing Industry Defence.<br />

* * *<br />

i.<br />

Endnotes<br />

Carulla – Exito. Resolution 34904 of December 18th, 2006.<br />

ii. Procter & Gamble – Colgate. Resolution No. 28037, issued on November 12th, 2004.<br />

iii. Postobón – Quaker. Resolution No. 16433, issued on July 23rd, 2004.<br />

iv. Pavco – Ralco. Resolution 4861 of February 27th, 2004, Resolution 22338 of August 8 of 2003, Resolution 5013<br />

of March 10 of 2004.<br />

v. Cementos Andino – Cementos Argos. Resolution 13544 of May 26th, 2006.<br />

vi. According to article 62 of Law 4, 1913, unless explicitly stated otherwise, when laws and official acts refer to terms<br />

of days, they are understood as working days.<br />

vii. Law 1340, 2009, Article 25.<br />

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Esguerra Barrera Arriaga Colombia<br />

Alfonso Miranda Londoño<br />

Tel: +57 1 312 2900 / Email: amiranda@esguerrabarrera.com<br />

Alfonso Miranda Londoño is a lawyer from the Javeriana University Law School in Bogotá, Colombia.<br />

He specialised in Socioeconomic Sciences at the same University, in Banking Law at Los Andes<br />

University (also in Bogotá) and obtained his Masters Degree in Law (LL.M) from Cornell University<br />

(1987). He is the Director of the Law and Economics Department at the Javeriana University Law<br />

School, the co-founder and Director of the Centre for Studies in Competition Law – CEDEC, and a<br />

Professor of Competition Law at the Javeriana University.<br />

He is the partner that leads the Competition Law practice at Esguerra Barrera Arriaga.<br />

Esguerra Barrera Arriaga<br />

Calle 72 No. 6-30 Piso 12, Bogotá D.C., Colombia<br />

Tel: +57 1 312 2900 / Fax: +57 1 310 4715 / URL: http://www.esguerrabarrera.com<br />

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Cyprus<br />

Thomas Keane & Christina Vgenopoulou<br />

Chrysses Demetriades & Co. LLC<br />

Overview of merger control activity during the last 12 months<br />

The number of concentrations that were notified to the Commission for the Protection of Competition (the “CPC”) in<br />

2010 was 30, as compared to 33 in 2009. Thus far in 2011 it has received 22 notifications. The trend of notifications<br />

seems to continue however, with the greater number of notifications relating to mergers between non-Cypriot entities who<br />

have commercial activities in Cyprus either directly or through agents or distributors. i<br />

The Control of Concentrations Between Undertakings Law, Law 22(I)/1999 (as amended) (the “<strong>Merger</strong> Law”) imposes<br />

an obligation to notify any merger of major importance. The thresholds for determining whether a merger is of major<br />

importance are:<br />

(i) the aggregate turnover achieved by at least two of the participating undertakings exceeds, in relation to each of<br />

them, €3,417,202;<br />

(ii) at least one of the undertakings engages in commercial activities in Cyprus; and<br />

(iii) at least €3,417,202 out of the aggregate turnover of all participating undertakings relates to the disposal of goods or<br />

the supply of services in Cyprus.<br />

In the context of the nature of the Cyprus economy, being a small economy with low levels of manufacturing and one<br />

dependent on a high level on imports of goodsii , an obligation to notify in Cyprus can be triggered with regard to a large<br />

number of multinational mergers, where at least one of the parties has commercial activities in Cyprusiii .<br />

The <strong>Merger</strong> Law provides for a two-phase approach to reviewing mergers that are notified to the CPC. Once a merger is<br />

notified to the CPCiv , the Service of the CPC carry out a preliminary evaluation of the merger and shall provide a reasoned<br />

report as to whether or not the merger is compatible with the conditions of the competitive market; this is the so-called<br />

phase 1 of the investigation. The report is then provided to the CPC together with the notification and the CPC can then<br />

take a decision to the effect that:<br />

(i) the merger does not come within the scope of the <strong>Merger</strong> Law;<br />

(ii) the merger is compatible with the competitive market and it will not oppose the merger; or<br />

(iii) the merger raises serious doubts as to its compatibility with the competitive market and a full investigation needs<br />

to be carried out – the so-called phase 2 of the investigation.<br />

All mergers notified to the CPC are found to come within the scope of the <strong>Merger</strong> Law, with the preponderance of mergers<br />

notified being cleared during the phase 1 investigation. This is particularly the case with the mergers to which no Cyprus<br />

undertaking is a party.<br />

The decision of the CPC in Swissport Cyprus Ltd and LGS Handling Ltdv is illustrative. This case involved the creation<br />

of a joint venture, S & L Airport Services Ltd, to operate at Larnaca and Paphos airports. The merger was the subject<br />

matter of a full investigation and the primary issues were (a) whether the merger constituted a concentration for the purposes<br />

of section 4 of the <strong>Merger</strong> Law and (b) spill over effect into other markets outside the area of activity of the joint venturevi :<br />

(a) Whether the merger constituted a concentration<br />

The <strong>Merger</strong> Law provides that a concentration includes a joint venture established to permanently carry out the functions<br />

of an autonomous economic entity. The central factor is whether there is joint control. Joint control is established where<br />

two or more companies or persons have the ability to exercise decisive influence over the activities or strategy of the<br />

company. The CPC looked at such matters as voting rights, manner of appointment of directors, whether there was a<br />

casting vote. Generally speaking joint control derives from the parties to the joint venture having equal voting rights,<br />

however the CPC accepted that joint control can exist even where voting power is not equal where a minority shareholder<br />

has a veto right over important or material decisions relating to the business or strategy of the company.<br />

The CPC also considered whether the joint venture was an autonomous economic entity which it concluded that it was<br />

taking account of such factors as (a) existence of sufficient funds to operate independently, (b) ability to obtain financing<br />

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without having to rely of the shareholders, (c) existence of an independent board of directors, (d) existence of contractual<br />

arrangements with shareholders and (e) activities of the joint venture resulting in an autonomous presence in the market.<br />

(b) Spill-over effect<br />

The CPC was concerned about the likely spill-over effect into other activities. As the joint venture parties were competitors,<br />

the concern was that access to information would allow for unfair competitive practices in markets outside the activities<br />

of the joint venture. The CPC negotiated with the parties and agreed on a number of measures/commitments to obviate<br />

the spill-over risk, in particular (a) a confidentiality agreement was signed between the parties, and (b) the board of the<br />

joint venture company could not have any person that was on the board of the joint venture partners. Subject to those<br />

conditions the merger was approved.<br />

New developments in jurisdictional assessment or procedure<br />

In 2010/2011 there were no significant, if any, developments in the jurisdictional assessment or procedure. This is due,<br />

in a large part, to the fact that the preponderance of mergers were cleared at the phase 1 stage.<br />

The procedure and manner of assessment is applied by the CPC in the manner provided for in the <strong>Merger</strong> Law. Upon<br />

receipt of a notification, it is passed to the Service of the CPC for the purpose of carrying out a preliminary evaluation of<br />

the notified merger. Once the report of the Service has been conducted, the report, together with the notification, is passed<br />

to the CPC for a formal decision either that (i) the merger is not within the scope of the <strong>Merger</strong> Law, (ii) it is cleared as<br />

being compatible with the relevant competitive market, or (iii) a full investigation must be carried out.<br />

The <strong>Merger</strong> Law provides for a timeline for phase 1. The decision of the CPC must be notified to the parties within one(1)<br />

monthvii , however this period may, due to the volume or complexity of information received, be extended by fourteen (14)<br />

days. If no notice is received by the parties within the prescribed period, the merger will be deemed compatible with the<br />

conditions of the competitive market. On the whole, the CPC has reached phase 1 decisions within this timeline, with<br />

certain exceptions where matters were more complex and the Service may have requested additional information or<br />

explanations.<br />

Where the CPC decides that a full investigation is to be carried out, the <strong>Merger</strong> Law again sets out the procedure and the<br />

timelines. Once a decision to carry out a full investigation is taken, the CPC must notify “without delay” the Service of<br />

the need to conduct a full investigation whereupon the Service shall “as soon as possible” obtain such additional information<br />

it deems necessary for completion of the investigation. On the basis of the additional information the Service will examine<br />

whether the doubts as to the compatibility of the merger have been removed or, if not removed, what differentiations in<br />

the circumstances of the merger may cause them to be removed. The Service will suggest these to the notifying parties<br />

and will enter into negotiations with the parties in this regard. The Service will prepare a report for the CPC indicating<br />

whether or not the doubts have been removed or may be removed as a result of negotiations with the parties and shall also<br />

inform the CPC of any undertakings or commitments given by the participants in the merger. The timeline for delivery<br />

of this report is three (3) monthsviii .<br />

Upon receipt of the report, the CPC will then take a formal decision that the merger is compatible with the competitive<br />

conditions of the relevant market, bearing in mind the undertakings and commitments of the parties or that it is incompatible<br />

with the competitive conditions of the relevant market. The timeline for the decision of the CPC is four (4) monthsix . If<br />

the decision is not given within that timeframe, the merger is considered as being compatible and is deemed approved.<br />

During phase 1 investigations, there is never any discussion of commitments or undertakings on the part of the participants<br />

as the CPC makes a determination either that the merger is cleared as it is compatible with the competitive conditions of<br />

the market or it raises doubts as to compatibility and needs to be referred for a full investigation.<br />

At phase 2 of the investigation, the Service and the CPC are prepared to negotiate with the participants so as to determine<br />

if changes to the structure of the merger or certain undertakings or commitments can remove the doubts as to compatibility<br />

of the merger x .<br />

The CPC does not actively monitor notifications, however, if it becomes aware of a merger that has not been notified to<br />

it, the CPC will notify the participants of their obligations to notify and the notification will proceed and be considered<br />

accordingly as if the participants had notified the merger in accordance with the provisions of the <strong>Merger</strong> Law. The CPC<br />

can impose a fine of up to €85,430 for failure to notify and a periodic penalty of €8,543 for every day that the failure to<br />

notify continues. The CPC takes a soft touch to the imposition of fines in these circumstances and does not impose fines<br />

or, if fines are imposed, they are at a nominal level.<br />

The CPC are amenable to pre-notification discussions and are also prepared to issue written confirmations that mergers<br />

do not fall within the scope of the <strong>Merger</strong> Law. Such confirmations can be provided within a short timeframe of 4-5 days.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

In 2010/2011, the CPC has not conducted any sectoral reviews in the context of mergers only, but has been carrying out<br />

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reviews to determine levels of competition operating in the market in certain sectors, such as the banking, insurance, and<br />

telecommunications sectors. In fact, with respect to mergers, the CPC and the Service do not pro-actively monitor merger<br />

activity. The CPC rather handles mergers that are notified to them. This position arises principally from (a) the size of<br />

the Cyprus market which means there is very little merger activity, and (b) the fact that the greater part of mergers notified<br />

are multinational mergers with no Cyprus participants.<br />

The <strong>Merger</strong> Lawxi sets out the criteria to be considered in determining if the proposed merger is compatible, with the<br />

competitive conditions on the relevant market, these include:<br />

(a) the structure of the affected markets;<br />

(b) market position;<br />

(c) economic power;<br />

(d) alternative sources of supply of the products or services and any substitutes;<br />

(e) supply and demand trends;<br />

(f) barriers to entry; and<br />

(g) interests of consumers.<br />

As most mergers are cleared at phase 1, the CPC does not carry out a detailed assessment of many of these issues. The<br />

two matters that the CPC looks at and attempts to define are the relevant product market and the relevant geographic<br />

market. The CPC, in the context of multinational mergers, does not define the relevant geographic market, preferring to<br />

leave the matter open. This lack of definition of the geographic market does not impact upon the decision since in most<br />

cases the market share of the overseas entities had a low market share. In cases involving Cyprus participants, the<br />

geographic market is generally defined as Cyprus. The exception here was in the Swissport Cyprus Ltd and LGS handling<br />

Ltd case where the geographic market was Larnaca and Paphos airports.<br />

On the matter of relevant product market, the CPC tends to take a broad view of the product market and defines it as<br />

including all goods or services supplied by the participants. Again, the exception was in the Swissport Cyprus Ltd and<br />

LGS HandCorp Ltd case where the product market was defined as the area of the economic activity of the joint venture.<br />

The CPC does not engage in a very detailed economic analysis in determining the relevant product market and does not<br />

give much consideration to such matters as demand or supply side substitution.<br />

Key economic appraisal techniques applied<br />

The key substantive test as stated in the <strong>Merger</strong> Lawxii is whether the proposed merger “creates or strengthens a dominant<br />

position in the affected markets within the Republic”. If it does then it is declared incompatible with the conditions of the<br />

competitive market. The criteria to consider are those mentioned in the section under “Key industry sectors reviewed”<br />

above. Although most mergers are cleared at phase 1 and, thus, there is little analysis in the context of assessing each of<br />

these criteria, the approach under the <strong>Merger</strong> Law and that of the CPC is market-based and examines the affect and impact<br />

of the proposed merger on the conditions of competition operating on the market.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

There are no significant developments in 2010/2011 with respect to the approach to remedies since the preponderance of<br />

cases were disposed of in phase 1. The <strong>Merger</strong> Law itself, and the practice of the CPC, where mergers go into a phase 2<br />

investigation, adopts a negotiated approach, viz. enter into negotiations with the parties to remove the incompatible elements<br />

of the merger either through amending the structure of the merger or getting commitments or undertakings from the parties.<br />

Key policy developments<br />

There have been no key policy developments in the period 2010/2011.<br />

Reform proposals<br />

There are currently no proposals to reform the merger approval regime in Cyprus, however, some consideration is currently<br />

being given to change the thresholds as is permitted pursuant to the provisions of the <strong>Merger</strong> Lawxiii .<br />

* * *<br />

Endnotes<br />

i. See for e.g. Decision CPC:72/2010 Notification of Concentration relating to acquisition of Discuss Holdings Inc.<br />

by Philips Holdings USA Inc.; Decision CPC:74/2010 Notification of Concentration relating to acquisition of King<br />

Pharmaceuticals Inc. by Pfizer Inc.<br />

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ii. The Cyprus economy is centred around tourism/leisure and supply of services.<br />

iii. Unless the merger is one with a community dimension that is being notified to the EU Commission under <strong>Merger</strong><br />

Regulation EC 139/2009.<br />

iv. Pursuant to section 13 of the <strong>Merger</strong> Law.<br />

v. Decision CPC40/2011.<br />

vi. To provide ground services at the airports to people with special needs.<br />

vii. The period runs from the date of notification or if additional information is requested, from the date of receipt by<br />

the CPC of the additional information.<br />

viii. Calculated from the date of receipt of the notice from CPC or receipt by the Service of additional information<br />

section 28 of the <strong>Merger</strong> law.<br />

ix. Calculated from the date of the notice of the CPC to the Service or the date of receipt by the Service of additional<br />

information, as the case may be.<br />

x. See Decision CPC40/2011 – Swissport Cyprus Ltd and LGS Handling Ltd.<br />

xi. Section 12.<br />

xii. Sections 10 and 11 of the <strong>Merger</strong> Law.<br />

xiii. Section 7 of the <strong>Merger</strong> Law.<br />

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Chrysses Demetriades & Co. LLC Cyprus<br />

Thomas Keane<br />

Tel: +357 25 800 000 / Email: Thomas.Keane@demetriades.com<br />

Thomas Keane is a partner in Chrysses Demetriades & Co. LLC. His practice focuses on all areas of<br />

corporate and commercial law but he specialises in EU and Cyprus competition law, capital markets,<br />

corporate finance, asset and project finance, taxation, financial services and IP. He has been a lecturer<br />

in University College Galway, Ireland and he has written numerous articles, particularly on competition<br />

law and IP. He has a BA (Law) from University of Limerick, Ireland and an LL.M. from the University<br />

of London. He is a member of the Irish bar and the Cyprus bar.<br />

Christina Vgenopoulou<br />

Tel: +357 25 800 000 / Email: Christina.Vgenopoulou@demetriades.com<br />

Christina Vgenopoulou is an associate in Chrysses Demetriades & Co. LLC. Her practice focuses on<br />

all areas of corporate and commercial law but she specialises in EU and Cyprus competition law,<br />

corporate finance, financial services and taxation. She has an LL.B from University of Kent and an<br />

LL.M. from the University of London. She is a member of the Cyprus bar.<br />

Chrysses Demetriades & Co. LLC<br />

13 Karaiskakis street, 3032 Limassol, Cyprus<br />

Tel: +357 25 800 000 / Fax: +357 25 587 191 / URL: http://www.demetriades.com<br />

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Czech Republic<br />

Ivo Janda & Magdalena Ličková<br />

White & Case LLP<br />

Overview of merger control activity during the last 12 months<br />

General legislative context<br />

<strong>Merger</strong> control in the Czech Republic is regulated by Act No. 143/2001 on the Protection of Competition (the “Czech<br />

Competition Act”) and Decree No. 252/2009 Coll., stipulating the concentration notification details (the “Concentration<br />

Notification Decree”). The Office for the Protection of Competition (the “Office”), the competent authority in the Czech<br />

Republic for the merger agenda, has also published several soft-law documents detailing guidelines on various aspects of a<br />

concentration notification (i.e.: Notice of the Office for the Protection of Competition on Pre-notification Contacts with Merging<br />

Parties; Notice of the Office for the Protection of Competition on the Calculation of Turnover for the Purpose of the Control<br />

of Concentrations between Undertakings; Notice on the Application of the Failing Firm Defence Concept in the Assessment<br />

of Concentrations of Undertakings; Notice on the Notion of “Concerned Undertakings” under the Act on the Protection of<br />

Competition; and Notice on the Prohibition of the Implementation of Concentrations prior to their Approvals and Exemptions).<br />

Pursuant to Section 13 of the Czech Competition Act, a concentration is subject to the approval of the Office if:<br />

• The combined aggregate net turnover derived in the Czech Republic by all of the concerned undertakings is more<br />

than CZK 1.5 billion (approx. EUR 51.3 million); and the aggregate net turnover derived in the Czech Republic by<br />

each of at least two of the concerned undertakings is more than CZK 250 million (approx. EUR 8.5 million).<br />

A concentration that does not exceed these thresholds is still subject to approval if the following conditions are met:<br />

• The aggregate net turnover derived in the Czech Republic by the acquired undertaking is more than CZK 1.5 billion<br />

(approx. EUR 51.3 million); and the worldwide aggregate net turnover of another concerned undertaking is more<br />

than CZK 1.5 billion (approx. EUR 51.3 million).<br />

Number of notifications<br />

In 2010, the Office opened 45 administrative proceedings in relation to mergers and issued 40 decisions. This marked a<br />

slight increase in the number of the opened proceedings compared to 2009, where only 40 proceedings were open (but 44<br />

decisions were made). On the other hand, the figures do not reach the level of the preceding years during which the annual<br />

number of opened administrative proceedings approached or exceeded 60.<br />

<strong>First</strong>-phase clearance<br />

The overwhelming majority of cases were decided during the first-phase clearance, i.e., the 30-day period following the<br />

notification.<br />

Second-phase clearance<br />

In 2011, one notification case - the merger between Czech Airlines and the Prague Airport into a new holding company<br />

“Český aeroholding” - has proceeded to phase two. During the last two years, two cases proceeded to phase two: the<br />

Agrofert/Agropol notification was approved subject to structural commitments; and the BXR Logistics/Čechofracht<br />

notification was approved without further conditions.<br />

Simplified procedure<br />

Since September 2009, Section 16a) of the Czech Competition Act provides for “simplified concentration approval<br />

proceedings” which allows the Office to assess a notification within a 20-day period. In 2010, a total of 22 of notifications,<br />

representing 56% of all of the 2010 notifications, were handled under this procedure.<br />

A simplified notification of a concentration may be filed if:<br />

a) none of the undertakings involved is operating in the same relevant market or the combined share of these<br />

undertakings in such market does not exceed 15%, and none of the undertakings are operating in the same market<br />

vertically connected to the relevant market in which another undertaking operates, or their share in each such market<br />

does not exceed 25%; or<br />

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White & Case LLP Czech Republic<br />

b) the undertaking acquires exclusive control over the joint venture in which it had participated in joint control up to<br />

such acquisition.<br />

Under this simplified procedure, the justification of the decision contains only the names of the parties to the proceedings,<br />

the relevant market or the sector in which the parties to the proceedings operate, and the fact that the decision was issued<br />

in the simplified proceedings. If the Office concludes that the transaction will have an impact on the relevant markets, it<br />

will invite the parties to file a complete notification. The Office then decides within the standard 30-day deadline.<br />

Notification approval subject to commitments<br />

According to Section 17 of the Czech Competition Act, the Office may make the concentration approval subject to the<br />

fulfilment of commitments offered by the undertakings. If the Office makes the concentration approval subject to<br />

commitments, it may lay down conditions under which the commitments must be carried out. In 2010, the Office accepted<br />

commitments offered in the context of the EUROVIA SA/Tarmac CZ a.s. (“Eurovia”, “Tarmac”) merger. According to<br />

the Office’s 2010 Annual Report, the approval was made subject to several structural commitments because the first<br />

examination revealed concerns regarding the possible distortion of the competition on the relevant markets (construction<br />

materials, construction engineering) in Central, Western, Northern and Eastern Bohemia). The Office was particularly<br />

concerned that, after the merger, Eurovia’s economic strength would enable it to dominate competitors within several local<br />

markets. In order to mitigate these concerns, Eurovia suggested selling several quarries in Northern and Western Bohemia.<br />

The Office considered this commitment sufficient to protect the competition and approved the concentration.<br />

Sanctions<br />

In 2010, Lumius, spol. s r.o. (“Lumius”) was sanctioned with a fine of CZK 477,000 (approx. EUR 19,000) for its illegal<br />

implementation of a concentration before the concentration notification was filed and the decision approving the<br />

concentration entered into force. On September 24, 2009, Lumius acquired shares corresponding to 89% of the capital<br />

and voting rights of Českomoravska energeticka, a. s. (“ČME”). The concentration notification was filed on July 13,<br />

2009, while the approval decision was issued on August 21, 2009 and entered into force on September 11, 2009. However,<br />

it appears that before filing the notification, Lumius exercised decisive influence over ČME’s activity.<br />

New developments in jurisdictional assessment or procedure<br />

There have been no particular jurisdictional developments. Because the Office operates within the EU law context, the<br />

European Commission, under certain conditions, may attract a merger case from the domestic level. However, to date,<br />

this has not occurred in the Czech Republic. In 2008, an opposite situation occurred when the Office took over a<br />

concentration case initially submitted to the European Commission (REWE/Discount Plus).<br />

In 2009, the Office adopted a novel decision in which it stated that health insurance companies do not conduct any business<br />

activities and thus cannot be considered as undertakings for the purpose of competition law (Hutnická zaměstnanecká<br />

pojišťovna/Zdravotní pojišťovna Agel). As a result, the merger between two health insurance companies is not subject to<br />

an approval.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The concentration notifications have concerned the food industry, air services, construction, telecommunications, cable<br />

television, logistics, energy, banking and road assistance services.<br />

Key economic appraisal techniques applied<br />

The standard applied by the Office is similar to the one applied by the European Commission; it takes a number of factors<br />

into consideration. Pursuant to Section 17 of the Czech Competition Act, a concentration notification is generally evaluated<br />

according to the following factors:<br />

• the necessity of the preservation and further development of effective competition;<br />

• the structure of all markets affected by the concentration; the shares of the parties to the concentration in such<br />

markets;<br />

• their economic and financial power;<br />

• legal and other barriers to enter relevant markets by other undertakings;<br />

• the alternatives available to suppliers and customers of the parties to the concentration;<br />

• the development of supply and demand in the affected markets; and<br />

• the needs and interests of consumers and research and development, provided that it is to the consumers’ advantage<br />

and does not form an obstacle to effective competition.<br />

The Office will not approve a concentration if it would result in a substantial distortion of competition in the relevant<br />

market, particularly if it would result in or strengthen the dominant position of the concerned undertakings. If the combined<br />

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share of all concerned undertakings in the relevant market does not exceed 25%, it is presumed that their concentration<br />

will not result in a substantial distortion of competition, unless proven otherwise during the review of the concentration.<br />

The 2010 Annual Report of the Office states that in its future decision-making (not limited to concentration notifications)<br />

it will adopt a “more economic approach”, i.e., enhanced use of more complex economic and econometric approaches<br />

when defining the relevant market and assessing the effects of the conduct under review.<br />

Generally speaking, when deciding upon a concentration notification, the Office mainly assesses the effects on the<br />

horizontal and vertically related markets. In recent years, it has also examined “coordinated effects”, i.e., it verifies whether<br />

the merger will make the undertakings more prone to coordinate their conduct.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

In the past years, the Office has approved all of the concentration notifications. Decisions to the contrary are extremely<br />

rare; since 2000, concentrations were not approved in only three cases (in 2004, Bakeries International Luxembourg<br />

S.A/DELTA PEKÁRNY a.s.; in 2003, Südzucker/Saint Louis Sucre; and in 2001, Karlovarské minerální vody,<br />

a.s./Poděbradka, s.r.o./Hanácká kyselka). Therefore, the review practice has not yet developed in this context.<br />

Key policy developments<br />

There were no new key policy developments in 2010. In its 2010 Annual Report, the Office states that it will closely<br />

examine whether undertakings respect the prohibition to implement the concentration before the notification is filed and<br />

before the procedure is terminated. The Office should also revise some of its guidelines referred to above, namely the<br />

Notice on the Calculation of Turnover and the Notice on the Notion of Concerned Undertakings.<br />

Reform proposals<br />

The Czech Competition Act was substantially amended in 2009. This amendment introduced the simplified notification<br />

procedure referred to above. According to publicly available information, no substantial changes have been made since<br />

that date and no reform plans are being considered.<br />

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White & Case LLP Czech Republic<br />

Ivo Janda<br />

Tel: +420 255 771 237 / Email: ijanda@whitecase.com<br />

Ivo Janda is a partner in the Prague office of White & Case and a member of the Czech bar. He specialises<br />

in EU and Czech competition law, as well as other EU regulatory issues. Mr. Janda also has extensive<br />

experience in litigation and arbitration. He has been the leading figure in two competition-law cases<br />

before the EU courts. In Unipetrol v European Commission, the EU General Court annulled the<br />

Commission decision imposing a fine on Unipetrol for an alleged cartel. The second major competition<br />

law case involves a preliminary question referred by a Czech court and related to the interplay between<br />

the EU and Czech competition law. The case was recently heard by the Grand Chamber of the European<br />

Court of Justice.<br />

Ivo Janda graduated from Masaryk University School of Law, where he also obtained his PhD. He<br />

speaks Czech and English.<br />

Magdalena Ličková<br />

Tel: +420 255 771 344 / Email: mlickova@whitecase.com<br />

Magdalena Ličková focuses on EU law, regulatory issues and litigation; she also has considerable<br />

experience in the field of international law. Prior to joining White & Case, she served as an intern with<br />

the European Commission’s Legal Service.<br />

Ms. Ličková primarily deals with EU and domestic competition issues. She has advised clients involved<br />

in cartel investigations in the context of both EU and Czech national laws and has been active in domestic<br />

commercial litigation and international arbitration.<br />

She graduated from Harvard Law School, University Paris I Panthéon-Sorbonne and University of West<br />

Bohemia. She speaks English, French and Czech.<br />

White & Case LLP<br />

Na Příkopě 8, Prague 1, 110 00, Czech Republic<br />

Tel: +420 255 771 237 / Fax: +420 255 771 122 / URL: http://www.whitecase.com<br />

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Denmark<br />

Christina Heiberg­Grevy & Malene Gry­Jensen<br />

Accura Advokatpartnerselskab<br />

Overview of merger control activity during the last 12 months<br />

As mentioned below, significantly lower thresholds have been applied under the Danish merger control regime since 1<br />

October 2010, and a simplified notification procedure has been introduced.<br />

As a consequence of the lower thresholds, the Danish Competition and Consumer Authority (the “DCCA”) has received<br />

far more notifications than before 1 October 2010. Before the amendment of the Competition Act, the DCCA received<br />

about 10-12 notifications each year. In comparison, 21 mergers have been notified and approved so far in 2011 (January<br />

– June 2011). 13 of these 21 decisions were notified under the simplified notification procedure, and 8 were notified under<br />

the full procedure. See below for a brief outline of the amendments to the Danish merger control regime.<br />

In 2010, the DCCA issued 10 merger decisions. All 10 decisions were approvals, of which 3 were approvals with<br />

commitments. Furthermore, the DCCA issued 1 decision concerning the breach of a merger commitment1 , 1 revocation<br />

of a merger approval2 and 1 dispensation from the implementation prohibition under the Danish merger control regime3 .<br />

New developments in jurisdictional assessment or procedure<br />

In the fall of 2010, the Danish merger control regime was amended by the adoption of the Danish Consolidated Competition<br />

Act No. 927 of 13 August 2010 and the Danish Executive Order No. 972 of 13 August 2010 on the Notification of <strong>Merger</strong>s.<br />

The new regulations introduced a number of amendments, including significantly lower thresholds for mergers that must<br />

be notified, and a simplified procedure for the filing of unproblematic mergers. Furthermore, the time-limits within which<br />

the competent authorities must complete their assessment of a notified merger were amended, and the DCCA was<br />

authorised to approve mergers under a simplified procedure if the DCCA finds that such mergers do not raise any concern.<br />

The introduction of these amendments brought about a further approximation of the Danish merger control regime towards<br />

the EU merger control rules and improved the possibilities of approving unproblematic mergers faster and with a less<br />

extensive burden of information for the notifying party.<br />

A merger which is subject to the Danish turnover thresholds must not be implemented until it has been approved by the<br />

Danish Competition Counsel or the DCCA. A penalty will be imposed under section 23(1)(vii) of the Danish Competition<br />

Act if a merger is implemented before it has been approved.<br />

Historically, no Danish cases of gun-jumping have been seen. However, the DCCA has, to some degree, been monitoring<br />

the market and occasionally requested the parties involved in a merger mentioned in the news which had not been notified<br />

to provide documentation showing that the turnover of the parties involved in the merger did not exceed the applicable<br />

thresholds. With the new lower thresholds, however, we may start to see cases of gun-jumping or omission of notification<br />

all together as the number of mergers covered by the rules will increase significantly.<br />

A merger must be notified to the DCCA if:<br />

1) the undertakings concerned have a total annual turnover in Denmark of at least DKK 900 million (previously DKK<br />

3.8 billion) and at least two of the undertakings concerned have a total annual turnover in Denmark of at least DKK<br />

100 million (previously DKK 3.8 billion) each; or<br />

2) at least one of the undertakings concerned has a total annual turnover in Denmark of at least DKK 3.8 billion and<br />

at least one of the other undertakings concerned has a total worldwide annual turnover of at least DKK 3.8 billion.<br />

If, to a significant extent, a merger appears to be based on incorrect or misleading information submitted by the parties,<br />

the DCCA may revoke its approval of the merger.<br />

This right to revoke an approval is not new, but since the reform of the Danish merger control regime it serves the additional<br />

purpose of preventing erroneous decisions under the simplified notification procedure in which the requirements for<br />

information to be provided by the notifying parties are limited compared to the requirements under the full procedure.<br />

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Accura Advokatpartnerselskab Denmark<br />

This authority to revoke an approval was utilised by the DCCA on 2 February 2010 when the DCCA withdrew its approval<br />

of the Danish Agro A.m.b.A’s (“DA”) takeover of S.A.B. Landbrugets Andel (“SAB”). In consequence, the merger had<br />

to be reviewed by the DCCA again, and the parties were obligated to stop all measures to implement the merger.<br />

The facts of this specific case were, in short: On the morning of 25 January 2010, the DCCA informed the merging entities’<br />

attorneys of its approval of DA’s takeover of SAB. The merger consisted of a transfer of SAB’s business to DA’s whollyowned<br />

subsidiary Danish Agro A/S, Fyn. As part of its assessment of the merger, the DCCA had concluded that there was<br />

sufficient counterbalance from potential competitors, inter alia the company Aarhusegnens Andel A.m.b.A (“AAA”) that<br />

had proved to be capable of entering new markets and achieve significant market shares. All the involved parties were<br />

part of the co-operative farm supplier sector.<br />

Later on, on the morning of 25 January 2010, the DCCA received an email concerning a merger notification in which<br />

AAA’s attorney requested a meeting later that day concerning a rescue plan for AAA. It appeared from the material<br />

discussed at the meeting that a framework agreement between a consortium consisting of Dansk Landbrugs<br />

Grovvareselskab A.m.b.A (“DLG”) and the DA had been entered into on 12 January 2010. According to the framework<br />

agreement, DLG and the DA were going to take over AAA and subsequently split up AAA between DLG and the DA.<br />

Among other things, the material contained a description of the contemplated merger. Furthermore, the material described<br />

AAA as a failing company on the verge of bankruptcy.<br />

The DCCA’s decision to withdraw the approval was based on both the extent and the nature of the new information<br />

concerning AAA. <strong>First</strong> of all, the new information about AAA was so extensive that this fact alone meant that the new<br />

information was significant. Secondly, the DCCA considered the new information to be significant, because of the fact<br />

that AAA was, in fact, a failing company. The merger approval of 25 January 2010 was based on the opposite assumption,<br />

whereas in its decision the DCCA had emphasised the fact that: AAA was the second largest company before the merger;<br />

AAA was almost nationwide, which was why the DCCA did not define the geographical market as regional but as national;<br />

and AAA could potentially act as a so-called maverick in case of a tacit coordination in the market.<br />

Furthermore, in its decision to withdraw it approval the DCCA emphasised that neither the merging entities nor their<br />

attorneys had informed the DCCA of the fact that AAA was a failing company and that the DA and DLG had already<br />

entered into an agreement concerning the takeover of AAA.<br />

On 26 February 2010, the DCCA approved both the DA’s takeover of SAB and DLG’s and the DA’s takeover of AAA. The<br />

merger approvals were based on the commitments offered by DLG and the DA in connection with their takeover of AAA,<br />

according to which the parties were to sell one or more of AAA’s assets. According to DCCA’s assessment of the mergers, these<br />

commitments entailed that neither of the mergers would restrict the effective competition. No fines were imposed on the parties.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The existing practice from the DCCA does not indicate that the authorities focus specifically on any key industry sectors<br />

in their review. Since the transactions to be reviewed under the Danish merger control regime are decided solely on the<br />

basis of the turnover of the merging parties, the DCCA is not entitled to review mergers in specific industries which do<br />

not meet the applicable thresholds, even if it finds that the conditions in such sectors give rise to specific competition<br />

concerns. Such concerns must be dealt with on the basis of the prohibition on misuse of a dominant position or the<br />

prohibition on agreements restricting competition.<br />

In its assessment of notified mergers, the DCCA generally relies on practice from the European Commission. Furthermore,<br />

the DCCA primarily focuses on national or regional competition as existing practice shows that the DCCA typically defines<br />

the markets as national, regional or even local markets. In line with this practice, the DCCA defined the market as a<br />

national market in the majority of the decisions made in 2010.<br />

Key economic appraisal techniques applied<br />

According to section 12 c(2) of the Danish Competition Act, a merger that will significantly impede effective competition,<br />

in particular due to the creation or strengthening of a dominant position, must be prohibited.<br />

When assessing a notified merger, the DCCA applies the “Significant Impediment of Effective Competition test” (the<br />

“SIEC test”).<br />

Traditionally, the creation or strengthening of a dominant position has been viewed as the most common reason for<br />

competition concerns by the DCCA. Although establishment of a dominant position is not decisive under the SIEC test,<br />

a dominant position remains a significant indicator for the probability of a notified merger impeding effective competition.<br />

When assessing the potential effect of a transaction on competition, the DCCA will look at the risk that the transaction<br />

may significantly impede effective competition by eliminating important competitive constraints on one or more businesses<br />

which consequently would increase their market power without resorting to coordinated behaviour (non-coordinated<br />

effects); or by changing the nature of competition in such a way that businesses which previously were not coordinating<br />

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Accura Advokatpartnerselskab Denmark<br />

their behaviour are now significantly more likely to coordinate and raise prices or otherwise harm effective competition.<br />

A merger may also make coordination easier, more stable or more effective for businesses which were coordinating prices<br />

prior to the merger (coordinated effects).<br />

The only prohibition of a notified merger in Denmark so far was primarily motivated by the risk of coordinated effects. 4<br />

The merger concerned would result in the four largest nationwide wholesale dealers on the heating and sanitation market<br />

being reduced to three who would hold a common market share of 80% of the relevant market. On the market for electrical<br />

appliances, the merger would reduce the number of wholesale dealers with a nationwide distribution net from three to two<br />

with even higher market shares. In the DCCA’s opinion, the remaining companies would most likely increase their prices<br />

and compete less vigorously on both markets as a result of their market power. The merger was therefore found to be<br />

significantly impeding competition on both markets and was prohibited.<br />

The possibility of applying econometric modelling, as seen for example in the UK where there is a shift away from the classic<br />

market definition towards considering rivalry, using diversion ratios etc. to identify which business are the closest competitors,<br />

is being discussed in Denmark. However, so far no trend towards using such new methods has manifested itself.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

Both in respect of unproblematic and more complex mergers, it is generally advisable to engage in pre-notification<br />

discussions with the DCCA in order to get a better understanding of how the DCCA views the merger, including the kind<br />

of remedies which may be required and whether the clearance procedure may be expected to lead to second stage<br />

investigations. Such pre-notification discussions can also be helpful in eliminating uncertainties and give the DCCA<br />

sufficient information to provide enough comfort to avoid second stage investigation once the merger is formally notified.<br />

Generally, it is advisable to initiate commitments early during the dialogue with the DCCA if the notified merger is expected<br />

to lead to second stage investigations and serious concern on the part of the DCCA. In respect of the only prohibition of<br />

a notified merger in Denmark so far, the DCCA has subsequently indicated that the parties introduced possible<br />

commitments too late in the process.<br />

If the potential effects of a transaction are hard to assess, pre-closing commitments may be made conditional. This means that<br />

the commitments will only come into force if suspected negative effects on competition are in fact identified after closing.<br />

Although structural commitments are traditionally regarded by the DCCA as more effective than behavioural commitments<br />

in relieving any competition concern, the DCCA historically seems more willing to accept behavioural commitments than<br />

the European Commission.<br />

Key policy developments<br />

In connection with the reform of the merger control regime in October 2010, new guidelines for the notification of mergers<br />

were issued. The reform of the Danish merger control regime has brought about a further approximation of the Danish<br />

merger control regime towards the EU merger control rules and, traditionally, the DCCA has relied on the guidelines of<br />

the European Commission including the Consolidated Jurisdictional Notice in its assessment of notified mergers. This<br />

practice is not expected to change.<br />

Generally, the DCCA stays clear of public policy or non-competition issues when assessing notified mergers as such<br />

matters are outside its authority. Accordingly, the DCCA only considers the effects of the transaction on the effective<br />

competition on the relevant market when assessing a notified merger and it is not competent to prohibit a merger on the<br />

basis of public policy or non-competition issues relating to the merger.<br />

Reform proposals<br />

No reforms are expected at present due to the recent substantial revision of the entire Danish merger control regime.<br />

* * *<br />

Endnotes<br />

1 Decision of 23 June 2010 regarding Nykredits increase of a fee in conflict with commitments made in respect of a<br />

merger approval obtained in 2003.<br />

2 Decision on 1 February 2010 to revoke approval dated 25 January 2010 of Danish Agro A.m.b.A’s purchase of<br />

S.A.B Landbrugets Andel.<br />

3 Dispensation of 1 February 2010 to Dansk Landbrugs Grovvareselskab A.m.b.a and Danish Agro A.m.b.a to assign<br />

a specific supply contract prior to final approval of a notified merger.<br />

4 Decision by the Competition Counsel of 14 May 2008 - Lemwigh-Müllers acquisition of Brdr. A&O Johansen.<br />

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Accura Advokatpartnerselskab Denmark<br />

Christina Heiberg-Grevy<br />

Tel: +45 3945 2939 / Email: Christina.Heiberg-Grevy@accura.dk<br />

Christina Heiberg-Grevy is an associate partner of ACCURA’s EU and Competition Team. She advises<br />

medium-sized and large Danish and international businesses on competition law and public procurement<br />

law issues. She also prepares applications for the Danish competition authorities and the EU.<br />

Christina assists clients in connection with the drafting of co-operation agreements, including distribution<br />

agreements, agency agreements and franchising agreements. Furthermore, she advises clients on the<br />

abuse by businesses having a dominant market position in connection with prices, discounts and refusals<br />

to supply.<br />

In addition, Christina has vast experience in advising tenderers on procurement law issues. She represents<br />

clients in competition and public procurement cases against the relevant public authorities, including<br />

the Danish Competition Authority and the Danish Competition Council.<br />

Christina graduated in law from the University of Copenhagen in 1994, and in 1998 she was admitted<br />

to the Danish bar.<br />

Malene Gry-Jensen<br />

Tel: +45 3945 2903 / Email: Malene.Gry-Jensen@accura.dk<br />

Malene Gry-Jensen is a senior legal adviser in ACCURA’s EU and Competition Team. Malene advises<br />

private companies wishing to tender for public projects. She also advises public authorities on<br />

preparation of tender documents and completion of tender procedures under EU rules.<br />

Malene advises a broad range of Danish and international clients on the prohibition against anticompetitive<br />

agreements and the abuse of dominant positions, notifications to the competition authorities<br />

in connection with mergers and acquisitions, manufacturing and co-operation agreements, distribution<br />

and agency agreements and issues relating to dawn raids and other inquiries from the competition<br />

authorities.<br />

Furthermore, Malene advises on mergers and acquisitions and environmental law.<br />

Malene obtained an MSc in Business Administration and Commercial Law from Copenhagen Business<br />

School in 2000.<br />

Accura Advokatpartnerselskab<br />

Tuborg Boulevard 1, DK-2900 Hellerup, Denmark<br />

Tel: +45 3945 2939 / Fax: +45 3945 2801 / URL: http://www.accura.dk<br />

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Estonia<br />

Kätlin Kiudsoo & Marti Hääl<br />

Attorneys at Law Borenius<br />

Overview of merger control activity during the last 12 months<br />

As an introductory note it must be stressed that the section of the Estonian Competition Act (the “CA”) on concentration<br />

control underwent major amendment in 2006. In particular, the CA was amended as to the turnover thresholds which<br />

require a concentration to be notified to the Estonian Competition Council (the “ECC”). Under the old CA, turnover<br />

thresholds were calculated based on worldwide turnover of concentration participants. Under the old CA the ECC had<br />

very little to decide on mergers involving Estonian companies and markets as most Estonian companies did not meet<br />

the turnover thresholds. Therefore, several big Estonian companies were able to merge without having to notify.<br />

However, the amended CA takes into consideration concentration participants’ turnover thresholds of sales of<br />

services/products to customers in Estonia. Hence, the change in the CA resulted in the notification of significantly<br />

more transactions related to Estonian companies. The CA amendments also simplified the rules and procedure for<br />

concentration notification.<br />

In order to characterise the situation of concentrations notified within the past 12 months, a comparison should be shown<br />

with 2006-2009:<br />

• in 2006, 35 transactions were notified to the ECC;<br />

• in 2007, 33 transactions were notified to the ECC, of which four were referred for Phase II investigation;<br />

• in 2008, 27 transactions were notified to the ECC, of which two were referred for Phase II investigation; and<br />

• in 2009, 17 transactions were notified to the ECC, of which only one was referred for Phase II investigation.<br />

In 2010 came a sharp drop from the previous years – only 10 transactions were notified, of which none was cleared by the<br />

ECC within a Phase II investigation. The worldwide financial crisis had taken its toll on the Estonian M&A market. As<br />

to notified transactions, 2010 can best be characterised by investment funds investing in Estonian companies active in<br />

very different areas of the economy such as aviation, internet media, and road construction.<br />

In 2011, as of the date of this article, 15 transactions have already been notified to the ECC. Thus, a positive trend can be<br />

seen in the M&A market, especially in the acquisition of larger Estonian companies.<br />

In 2010, all notified concentrations were cleared within a Phase I investigation, while in 2011 one operation has been<br />

referred for a Phase II investigation. However, it must be noted that, in total since 2006, the ECC has rejected only one<br />

transaction, while one transaction was withdrawn by the parties themselves and eight cases have undergone a Phase II<br />

investigation.<br />

As of the date of this article, the ECC has not imposed any fines since 2006 for failure to notify a concentration.<br />

New developments in jurisdictional assessment and procedure<br />

In 2010 and 2011 no significant developments have taken place in jurisdictional assessment or procedure, as concentrations<br />

notified have, in large, involved parties operating in non-overlapping markets. Hence, the concentrations have been cleared<br />

in Phase I. The outcome of the one case referred to Phase II in 2011 has not yet been published.<br />

General nature of the procedure<br />

The parties to a concentration must notify the ECC of a planned transaction subject to control before entry into force of<br />

the concentration and after:<br />

• entering into a merger agreement or performing a transaction or another act for the acquisition of parts of an<br />

undertaking;<br />

• performing a transaction or another act for the acquisition of control;<br />

• performing a transaction or another act for the acquisition of joint control; and/or<br />

• announcing a public bid for securities.<br />

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Attorneys at Law Borenius Estonia<br />

Note that the ECC may also be notified for a planned concentration subject to control before a transaction if the parties to<br />

the concentration can prove a strong and binding intention to perform the transaction. However, in practice, the ECC<br />

usually withholds starting an investigation until receiving the signed documents necessary for performing the transaction.<br />

As a general rule, the ECC has 30 calendar days from receiving a concentration notice to perform the Phase I investigation<br />

of a concentration. If no concerns arise, then, at the end of this period, the ECC makes a decision clearing the concentration.<br />

However, if, within the 30-calendar-day period, the ECC concludes that competition concerns arise, a Phase II investigation<br />

begins. A Phase II investigation takes up to four months from the decision to launch it. Note that if a concentration notice<br />

is defective, the ECC informs the sender in writing. The investigation term is then suspended as of the following day until<br />

the defects are eliminated. Thus, in the end, the investigation period could run longer than the given time limits due to a<br />

failure to submit all the necessary information and documents. Although the ECA foresees the required information and<br />

documents being submitted along with the concentration notice, in practice the ECC has, at its discretion, asked for<br />

additional data which it considers crucial information for the concentration notice.<br />

The fact that a concentration notice has been submitted becomes public (which includes naming the parties concerned) as<br />

of the day it is submitted to the ECC. However, the text of the notice itself is not made public. The ECC publishes a<br />

notice concerning the receipt of notices of concentration, and all decisions made, in a publication named Ametlikud<br />

Teadaanded (in English: Official Announcements). As of 1 January 2011, the ECC also publishes on its webpage a short<br />

overview of the planned transaction. The parties concerned have the right to remove their business secrets from this<br />

publication. Note that third parties have the right to submit comments and objections to the ECC within seven calendar<br />

days as of the date of filing the notice. However, it is general practice of the ECC to ask for comments and remarks in<br />

regard to the concentration from other market participants during Phase I and Phase II investigations.<br />

In the case of Phase II investigations, the ECC may find that serious competition restrictions will appear after the<br />

concentration, e.g. a market share high above the level of a dominant position. In this scenario, the parties to the<br />

concentration can have meetings with the ECC in order to prove that competition concerns can be overcome.<br />

Finally, in the case of both Phase I and Phase II investigations, the ECC will either clear or reject the concentration notice.<br />

Also, if the ECC fails to reach a decision within the set time limits, the concentration is considered cleared. However, in<br />

practice this has not yet happened.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition<br />

As already mentioned above, the period 2010/2011 can best be described by transactions involving large investment funds<br />

obtaining control over Estonian companies active in broad areas of economic activity. Although the ECC did not come<br />

out with new ground-breaking market definitions or approaches in 2010/2011, certain issues still remain which parties to<br />

a concentration have themselves been struggling with over the years in regards to submitting and drafting a concentration<br />

notice.<br />

What has been considered one of the trickiest questions is when a transaction is actually defined a concentration. The<br />

assessment must be done in the light of the term change of control. Control, within the meaning of the ECA, is the<br />

opportunity for one undertaking or several undertakings, jointly by purchasing shares or on the basis of a transaction,<br />

articles of association or by any other means, e.g. through the shareholders’ agreement, to exercise direct or indirect<br />

influence on another undertaking. Control may consist, for example, of a right to exercise significant influence on the<br />

composition, voting or decision-making of management bodies of the other undertaking, or to use or dispose of all or a<br />

significant proportion of the assets of the other undertaking. Even more, control can also be acquired by the joint<br />

establishment of a new undertaking which performs on a lasting and independent basis.<br />

Thus, control is not merely holding major shares in an undertaking. Control may also be acquired without ownership of<br />

a major shareholding but through an agreement permitting influence over major business decisions, including appointment<br />

of the management/supervisory board of the other undertaking. It is important to note that the existence of control is also<br />

established if a mere possibility exists to control major business decisions. The simple fact that a possibility exists to<br />

affect the undertaking is sufficient to conclude that control exists.<br />

In determining a change of control, it is also important to analyse the definition of an undertaking. The definition of an<br />

undertaking is broad and can include different entities. For example, an undertaking within the meaning of competition<br />

law could be part of an undertaking, e.g. assets of an undertaking or an organisationally independent part of an undertaking,<br />

including an enterprise or plant which constitutes a basis for business activities and to which turnover on the goods market<br />

can clearly be attributed.<br />

In general, if parties to a concentration overcome issues with defining change of control, then the rest of the analysis of a<br />

concentration could in large part be based on the relevant practice of the European Commission and the European Court<br />

of Justice. The ECC keenly follows the cases of the European Commission and the European Court of Justice, especially<br />

in defining markets. The ECC’s behaviour and decisions on concentrations could be estimated based on the practice of<br />

the European Commission in similar cases. Still, the ECC’s decisions may vary from those of the European Commission<br />

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Attorneys at Law Borenius Estonia<br />

as market situations in Estonia are sometimes totally different from those analysed by the Commission in its decisions<br />

due to the rather small size of the whole Estonian territorial market.<br />

Perhaps the most notable case from previous years in regard to the ECC’s assessment of a market and co-operation with<br />

foreign competition councils is the ECC decision No 5.1-5/09-0040 of 29 September 2009, SIA Contact Holding/Ekspress<br />

Hotline AS. The ECC, after conducting a thorough analysis of the directory media market, cleared a merger between two<br />

major Estonian directory media companies. Both participants to the merger are active in providing yellow pages print<br />

catalogues, internet directories and directory assistant services (telephone information).<br />

In 2006, the ECC had also cleared a similar merger between two directory media companies. However, at that time the ECC<br />

defined the relevant market as the market for directory media which consisted of the provision of services of yellow pages<br />

catalogues, internet directories and directory assistant services. The ECC did not see the internet as a strong competitor to<br />

directory media at that time, because the internet was just starting to compete with other sources of information.<br />

In this particular case, the ECC began a Phase II investigation of the merger as the Phase I investigation showed remarkable<br />

changes in the market situation compared to previous years. The ECC contacted other market participants, customers and<br />

suppliers of the merger participants. Moreover, the ECC also contacted the competition authorities of other EU Member<br />

States and analysed their case law on the relevant market definition. Apparently there was no unified market definition in<br />

directory media services as the market situation in most Member States is quite different. For example, in Denmark two<br />

different markets had been defined – the market for yellow pages print catalogues and the market for internet directories<br />

and directory assistant services, while in Finland four different markets had been defined – the market for regional phone<br />

catalogues, the market for business to consumer catalogues, the market for business to business catalogues and the market<br />

for internet advertising. However, the ECC found similarities with the Dutch directory media market where the Dutch<br />

competition authority had, the previous year, cleared a merger between two major directory media companies. The Dutch<br />

authority left the market definition open and instead stated that the market for directory media is strongly influenced by<br />

the worldwide internet search engines Google and Yahoo.<br />

In the end, the ECC took the view that the relevant market is the market for directory media services. However, although<br />

the market share after the merger of the two companies was 66%, the ECC stated that, as the internet is an important<br />

competitor to other information sources, the big market share of the merger participants does not pose a serious threat to<br />

the directory media market. The ECC also stated that big worldwide search engines - Google, Yahoo, Bing - which have<br />

strongly entered the Estonian market, have to be taken into account while assessing the present situation and future<br />

tendencies in the directory media market. Thus, the ECC cleared the merger unconditionally.<br />

Key economic appraisal techniques applied<br />

Similar to EU antitrust regulations, the ECA also states that the appraisal of a concentration should be based on the need<br />

to maintain and develop competition, taking into account the structure of the goods markets and the actual and potential<br />

competition in the goods market, including:<br />

• the market position of the parties to the concentration and their economic and financial power and opportunities for<br />

competitors to access the goods market;<br />

• legal and other barriers to entry to the goods market;<br />

• supply and demand trends for the relevant goods; and<br />

• interests of buyers, sellers and consumers.<br />

If the ECC concludes that the concentration has as its object or effect the co-ordination of the behaviour of undertakings,<br />

which influences, or is likely to influence, competition, compliance of that activity should also be appraised. Appraisal<br />

should include, for example:<br />

• whether two or more undertakings who have created a joint venture will continue, to a material extent, their<br />

activities in the same market as a joint venture, or in the previous or following affected market, or in another market<br />

connected to that market; and<br />

• whether co-ordination of behaviour, which is the direct result of the creation of the joint venture, gives the<br />

undertakings, which created the joint venture, an opportunity to eliminate competition in the market or a significant<br />

part of it.<br />

The ECC will prohibit a concentration if it is likely to significantly restrict competition in the market, especially if it<br />

creates or strengthens a dominant position. A dominant position under the ECA is presumed over a market share of 40%.<br />

The ECC may also decide to revoke a decision to grant permission to a concentration if:<br />

• the parties to the concentration submitted false, misleading or incomplete information which was a determining<br />

factor for the decision; and/or<br />

• the concentration was effected in violation of a term or other conditions or obligations stipulated by the ECA or the<br />

decision to grant permission to concentrate.<br />

However, revocation of permission to concentrate does not deprive the parties to the concentration of the right to apply<br />

for new permission to concentrate.<br />

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Attorneys at Law Borenius Estonia<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

As a rule, in order to avoid restriction of competition, the ECC has the right to grant permission to concentrate provided<br />

that the parties to the concentration undertake to perform certain obligations. Each concentration case is assessed<br />

individually by the ECC and the commitments are proposed in close co-operation with the parties to the concentration.<br />

The concentrations notified to the ECC in 2010/2011 did not involve undertaking obligations by the parties and thus no<br />

new guidance was issued on the matter of remedies to avoid a Phase II investigation or following a Phase II investigation.<br />

However, it is common practice in Estonia, in the case of complex concentrations, that the acquirer promises to undertake<br />

certain commitments in order to have the concentration cleared. For example, a purchaser may undertake to sell certain<br />

parts of its undertaking, or to allow access to third parties to its other entities within a certain time limit. If serious<br />

competition concerns are raised, then such commitments have proved to be the best means of overcoming possible<br />

competition restrictions. However, it is up to the ECC to assess the commitments offered to see if they are enough to<br />

eliminate hesitation. If the ECC does not, in the end, approve the commitments, the concentration most probably will not<br />

be cleared.<br />

Key policy developments<br />

No key policy developments have occurred in Estonia over the past year.<br />

Reform proposals<br />

No reform proposals have been made over the past 12 months in regard to amending the concentration control part of the<br />

ECA.<br />

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Attorneys at Law Borenius Estonia<br />

Kätlin Kiudsoo<br />

Tel: +372 665 1888 / Email: katlin.kiudsoo@borenius.ee<br />

Kätlin Kiudsoo is an associate with Attorneys at Law Borenius. Kätlin specialises mainly in competition<br />

law as legal counsel in transactions related to mergers, divisions, and possible restrictions on competition.<br />

Kätlin Kiudsoo also advises on energy and environmental law matters, including advice to renewable<br />

energy companies on issues related to construction permits and detailed plans. She received an LL.M.<br />

degree from the University of Maastricht in the Netherlands in 2007. Since 2008 she has been a member<br />

of the Estonian Bar Association.<br />

Marti Hääl<br />

Tel: +372 665 1888 / Email: marti.haal@borenius.ee<br />

Marti Hääl is the managing partner of Attorneys at Law Borenius. He specialises in devising and<br />

structuring tax-efficient business, investment and financing models. Marti has significant experience in<br />

dispute resolution, especially in tax, regulatory and competition-related litigation. He provides legal<br />

advice on structuring corporations and transactions. His expertise covers structuring the corporate<br />

operations of industrial and service companies in fields such as transit, chemicals, metals,<br />

telecommunications and food processing. He is an acknowledged lecturer on litigation and tax related<br />

topics. Marti graduated from the University of Tartu in 1995. Since 1996 he has been a member of the<br />

Estonian Bar Association and in 2010 he was elected its Vice Chairman. He is distinguished as a leading<br />

individual by Chambers Europe and Chambers Global.<br />

Attorneys at Law Borenius<br />

Pärnu mnt 15, 10141 Tallinn, Estonia<br />

Tel: +372 665 1888 / Fax: +372 665 1899 / URL: http://www.borenius.ee<br />

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European Union<br />

Alec Burnside & Anne MacGregor<br />

Cadwalader, Wickersham & Taft LLP<br />

Overview of merger control activity during the last 12 months<br />

Numbers of Notifications<br />

During calendar year 2010, there were 274 cases notified to the European Commission’s Directorate General for<br />

Competition (“DG Comp” or “the Commission”) under Council Regulation (EC) No 139/2004 on the control of<br />

concentrations between undertakings (“the <strong>Merger</strong> Regulation”). This is slightly more than in 2009 (259) but still<br />

significantly fewer than 2008 (347) and the all time high experienced in 2007 (402). In the first eight months of 2011,<br />

228 cases were notified, indicating that the total number of notifications in 2011 is likely to exceed 2009 and 2010 totals<br />

and approach pre-global financial crisis levels again.<br />

Of the cases notified in 2010, 4 were withdrawn – all in Phase I. In the first eight months of 2011, 6 cases were withdrawn<br />

in Phase I and one in Phase II (M.5969 SC Johnson/Sara Lee households insecticides business).<br />

Phase I Clearances<br />

In 2010 there were 267 Phase I clearance decisions issued. Of those, 143 were cleared under the simplified procedure (all<br />

without commitments), 110 were cleared under the normal procedure without commitments, and 14 were cleared under<br />

the normal procedure with commitments. In the first eight months of 2011, DG Comp issued 135 simplified procedure<br />

clearances, 70 Phase I clearances without commitments under the normal procedure and 4 clearances with remedies.<br />

The percentage of notified cases dealt with under the simplified procedure remains above 50% year-on-year: 59% to the<br />

end of August 2011; 52% in 2010; 55% in 2009; 54% in 2008; and 59% in 2007. The slightly lower percentages of<br />

simplified procedure cases in the period 2008-10 is probably attributable to reduced private equity activity.<br />

Phase II Investigations<br />

On 26 January 2011, the European Commission blocked the proposed merger between two Greek airlines, Olympic Air<br />

and Aegean Airlines (M.5830). Originally notified on 24 June 2010, the case went into Phase II on 30 July 2010. This<br />

was the first prohibition under the <strong>Merger</strong> Regulation since Ryanair’s attempt to acquire Aer Lingus, blocked in June 2007.<br />

In calendar year 2010, Phase II, i.e. an “in-depth investigation”, was opened in four cases where the European regulator<br />

had “serious doubts”. In the first eight months of 2011, six cases were put into Phase II.<br />

During 2010, there were three Phase II clearances: one without remedies (M.5529 Oracle/Sun Microsystems), and two<br />

with remedies (M.5658 Unilever/Sara Lee Body Care and M.5675 Syngenta/Monsanto’s Sunflower Seed Business). There<br />

were no prohibition decisions.<br />

In the first eight months of 2011, there were two Phase II clearances without commitments (M.5907 Votorantim/Fischer/JV<br />

and M.6101 UPM/Myllykoski and Rhein Papier).<br />

As at mid-September 2011, there were four ongoing Phase II investigations: M.6106 Caterpillar/MWM; M.6203 Western<br />

Digital Ireland/Viviti Technologies; M.6214 Seagate Technology/the HDD Business of Samsung Electronics; and M.6166<br />

Deutsche Börse/NYSE Euronext.<br />

New developments in jurisdictional assessment or procedure<br />

The legal provisions governing the jurisdictional assessment of transactions under the <strong>Merger</strong> Regulation have not changed<br />

since May 2004. Following consultations, in June 2009, towards the end of the term of Competition Commissioner Neelie<br />

Kroes, DG Comp published a report on the operation of the notification thresholds in allocating merger cases between the<br />

EU and national level and the referral mechanisms. The overall conclusion was that the provisions were generally working<br />

well. The report stopped short of recommending any legislative amendments, but acknowledged that there was nevertheless<br />

some room for improvement on particular aspects of case allocation. Some of those aspects have come to the fore in the<br />

last eighteen months, as outlined below.<br />

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Cadwalader, Wickersham & Taft LLP European Union<br />

Warning Against Perceived Forum Shopping / Upward Referral Requests by Member State Authorities<br />

DG Comp officials stated a number of times in public fora during 2010-11 that “forum shopping” by parties for merger<br />

control jurisdictions in Europe “does not work” and that in the end, the best placed authority will end up with jurisdiction<br />

over the case. These comments seem to have been prompted in part by a more collaborative and active dialogue about<br />

case allocation between DG Comp and EU Member State competition authorities, in particular concerning the use of the<br />

post-notification upwards referral mechanism (Article 22) in the <strong>Merger</strong> Regulation.<br />

In two separate transactions involving the acquisition of separate Sara Lee businesses, Member States used Article 22 to<br />

ask DG Comp to take jurisdiction over what had originally been a case reviewable before several national authorities<br />

around Europe.<br />

Split Jurisdiction in Air Fresheners Case<br />

In M.5828 Proctor & Gamble/Sara Lee Air Care, national notifications were made in eleven Member States after the<br />

parties decided not to seek a pre-notification upwards referral under Article 4(5) of the <strong>Merger</strong> Regulation – as was their<br />

right. Ultimately, however, DG Comp took partial jurisdiction following an Article 22 upwards referral request made by<br />

Germany which Belgium, Germany, Spain and the UK then joined. This resulted in an EU clearance without commitments<br />

in Phase I covering national air freshener markets in those five countries in June 2010, as well as separate clearance<br />

decisions from Austria, Bulgaria, Cyprus, Italy, Poland, Hungary and Slovakia.<br />

Insecticides: Countries without National Jurisdiction Seek Commission Review<br />

In M.5969, concerning SC Johnson’s planned acquisition of Sara Lee’s global household insecticides business, notifications<br />

were initially made in Spain and Portugal. Here the parties could not themselves have requested a pre-notification upwards<br />

referral, since they had a notification obligation in only two Member States. The Portuguese authority kept the case,<br />

reviewed the effects of the transaction in Portugal and eventually cleared the case there with remedies. But the Spanish<br />

competition authority requested that the review be transferred to DG Comp under Article 22. Although the deal did not<br />

qualify for antitrust review under their national laws, the Belgian, French, Italian, Czech and Greek competition authorities<br />

joined the Spanish Article 22 request. Article 22(1) states that a Member State can use Article 22 when a transaction<br />

affects trade between Member States and “threatens to significantly affect competition within the territory of the Member<br />

State or States making the request”. The parties then notified the deal to DG Comp, where it went into Phase II in December<br />

2010. After an agreement could not be reached on a remedies package, SC Johnson withdrew the notification in May<br />

2011 rather than see a prohibition decision issued.<br />

It is believed that during remedies discussions, DG Comp may have explored the possibility of SC Johnson divesting<br />

brands in countries that had not asked for EU scrutiny. However, this would seem at odds with statements in a February<br />

2006 Commission decision rejecting an Article 22 upwards referral request by the Cypriot authority in M.4124 Coca Cola<br />

Hellenic Bottling Company/Lanitis Bros. There, in line with its Referrals Notice, the Commission stated that when<br />

geographic markets are national or sub-national, it is only appropriate for it to take jurisdiction where there are serious<br />

competition concerns in a series of Member States, if a coherent treatment of the case is desirable, and where the main<br />

economic impact of the deal is connected to those markets. The drinks markets at issue there were national, but since<br />

only Cyprus had made an Article 22 request, DG Comp noted that if it took jurisdiction, it would only be able to assess<br />

the effects of the transaction on the Cypriot market even if there were serious competition concerns in other countries.<br />

Interestingly, this 2006 decision was published in a non-confidential version on 31 March 2011, at a crucial time in Phase<br />

II in the Sara Lee insecticides case. It is thought that the geographic scope of the insecticides markets is national. If DG<br />

Comp was seeking the divestment of insecticides brands in countries which had not been party to the upwards referral<br />

request, this would have been to achieve a fully viable divestment package. The lack of an ultimate prohibition decision<br />

in this case means that complete details will never be in the public domain; and that any decision concerning brands in<br />

Member States not party to the Article 22 request cannot be judicially reviewed.<br />

Further Article 22 Cases<br />

Member States also used Article 22 in two further cases in the period January 2010 to August 2011. In M.6106<br />

Caterpillar/MWM, the transaction did not meet the <strong>Merger</strong> Regulation thresholds and was originally notified to the German,<br />

Austrian and Slovak competition authorities in late 2010 for approval. However, the German authority then made an<br />

upwards referral request which was joined by Austria and the Slovak Republic. The deal was then notified to DG Comp<br />

in March 2011 and went into Phase II in early May.<br />

In M.6191 Birla/Columbian Chemicals, Germany’s upward referral request was ultimately joined by Spain, France and<br />

the UK. The geographic scope of the relevant market was held to be at least EEA-wide. The case was cleared in Brussels<br />

in Phase I without remedies in June 2011.<br />

Greater Uncertainty for Business<br />

Looked at in terms of the number of cases in which Article 22 has been used annually since the current version of the<br />

<strong>Merger</strong> Regulation was introduced in May 2004, figures are relatively stable: three or four cases per year. However, the<br />

use of Article 22 is now increasingly coordinated between Member State competition authorities, with more of them<br />

“joining” other Member States’ requests than in earlier years.<br />

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This means that in cases where the <strong>Merger</strong> Regulation thresholds are not met, and even if the parties themselves do not<br />

have the option to seek upwards referral in advance of notification because they have a notification obligation in only one<br />

or two Member States, the case may well still end up in Brussels for review if there are substantive issues. This is beyond<br />

the control of the companies concerned, and can make for a significant extension of the timeline for clearance, increasing<br />

legal uncertainty.<br />

Aside from Article 22, in terms of pre-notification upwards referral requests under Article 4(5) of the <strong>Merger</strong> Regulation,<br />

which parties have the option to make if the transaction qualifies for national review in three or more Member States,<br />

there were 26 such requests made in 2010 and only one case in which a Member State authority blocked the request. In<br />

the eight months to the end of August 2011, there had been 16 Article 4(5) upwards referral requests, all successful.<br />

Competition Commissioner Joaquín Almunia has mooted the idea of whether the European Competition Network (ECN)<br />

model can be applied in the sphere of merger control to bring about more cooperation within Europe. In April 2011 DG<br />

Comp published a set of draft Best Practices for public consultation aimed at fostering and facilitating information sharing<br />

between national competition authorities (“NCAs”) within the European Union, for mergers that are not subject to EU<br />

merger control but require clearance in several Member States. These draft best practices were drawn up by a Commission-<br />

NCA Working Group. The final version of this document is expected to be published in Autumn 2011.<br />

Downwards Referral Requests<br />

In 2010 there were seven Article 4(4) downward referrals to Member State authorities from DG Comp, with no such<br />

referral requests refused. In the first eight months of 2011 there were seven successful requests.<br />

In terms of post-notification downward referrals under Article 9, in 2010 there were eleven requests made by Member State<br />

authorities, the highest number in the history of the <strong>Merger</strong> Regulation. This resulted in three partial referrals, where the<br />

Commission held on to review of the case concerning other Member States, and four full referrals. In M.5960 Credit<br />

Agricole/Cassa di Risparmio della Spezia/Agences Intesa Sanpaolo, the Commission refused a referral request from Italy on<br />

the basis that the transaction would only have led to a small number of minor overlaps, insufficient to satisfy the Article 9<br />

criteria. In the first eight months of 2011, there was only one Article 9 request from a Member State, resulting in a full referral.<br />

As regards transactions which are referred under Article 9 partially or in full, in one case DG Comp was publicly criticised<br />

by the head of a Member State competition authority for not allowing the national authority access to the information<br />

gathered in the case in Brussels pre-referral. This factor significantly hampered the French authority from progressing its<br />

review of the French competition aspects in the chemical distribution transaction M.5814 CVC/Univar Europe/Eurochem<br />

in a timely fashion, where the Commission cleared the deal insofar as it impacted the Belgian and Dutch markets while<br />

referring the remainder to the French authority.<br />

M.5650 T-Mobile/Orange, cleared by the Commission with remedies in Phase I in March 2010, is an example of a Member<br />

State making a downwards referral request under Article 9 but later withdrawing it after remedies were agreed. The case<br />

concerned a merger between two mobile phone operators in the UK, and resulted in the reduction in that national market<br />

of the number of large mobile telecommunication providers with their own infrastructure from five to four, creating a new<br />

market leader with 33 percent in the end customer market and 49 percent in the upstream market for network access. The<br />

Office of Fair Trading asked for the case back, but DG Comp and the OFT were then able to work closely to achieve a<br />

clearance from Brussels with commitments that ensured a maverick third operator, 3 Mobile UK, enjoyed continued access<br />

to infrastructure.<br />

Lack of Review of Acquisitions of Minority Shareholdings Not Conferring Control<br />

In a speech in March 2011 Commissioner Almunia acknowledged that there “is probably an enforcement gap” at the EU<br />

level concerning transactions involving the acquisitions of minority shareholdings that do not give rise to a “change of<br />

control” within the meaning of the <strong>Merger</strong> Regulation, and announced that he had instructed DG Competition to study the<br />

matter. The General Court’s Aer Lingus v Commission ruling in July 2010 confirmed the Commission’s lack of jurisdiction<br />

to deal with a non-controlling minority shareholding that remains after failure of a public takeover offer.<br />

Parallel Procedures<br />

Commissioner Almunia and several DG Comp officials commented publicly on more than one occasion in 2011 that<br />

during merger control procedures involving several antitrust authorities globally, some companies still refuse to cooperate<br />

and effectively prevent antitrust regulators from conducting parallel procedures. A clear message has been sent that<br />

“playing one authority against the other does not pay”, and that it is in the best interest of the companies that different<br />

authorities align their assessments, remedies and the timing of their decisions. Importantly, companies are encouraged to<br />

grant timely confidentiality waivers to the various authorities involved so that antitrust regulators can exchange information<br />

from the early stages of a case. The concerns of each authority have to be addressed and parties should not expect that<br />

they will be able to “export” commitment solutions from other jurisdictions.<br />

In M.5669 Cisco/Tandberg, procedures on opposite sides of the Atlantic were perfectly coordinated to the extent that the<br />

European Commission and the US Department of Justice were able to issue clearance decisions on the same day (29 March<br />

2010). In Europe, the deal was conditional upon Cisco divesting a protocol developed for its video-conferencing solutions<br />

to ensure interoperability with rivals’ products. In the US, the DoJ felt able to clear the deal without remedies in part<br />

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because of commitments extracted in Europe. The bilateral 2003 Best Practices on US-EU cooperation in merger<br />

investigations are currently being jointly updated.<br />

Notification Date Priority Rule<br />

Although not new, DG Comp has come under fire in 2011 for its practice of taking the date of notification as determinative<br />

for its substantive assessment in situations where it has to look at two deals concerning the same concentrated markets<br />

simultaneously. In two Phase II cases, both concerning hard disk drives, M.6214 Seagate Technology/HDD Business of<br />

Samsung Electronics and M.6203 Western Digital/Viviti Technologies, Seagate filed its notification in Brussels just one<br />

day ahead of Western Digital, although Western Digital started pre-notification discussions with DG Comp ahead of<br />

Seagate. DG Comp has made clear that it is assessing Seagate’s acquisition without reference to Western Digital’s deal,<br />

whereas Western Digital’s will be judged as if the consolidation brought about by the Seagate deal had already occurred.<br />

Both cases were put into Phase II on the same day, but only Western Digital was issued a Statement of Objections. Western<br />

Digital lodged an application challenging the Commission’s “priority rule” with the General Court in Luxemburg in August<br />

2011. Commissioner Almunia has publicly defended the rule, saying that this “principle is a very sensible one”.<br />

These cases underline the point that companies considering mergers and acquisitions in consolidated markets, where other<br />

transactions are potentially in the offing amongst their competitors, cannot afford to delay notification in Brussels. Even<br />

one day could mean a fundamentally different substantive outcome. The difficulty is that the parties themselves generally<br />

do not have the final say as to the date notification is made: the DG Comp case team has to give them the go-ahead to file<br />

the definitive document after reviewing several drafts beforehand.<br />

The priority rule was last applied in 2007 in the travel sector, when M.4601 KarstadtQuelle/MyTravel was notified about a week<br />

before M.4600 Tui/<strong>First</strong> Choice. Both were cleared in Phase I, but Tui/<strong>First</strong> Choice, which created Europe’s largest travel firm,<br />

required commitments concerning Ireland. Even though KarstadtQuelle/MyTravel reduced the number of major vertically<br />

integrated tour operators in the UK from four to three, competitive conditions were such that no remedies were necessary.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

Airline Sector<br />

M.5830 Olympic Air/Aegean Airlines: Prohibition Decision<br />

The Commission’s January 2011 prohibition of the proposed tie-up between the two largest Greek carriers, Olympic Air<br />

and Aegean Airlines, brings to 20 the number of transactions blocked under the <strong>Merger</strong> Regulation since 1991. The parties<br />

compete head-to-head on many Greek domestic routes, and the Commission found that there was no likelihood of new<br />

entry, while ferry services to various island destinations were not sufficiently close substitutes. Slot remedies were offered<br />

along with access to frequent flyer programmes and interlining agreements, but the Commission deemed them insufficient.<br />

There was no shortage of slots at Athens airport but there was no real prospect of credible entry by a new entrant with a<br />

base in Athens and a recognisable brand. Slot remedies are only relevant where an airport is congested, since their function<br />

is to help a new entrant overcome a barrier to entry. The parties also raised the “failing firm” defence, but the Commission<br />

found there was insufficient evidence to support that argument. Even though Olympic was not doing well, it was not clear<br />

that absent the merger it would exit the market, as it could probably have been restructured.<br />

As with previous airline mergers, the Commission looked at the individual routes on which both companies operated. The deal<br />

would have given rise to a quasi-monopoly on nine routes: Athens-Thessaloniki; and between Athens and eight Greek islands.<br />

Although both airlines operate a number of routes covered by public service obligations, none of the nine routes at issue was<br />

covered by those public service obligations. A critical factor was that the parties were each other’s closest competitor. The two<br />

airlines have jointly lodged an appeal against the Commission’s prohibition decision with the General Court in Luxemburg.<br />

The case is very similar to the Commission’s last prohibition decision in June 2007: M.4439 Ryanair/Aer Lingus. That<br />

case also involved the merger of two airlines based at the same “home” capital in a Member State. Ryanair appealed the<br />

2007 prohibition decision but it was upheld in a judgment delivered in July 2010 (Case T-342/07 Ryanair Holdings v<br />

Commission).<br />

In contrast, M.5747 British Airways/Iberia was cleared in Phase I without remedies in July 2010. There were substantial<br />

overlaps on some routes between London Heathrow and Spanish destinations, but the Commission found that easyJet and<br />

Ryanair would exert sufficient competitive constraints over the merged entity even though they operated out of other<br />

London area airports. Iberia and British Airways were already closely cooperating in the One World alliance, and had for<br />

a number of years coordinated inventory, pricing and yield management. That cooperation had been blessed by the<br />

Commission in 2003 subject to slot undertakings. In 2010 the Commission decided that a continuation of the One World<br />

cooperation between the merging parties was the correct counterfactual against which to assess the merger, such that the<br />

competitive effects to be expected from the merger were in fact very limited.<br />

Duration of Pre-notification and Review Process<br />

Although not a new theme, the duration of pre-notification (the time before formal filing of the Form CO) and the overall<br />

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duration of the process in Brussels as well as the information gathering burden remain a significant cause for discontent<br />

among competition practitioners and their clients. In one case, the parties were in pre-notification for approximately a<br />

year before the transaction foundered and was never actually notified. “Stop-the-clocks”, experienced in almost all Phase<br />

II cases, technically imposed when companies fail to answer an information request by a given deadline, remain common,<br />

and greatly add to legal uncertainty.<br />

Key economic appraisal techniques applied<br />

Despite much international discussion over the last couple of years among economists of the merits of the Upward Pricing<br />

Pressure (UPP) concept as against the use of market definition, the Commission has not to date explicitly applied UPP in<br />

any of its merger control decisions. Commissioner Almunia has said that the ability to define markets and the calculation<br />

of market shares and the existing degree of concentration is not the main goal of a merger control assessment. The main<br />

goal is rather to predict the likely competitive effects of the transaction, and various economic methods can be applied.<br />

Many economic tools are complementary. Market definition can be used together with economic techniques. The<br />

Commissioner has made the point that market shares provide a preliminary indication of the market power of the merged<br />

entity and can help discard unproblematic cases early on. He has also indicated that the debate in Europe is rather about<br />

the widening geographic scope of markets due to globalisation, and has said that the Commission is constantly trying to<br />

adjust its market definitions to changing market realities. For example, in telecommunication equipment and enterprise<br />

software applications, its definitions are now EU-wide, if not global.<br />

Approach to remedies<br />

Viability of Remedies Remains Paramount<br />

The viability of remedies packages given to allay competition concerns remains paramount in the Commission’s<br />

determination of whether to accept or reject them, such that in some cases the parties may have to include more in their<br />

packages than would be strictly required to address the concerns identified.<br />

For example, in M.5658 Unilever/Sara Lee Body Care, significant overlaps were identified in several Member States in<br />

national deodorant markets. However, to obtain clearance in a Phase II procedure, Unilever had to undertake to divest the<br />

Sanex brand Europe-wide. The Commission took the view that in the internal market it is impractical for different owners<br />

of the same brand to compete on a long-term basis. Re-branding remedies are difficult, especially if this leads to splitting<br />

the brand across territories or products.<br />

In M.5644 Kraft Food/Cadbury, however, the parties were more fortunate in that the brands which had to be divested<br />

were local to Poland and Romania where the competition concern arose. In the UK/Ireland, despite high combined market<br />

shares in tablet chocolate, the products were differentiated such that there was limited substitutability and no real<br />

competition between them.<br />

Remedies in IT Cases<br />

Following M.5529 Oracle/Sun Microsystems, a Phase II case cleared without commitments in January 2010, the<br />

Commission was heavily criticised for allowing unconditional clearance on the basis that Oracle had pledged support for<br />

the further development of MySQL open source database software. In effect this amounted to a “behavioural remedy”<br />

which was not formalised as a binding commitment in the clearance decision. A Commission spokesman has said that<br />

were Oracle not to behave in the manner it had indicated in the future, even in the absence of a formal remedy, the<br />

Commission could revoke its clearance decision. This is a precedent that the Commission may yet come to regret; it<br />

certainly does not represent a change in policy, but seems to have been a face-saver for the Commission after its more<br />

ambitious remedy ambitions foundered.<br />

Structural remedies remain the Commission’s favoured commitments in horizontal overlap cases, but the court has held<br />

it has a duty to consider behavioural remedies in conglomerate cases (Case T-5/02 Tetra Laval BV v Commission).<br />

In M.5669 Cisco/Tandberg, a Phase I case cleared with remedies in March 2010, the key issue was horizontal overlap in<br />

dedicated room video conferencing, with the parties being perceived as close, if not the closest, competitors. The<br />

Commission found that the merged entity would have a combined market share in the order of 60-70% on both a worldwide<br />

or EEA-wide basis. Interoperability emerged following the market investigation as the main barrier to entry and<br />

expansion (i.e. communication between different endpoints). There were no agreed standards in this area. There were<br />

fears that the merged entity would have an incentive to limit competitors’ interoperability with its own video-conferencing<br />

systems. Interoperability with Cisco’s equipment was dependent upon Cisco’s proprietary technology. Cisco committed<br />

to assign its copyright in its Telepresence interoperability protocol to an independent industry body, and until this occurred,<br />

to license the protocol on a royalty-free basis. Although interoperability commitments are essentially behavioural in nature,<br />

the remedy in this horizontal case was perhaps more akin to a structural than a behavioural remedy, because it essentially<br />

involved the divestiture of an intellectual property right.<br />

M.5984 Intel/McAfee was also an IT sector Phase I case cleared with commitments in January 2011, but conglomerate,<br />

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rather than horizontal. McAfee specialised in security and antivirus software, whereas Intel was the world’s largest chipset<br />

manufacturer. The general trend in the IT sector was to move security software closer to the hardware to close off loopholes,<br />

i.e. have the security software embedded in the chipset, rather than just installed on the hard drive. The Commission<br />

considered four theories of harm. <strong>First</strong>, it looked at whether Intel might hamper the interoperability of its chipsets vis-àvis<br />

third party security software providers. Second, it assessed whether Intel hardware and McAfee security software<br />

might be technically tied post-merger. Third, it considered whether Intel might commercially bundle its hardware with<br />

McAfee security, for example through rebates or other commercial incentives. Finally, it looked at whether Intel might<br />

hamper the interoperability of McAfee software with non-Intel chipsets.<br />

Ultimately, Intel gave commitments to address the first, second and fourth theories of harm. Third party security software<br />

vendors were given access to Intel’s operability data on a royalty-free basis. Further, if the merged entity supplies security<br />

software embedded in chips, it has to allow the software to be disabled by OEMs so that third party anti-virus software<br />

can be installed on computers using Intel chips. Finally, Intel had to commit not to actively engineer its security software<br />

to degrade its performance when running on a non-Intel chip.<br />

There was some industry criticism following this case that the forced disclosure of interoperability data by Intel for new<br />

hardware one year before commercial launch would act as a disincentive for innovation post-merger. However it would<br />

seem from statements by various DG Comp officials that interoperability remedies are likely to become more common in<br />

very sophisticated technology cases involving innovation markets going.<br />

Waiver of Outdated Remedies<br />

Also noteworthy was the decision adopted under Article 8(2) of the <strong>Merger</strong> Regulation on 3 May 2011, technically a Phase<br />

II decision, which waived certain commitments imposed on Hoffmann-La Roche in 1998 when it acquired Boehringer<br />

Mannheim (M.950). The decision makes clear that DG Comp can revise its merger control decisions in order to amend<br />

or waive commitments even in the absence of a time framework, deadline, or review clause in the original commitments.<br />

The 2008 Remedies Notice (paragraphs 71 to 76) states that a waiver or modification of commitments may in particular<br />

be relevant for non-divestiture commitments, such as access commitments, which may be on-going for a number of<br />

years. Exceptional circumstances justifying a waiver or modification may be accepted if the parties show that the<br />

market circumstances have changed significantly and on a permanent basis. A sufficiently long time-span, usually<br />

several years between DG Comp’s original decision and the request by the parties, is required. DG Comp will also<br />

take into account third party views and the impact a modification may have on their positions and on the overall<br />

effectiveness of the remedy.<br />

Trustees Must be Independent<br />

In September 2010, the General Court found fault with the Commission’s decision to approve a purchaser of assets divested<br />

by Lagardère when it acquired Vivendi Universal Publishing, because that 2004 decision was based on a report drafted by<br />

a trustee who did not meet the essential requirement of independence (T-452-04 <strong>Edition</strong>s Jacob v Commission). The<br />

Commission has now appealed the judgment to the European Court of Justice. The case sends a clear message that parties<br />

should be extremely cautious when selecting their trustees. Failure to comply with independence requirements may leave<br />

companies and the Commission open to damages claims by third parties.<br />

Court Finds Warehousing is not Gun Jumping<br />

Concerning the same 2002 merger, while the Commission was reviewing the transaction, Lagardère entered into an<br />

agreement with a bank to acquire the subsidiary it ultimately intended to acquire from Vivendi, while it was waiting for<br />

merger clearance. The agreement provided that once the Commission had issued its clearance decision, the bank would<br />

then sell the subsidiary to Lagardère. The General Court found in September 2010 that the arrangement did not breach<br />

the stand-still obligation in the <strong>Merger</strong> Regulation (T-279/04 <strong>Edition</strong>s Jacob v Commission). Traditionally, the Commission<br />

has viewed such situations as gun-jumping and this position is articulated in its Consolidated Jurisdictional Notice. The<br />

judgment is a very positive development but the court left open some key issues. Whether the Commission will maintain<br />

its stance that warehousing amounts to implementation by the ultimate purchaser remains to be seen, despite the fact that<br />

warehousing deal structures are valuable transactional tools.<br />

Key policy developments<br />

Implications of <strong>Merger</strong> Control for Foreign Direct Investments<br />

In a number of recent speeches, Commissioner Almunia has stressed that, regardless of political sensitivities around certain<br />

transactions, the Commission will continue to decide merger cases “exclusively on competition analysis”, and that “market<br />

reality, and market reality alone must lie at the core”. There have been suggestions from some quarters that the Commission<br />

establish some form of screening of foreign investment at the EU level, including during merger control in the wake of<br />

(unsuccessful) Italian attempts to thwart the M.6242 Lactalis/Parmalat dairy merger (cleared by the Commission in June<br />

2011), where a French buyer acquired one of Italy’s flagship companies, and M.6092 Prysmian/Draka Holding, cleared<br />

in February 2011.<br />

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Prysmian/Draka provoked controversy due to speculation that a rival bid for Draka by the Chinese firm Xinmao may<br />

have been at least partly funded by the Chinese state. Even though Xinmao was prepared to pay substantially more for<br />

Draka than Prysmian, it appeared to run out of time and ultimately withdrew its bid.<br />

Commissioner Almunia has made clear that if State support is granted for the purposes of making acquisitions, then the<br />

appropriate tools to address this issue are the EU state aid rules or WTO anti-subsidy instruments. In case of doubt, the<br />

Commission can be expected to examine the ultimate ownership of third country acquirers, but it will do so to determine<br />

the consequences of any state influence in the context of a traditional competition law analysis.<br />

A number of recent acquisitions by Chinese state-owned companies triggered an analysis of whether the acquirer operated<br />

independently of the state, and whether there was scope for the state to coordinate the behaviour of other state-owned<br />

companies in the sectors concerned. If their behaviour were coordinated, then the state-owned companies would be viewed<br />

as belonging to one economic entity, and their combined size on affected markets would be taken into account. The<br />

question was ultimately left open since, even if the market shares of all Chinese state-owned firms in the sectors concerned<br />

were taken together, the Commission concluded that the transactions would not materially change the competitive structure<br />

of the markets concerned. In 2011 a string of mergers involving companies owned by the Chinese state were cleared<br />

without conditions by the Commission: M.6082 China National Bluestar/Elkem; M.6113 DSM/Sinochem/JV; M.6151<br />

Petrochina/Ineos/JV; and M.6111 Huaneng/OTPPB/Intergen.<br />

The <strong>Merger</strong> Regulation allows Member States to intervene in transactions to which it applies to a very limited extent: they<br />

can take appropriate measures to protect “legitimate interests” which are limited to public security, plurality of the media<br />

and prudential rules. Any other “public interest” has to be approved by the Commission following a submission by a<br />

Member State. At the EU level, there is no equivalent to CFIUS (Committee on Foreign Investments in the United States)<br />

that conducts a separate review of the national security implications of foreign investments in US companies or operations.<br />

Reform proposals<br />

Since taking office in early 2010, Commissioner Almunia has not brought forward any concrete legislative proposals to<br />

amend the <strong>Merger</strong> Regulation or its Implementing Regulation. There have also been no new merger control guidance<br />

notices.<br />

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Alec Burnside<br />

Tel: +32 2 891 8181 / Email: alec.burnside@cwt.com<br />

Alec Burnside is the Managing Partner of Cadwalader in Brussels. He has practised EU competition<br />

law in Brussels for over two decades, focusing on merger control. He has handled leading and sensitive<br />

cases across many sectors, spanning financial services, IT, consumer products, energy, natural resources,<br />

manufacturing, military, pharmaceuticals, transport and logistics, and telecoms.<br />

Among recent and prominent transactions, he has advised Deutsche Börse on its pending merger with<br />

NYSE Euronext; Aer Lingus on its successful defence of Ryanair’s hostile takeover bids, and court<br />

appeals; Billiton on its merger with BHP; and British American Tobacco and DHL on successive<br />

acquisitions.<br />

Alec is frequently sought out for comment in the media, and as an author and speaker.<br />

Alec studied at Downing College, Cambridge; College of Law, London; and Institut d’Etudes<br />

Européennes, Brussels. He is a Solicitor of the Senior Courts of England and Wales and a foreign member<br />

of the Brussels Bar.<br />

Anne MacGregor<br />

Tel: +32 2 891 8166 / Email: anne.macgregor@cwt.com<br />

Anne MacGregor is Special Counsel in Cadwalader’s Brussels office. She has been practising EU trade<br />

and competition law in Brussels since 1994 and specialises in European and multijurisdictional merger<br />

control on international transactions across a variety of industry sectors, including packaging, chemical<br />

distribution, mining, energy, pharmaceuticals and software.<br />

Among recent transactions, Anne has advised Abbott Laboratories on its acquisition of Solvay<br />

Pharmaceuticals; Ashland on its foundry consumables joint venture and the sale of its distribution<br />

business; iSoft on its acquisition by Computer Sciences Corporation; CVC private equity on the<br />

successive acquisitions of three ink producers; and Vattenfall in the establishment of an electric vehicles<br />

joint venture.<br />

Anne studied at the Australian National University, Canberra and the University of Hamburg. She is<br />

admitted to practice in England and Wales, New York, and Australia, and is a registered foreign lawyer<br />

with the Brussels Bar.<br />

Cadwalader, Wickersham & Taft LLP<br />

22-28 Avenue d’Auderghem, 1040 Brussels, Belgium<br />

Tel: +32 2 891 8100 / Fax: +32 2 891 8106 / URL: http://www.cadwalader.com<br />

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Finland<br />

Petteri Metsä­Tokila & Leena Lindberg<br />

Krogerus Attorneys Ltd<br />

Overview of merger control activity during the last 12 months<br />

In 2010, 19 concentrations were notified to the Finnish Competition Authority (Kilpailuvirasto, the “FCA”). 1 This number<br />

is roughly in line with the typical yearly number of notifications in Finland (14 notifications in 2009, 23 notifications in<br />

2008 and 35 notifications in 2007).<br />

During the preparations to include merger control in Finnish competition legislation in the late 1990s, it was estimated<br />

that the FCA would investigate about 25-40 concentrations a year. 2 This estimation later proved inaccurate. For example,<br />

during the peak year 2001, 114 concentrations were notified to the FCA.<br />

The number of notifications has decreased dramatically after the Competition Act, then in force, was amended in 2004.<br />

The amendment removed the two-year rule on concentrations within the same sector and accordingly amended the turnover<br />

thresholds. A concentration must be notified to the Finnish Competition Authority if the combined worldwide turnover<br />

of the parties exceeds EUR 350 million and the turnover of each of at least two of the parties accrued from Finland exceeds<br />

EUR 20 million.<br />

The FCA reviewed 23 concentrations in 2010:<br />

• 21 of these cases were cleared unconditionally during the so-called “Stage I” (i.e., the FCA issued a decision<br />

declaring that no further investigation was required since the acquisition clearly did not have restrictive effects on<br />

competition). The FCA’s investigations at Stage I have proceeded reasonably quickly. In 2010, the average number<br />

of days spent on Stage I investigations was 17, the maximum being one month.<br />

• One of the two remaining cases, a concentration in the publishing sector, was subjected to so-called “Stage II”<br />

proceedings (i.e., the FCA initiated a thorough additional investigation into the transaction and its competitive<br />

effects). The case was eventually cleared unconditionally after the FCA had investigated the concentration’s<br />

possible competitive effects on advertisements in newspapers and on web pages. The FCA especially investigated<br />

the effects the concentration would have on real estate and car advertising. 3<br />

• The last case, an acquisition in the meat production market, was also subjected to “Stage II” proceedings. 4 The FCA<br />

examined whether the proposed concentration would create or strengthen a dominant position in the meat production<br />

market, as the parties were the number one and number three players in some of the relevant market sectors. The acquirer,<br />

especially, was a significant actor in the markets in question. Ultimately, this case was cleared unconditionally as well.<br />

In 2011, by 10 September, an additional 17 notifications have been made to the FCA. Thus far the FCA has reviewed 18<br />

concentrations in 2011:<br />

• 16 of these cases were cleared unconditionally as Stage I decisions.<br />

• The remaining two cases were subjected to Stage II proceedings.<br />

• In one of these cases, an acquisition in the healthcare sector, the investigation was closed with a conditional<br />

clearance decision. 5 The concentration led to a situation where all the private hospitals and a majority of private<br />

•<br />

medical services in Northern Finland were owned by one market actor. The FCA approved the concentration after<br />

the acquirer committed to ensuring that doctors working for a competing private healthcare service provider could<br />

continue to perform operations at a hospital affected by the concentration on similar prices and terms as before the<br />

concentration and that private customers in Northern Finland would be offered medical services for the same<br />

national prices as applied elsewhere in Finland.<br />

In the other case, an acquisition in the asphalt sector, the FCA made a proposal to the Market Court to prohibit the<br />

concentration. 6 If a concentration creates or strengthens a dominant position and the parties are unwilling to offer<br />

commitments that remedy the competition concerns, the FCA must make a proposal to the Market Court to forbid<br />

the concentration. It is rare for the FCA to do so. This was the first prohibition proposal in 11 years. 7 An earlier<br />

prohibition proposal in 1998 had been the only one in the Finnish merger control history. The parties to the<br />

proposed concentration in question both have a fixed asphalt station in the Helsinki Metropolitan area. The<br />

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transaction would have merged two of the asphalt market’s three actors. The FCA concluded that the concentration<br />

would have lead to a joint dominant position, which would have impeded competition significantly in the asphalt<br />

mass market in the Helsinki Metropolitan area.<br />

In 2010 and 2011, the FCA has not made any decisions of inapplicability, nor has it carried out any proceedings for failure<br />

to notify a concentration. During the same period, the FCA has made one decision regarding the amendment of<br />

commitments, where it concluded that there were no grounds to amend the commitments. Currently, there are two<br />

applications pending for the amendment of commitments.<br />

New developments in jurisdictional assessment or procedure<br />

A new Competition Act, enacted by the Finnish parliament on 11 March 2011 and promulgated by the President on 12<br />

August 2011, will enter into force in Finland on 1 November 2011. The new Act contains a number of changes to merger<br />

control rules. However, the notification thresholds remain unchanged. In addition, the FCA will publish updated merger<br />

control guidelines in the near future. These guidelines detail several practices of the FCA and sum up the rules derived<br />

from case law. A draft version of the guidelines is already available.<br />

The most important changes regarding merger control are the following:<br />

• replacement of the dominance test used in the assessment of the competitive effects of concentrations with the SIEC<br />

(Significant Impediment to Effective Competition) test;<br />

• removal of the one-week deadline to notify a concentration;<br />

• stop-the-clock system, allowing the FCA to freeze the merger control process and the related deadlines if<br />

information is not provided as requested by the FCA; and<br />

• changes to the appealability of commitments submitted in connection to conditional approvals of concentrations.<br />

SIEC test<br />

The SIEC test was introduced in the EC <strong>Merger</strong> Regulation in 2004. In the discussions preceding the enactment of the new<br />

Competition Act, a number of parties expressed concerns regarding the potential tightening of control as a result of the change<br />

in the applicable test, while others predicted that the change would not be significant in practice. The latter position was<br />

adopted, among others, by a strategic management professor who acted as a government consultant in the drafting of the new<br />

Act. Professor Laamanen analysed Finnish merger control decisions and the competitive situation following them. He came<br />

to the conclusion that apart from one or two individual cases involving potential competition concerns related to vertical<br />

integration, the SIEC test would not have led to results differing greatly from the present dominance test. 8<br />

The new Act does not include a provision corresponding to the one in article 2(4) of the EC <strong>Merger</strong> Regulation. On the<br />

grounds of this provision it is possible to intervene in the establishing of a joint venture if this leads to the coordination of<br />

the parent companies’ competitive behaviour. The FCA has investigated some cases where the provision in question would<br />

have been useful. In connection with the amendment of the applicable merger control test it was assumed that such<br />

coordinated effects will be examined under the new test. In the FCA’s draft merger control guidelines, it is noted that the<br />

SIEC test offers a better chance of addressing the possible negative competitive effects that might arise due to a joint<br />

venture between competing parent companies. On the basis of the SIEC test, it is possible to intervene if competition<br />

between parent companies is lessened as a result of the joint venture. 9<br />

Removal of the notification deadline<br />

Under the previous Competition Act, a concentration meeting the relevant turnover thresholds had to be notified to the FCA<br />

within one week of the signing. This deadline was applied fairly flexibly by the FCA. A merger control notification could be<br />

made later, as long as the concentration was not executed before this. In this respect, the removal of the notification deadline<br />

in the new Act is not a significant change.<br />

The FCA has also taken a reasonably pragmatic approach to pre-implementation (so-called “gun-jumping”). The FCA may<br />

propose a fine to the Market Court if the parties implement the concentration before the authority’s approval. The maximum<br />

fine is 10% of the turnover for the preceding year. However, the FCA has never during its thirteen years of merger control<br />

made such a proposal. This seems to suggest that the FCA is not especially keen to propose fines because of pre-implementation,<br />

if the failure to notify has not been intentional and if the concentration in question does not have any competitive effects.<br />

In addition, the new provisions allow concentrations to be notified prior to the actual signing, when the probability for<br />

signing is considered high. These changes are in line with the EC <strong>Merger</strong> Regulation. For companies, it is essential that<br />

the authority has an obligation to immediately begin investigating the concentration when the companies can sufficiently<br />

reliably show their intention to merge. The FCA has investigated concentrations prior to the signing already in the past,<br />

but at that time the time limits for the process did not necessarily start running before a binding agreement had been entered<br />

into and submitted to the FCA. In this respect, the situation has changed and the time limits now start running immediately.<br />

Stopping the clock<br />

In Finland, Stage I of the notification process shall take one month at the most and Stage II shall take three months at<br />

most. The Market Court may extend the latter deadline by no more than two months. In practice, the FCA has requested<br />

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the Market Court to extend the time limit only in cases where the parties have submitted a request to the FCA for extension.<br />

In this respect, the provisions remain as before.<br />

The FCA’s new power to freeze its own procedural deadlines (“stopping the clock”) is meant to be used in situations where<br />

the parties fail to provide information required by the FCA or the information they provide is inadequate or erroneous.<br />

The preparatory works of the Act state that the provision shall be primarily applied in situations where the parties are withholding<br />

information deliberately. In practice, such cases have been rare, and it is unlikely that the provision will be used often.<br />

The working group that assessed the need to amend the Act suggested in its report that a provision on the parties’ obligation<br />

to inform the FCA of essential changes in the facts mentioned in the notification and of new facts should be added to the<br />

new Act. Such a notification could have lead to the procedural deadline starting again from the beginning if the changes<br />

significantly affected the assessment.<br />

During the circulation of a proposal for comments, the suggested provision was heavily criticised and was left out of the<br />

Act. However, it is worth noting that in the Finnish process, the authority does not at any stage find the notification<br />

complete. According to the Act, the deadline does not start to run if the notification is essentially incomplete. In the Act,<br />

there is no statement of when a notification can be considered as incomplete in this way. Consequently, even though the<br />

abovementioned provision was not added to the Act, it is possible and even probable that the authority will refer to<br />

incompleteness of the notification if essential new facts appear or if the facts change after the notification has been<br />

submitted and if these new facts or changes to the facts significantly affect the assessment.<br />

The relationship between commitments and appeals<br />

The appealability of commitments submitted in connection to the conditional approval of a concentration, which was<br />

previously considered somewhat unclear, has been clarified and amended in the new Act. The FCA may only impose<br />

commitments, which the notifying party has proposed to the FCA. If the FCA does not accept the commitments proposed,<br />

the FCA must make a proposal to the Market Court on prohibiting the concentration. The notifying party cannot appeal<br />

the commitments which it has given nor can it appeal the conditional approval decision in itself. Therefore, the only<br />

course of action for a company unwilling to submit commitments to the FCA is to let the case proceed to the Market Court.<br />

The interplay between appeals and commitments has resulted in problematic situations and yielded complex court cases<br />

in the recent years. For instance, in a case involving a major acquisition in the Nordic energy sector, the acquiring company<br />

first proposed certain commitments, and once the remedied concentration had been carried out, promptly appealed the<br />

implementation of the commitments. 10 The matter ended with the Supreme Administrative Court giving a decision ordering<br />

the immediate implementation of the commitments. However, nearly four years later, the Court overturned the<br />

commitments after a series of appeals. 11 The commitments had included the divestment of several power plants and their<br />

implementation was, at that point, essentially impossible to reverse.<br />

In another case, involving an acquisition in the broadcasting sector, the parties proposed, among other things, a commitment<br />

according to which they would not appeal the decision. 12 However, in spite of this commitment, the parties appealed. 13<br />

When drafting the new Act, it was considered necessary to restrict the parties’ right to appeal in such cases, as the<br />

conditional approval of a concentration and the commitments given in order to obtain that approval are inseparable. If the<br />

concentration is implemented without implementing the commitments given, the concentration will restrict competition<br />

in the way which necessitated its conditional approval in the first place. It remains to be seen whether the new provisions<br />

will render the system of commitments more stable or whether it will result in more disputes and unclarities.<br />

Third parties retain a right to appeal a conditional merger control decision if they are considered to be affected by the<br />

decision in the sense specified in the Finnish Administrative Judicial Procedure Act. However, this right is highly<br />

theoretical, as no third parties in a merger control case have ever been considered to be in such a position.<br />

On the grounds of both the previous and the new Competition Act, the Market Court can prohibit a concentration only<br />

based on a proposal by the FCA. The Supreme Administrative Court has confirmed this view in its decision in the Sonera<br />

/ Loimaan Seudun Puhelin case. 14 An appealing party can thereby not have a concentration prohibited. Hence, the only<br />

effect an appeal might have is the removal of a single commitment or the whole commitments package.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The FCA does not have any predefined key sectors or key policy areas in merger control. Based on the FCA’s strategic<br />

and operational focuses, the FCA will concentrate on infrastructure markets, payment services, construction markets and<br />

on the food supply chain. In addition, the FCA will focus on concentrated, especially oligopolistic, markets and on<br />

facilitating practices in these markets.<br />

Recently, the FCA has investigated15 several concentrations in the food industry. In these cases, the FCA has been especially<br />

interested in both the industry and retail level of the food supply chain, which are both rather concentrated in Finland.<br />

The FCA has also, during the past year, conducted a sector inquiry on the food supply chain, which focused especially on<br />

the retail level of the food supply chain.<br />

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Regarding the substantive assessment, the FCA has lately investigated the negative competitive structure of markets. In<br />

this assessment, the FCA has examined, among other things, the structural and economical links between the major market<br />

players and whether these links affect the incentives of the companies in question. These assessments have lead to joint<br />

dominance and facilitating practices becoming one of the FCA’s interest areas in merger control. Due to the concentrated<br />

markets in Finland, joint dominance has been a focus area in at least in two of the FCA’s major cases. 16 In the other of<br />

these cases, the FCA ended up making a proposal to the Market Court to prohibit the concentration based on the<br />

strengthening or creation of joint dominance. This aspect should be taken into account at least in complex mergers taking<br />

place in concentrated or oligopolistic markets.<br />

It is also noteworthy that the FCA tends to define the relevant markets, especially the geographic scope of the markets, to<br />

some extent differently than the markets are defined in EU practice. This is due to, among other things, Finland’s slightly<br />

isolated location from the rest of Europe, which might affect cross-border trade. This has lead to a national market<br />

definition being the starting point for the FCA’s market definition. Therefore, the notifying parties must provide quite<br />

extensive economical and statistical evidence to convince the FCA to apply an international definition of the markets.<br />

Mere reliance on EU case law will not suffice in this respect.<br />

Key economic appraisal techniques applied<br />

Under Section 25 of the new Competition Act, the FCA can intervene in a concentration if it significantly impedes effective<br />

competition in the Finnish markets or a substantial part thereof, in particular by creating or strengthening a dominant position.<br />

According to the preparatory works of the Act, the competitive effects of concentrations are assessed on the relevant product<br />

markets and geographic markets. In its investigation, the FCA assesses the market definition presented by the notifying party<br />

and by third parties in their answers to the FCA’s requests for comments and information on certain claims deriving from the<br />

market definition.<br />

After the market definition has been finalised, the competitive effects of the merger are assessed. This includes an assessment<br />

of the current market situation, market entry and possible barriers to entry, as well as the factors, which balance the market<br />

power of the merging entity (e.g., the customers’ bargaining power). This is often a general assessment of many factors with<br />

the purpose of estimating the effects of the merger on a future market situation. According to the preparatory works of the new<br />

Act, this assessment corresponds for the most part to the assessment under the dominance test.<br />

In the FCA’s 2011 Yearbook, the effects of the change in the applicable test are noted. The new test focuses more strongly<br />

on the competitive effects of the merger and less on market shares and other structural considerations. This means that<br />

there are better possibilities to take into account factors balancing the market power of the concentration in the assessment.<br />

These factors include the bargaining power of customers as well as potential competition, i.e. the possibility of market<br />

entry by other undertakings or the possibility of incumbents to expand their operations. The efficiency gains resulting<br />

from the concentration will also be taken into account in an effects-based analysis, albeit it is still the parties’ responsibility<br />

to demonstrate that the concentration leads to efficiency gains which benefit consumers. Market definition and market<br />

shares will remain important but not necessarily decisive factors in the assessment. The FCA’s investigations will focus<br />

more on the economic basis of concentrations and on the likely conduct of the market actors following the merger. 17<br />

Because the new test will not enter into force until 1 November 2011, the authorities do not yet have an established practice<br />

on how competitive effects will be assessed under the SIEC test. Officials have already for some time participated in<br />

training sessions because of the new test and they have also examined econometric models as well as the possibilities to<br />

use them in future decision-making. Competition authorities among others in the other Nordic countries use economic<br />

models to a growing extent. Because of the authorities’ close co-operation, it can be assumed that the use of econometric<br />

models will at some point also become a significant part of Finnish merger control.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

The FCA may issue a conditional clearance decision during Stage I or Stage II. Unlike, for example, in the case of the<br />

European Commission, clearing a concentration conditionally does not affect the FCA’s procedural deadlines. In practice<br />

this means that, because of the strict deadlines, most conditional decisions are postponed until Stage II. However, the<br />

FCA has issued conditional decisions also during Stage I, for example in the case Suomen Posti Oy (Finnish Mail) / Atkos<br />

Printmail Oy. In this decision, the FCA examined the vertical effects of the merger on the postal and printing markets. In<br />

the FCA’s view, the proposed merger could have caused negative competitive effects on these markets, because the acquirer,<br />

Finnish Mail, could have in the future favoured Atkos Printmail over its competitors. This would have impeded competition<br />

and created barriers to entry in the relevant markets. This would also have strengthened the already dominant acquirer’s<br />

market position. 18 The case involved straightforward behavioural remedies, which could be imposed already during Stage<br />

I. Finnish Mail committed to keeping Atkos Printmail as a separate subsidiary and to not transferring its current business<br />

operations to Finnish Mail. In addition, a commitment was included in the decision whereby Finnish Mail undertook to<br />

offer the distribution service for certain products on general, equal, non-discriminatory and transparent terms to outside<br />

companies as well as to companies belonging to the Finnish Mail Group.<br />

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A conditional clearance decision may also be given during Stage I if the notifying party submits its commitments and the<br />

information necessary to investigate the concentration to the FCA already before submitting its official notification. These<br />

kinds of open pre-notification discussions make it possible for the FCA to evaluate the concentration already before the<br />

procedural deadlines start to run.<br />

The Competition Act presupposes that mainly structural remedies should be used in merger control cases. 19 Also the FCA has<br />

often emphasised that competitive problems should be solved with the help of structural remedies. 20 The FCA’s policy is<br />

clearly stated in the proposed prohibition of the abovementioned NCC Roads / Destia concentration. The commitments<br />

proposed by NCC Roads were refused by the FCA. According to the proposed remedies, NCC Roads would have committed<br />

to 1) subleasing a building lot for establishing an asphalt station to its competitors, and 2) selling asphalt mass to its competitors.<br />

In its proposal to the Market Court, the FCA referred to the European Commission’s practice as well as to the case law of the<br />

European Court of Justice to support structural remedies. In addition, the FCA stated the following regarding to the<br />

commitments suggested by NCC Roads:<br />

The commitments proposed by NCC Roads include only some structural elements in the solutions suggested for<br />

remedying the competitive problems that would arise due to the merger in the asphalt mass market in the Helsinki<br />

Metropolitan area and, thus, on the area’s asphalt paving market. The only structural remedy proposed by NCC was a<br />

commitment to sublet a building lot located in Nikkilä, Sipoo to NCC Roads’ competitors for establishing an asphalt<br />

station. The rest of the commitments offered contained several behavioural remedies, which are difficult to supervise.<br />

In the event that there were no interested potential subtenants, the commitment would consist of only NCC’s obligation<br />

to sell asphalt mass at a market price to actual and potential competitors who do not have any own production capacity<br />

for asphalt mass. This “back door” suggested by NCC can be considered as an exceptional proposal when comparing<br />

to FCA’s earlier merger decisions, where structural remedies have been required. A divestment commitment that need<br />

not be adhered to on the grounds that a suitable buyer or tenant cannot been found, has never been approved by the FCA.<br />

On the contrary, the parties to a concentration have been required to bundle up the divested business operations or items<br />

of property into such an attractive package that a buyer can be found. In the event structural remedies are not fulfilled,<br />

the FCA can make a proposal to the Market Court requiring that it prohibits the concentration on the basis of Section 11<br />

(2) of the Competition Act. 21<br />

In an earlier decision, the FCA has, for example, presumed that alternative commitments are included in the commitments<br />

if the primary commitment is not fulfilled for some reason. In the Metsäliitto / Vapo case, Metsäliitto committed to<br />

abandoning the planned concentration if the divestment requirement could not be fulfilled. 22 On the other hand, in the<br />

Carlsberg / Orkla case, alternative commitments were given in case the primary commitments could not be fulfilled. 23<br />

In the NCC Roads / Destia case, the FCA rejected the commitments proposed by NCC Roads in particular on the grounds<br />

that it could not, with sufficient certainty, ensure that a sub-tenancy contract would lead to the establishing of an asphalt<br />

station and thus compensate for the competition lost as a result of the concentration. The FCA ended up making a proposal<br />

to the Market Court to forbid the concentration.<br />

Key policy developments<br />

The FCA has published its draft for new merger control guidelines, and these have been subjected to a public consultation<br />

during 2011. In addition to amending the previous guidelines from 1998 (as amended in 2004), the new guidelines also<br />

include a section on how the FCA plans to apply the SIEC test. Furthermore, the new guidelines will include examples<br />

of the FCA’s merger control praxis throughout the years.<br />

The FCA will publish the final version of the guidelines in good time before the new Competition Act comes into force.<br />

Whereas the previous FCA guidelines differed to some extent from the EU merger control guidelines, the proposed new<br />

FCA guidelines are to a great extent in line with the EU guidelines. According to the preparatory works of the new<br />

Competition Act, the FCA may refer to the EU guidelines when interpreting Finnish merger control rules.<br />

One of the key areas dealt with in the FCA’s new guidelines is the SIEC test. The guidelines provide a general framework<br />

for the substantive assessment of concentrations under the Finnish merger control rules. The assessment is, as a starting<br />

point, in line with the SIEC assessment used in other jurisdictions (e.g. in the EU).<br />

In the preparatory works of the Act, it is noted that the national definition for concentration is equivalent to the definition<br />

used in the EC <strong>Merger</strong> Regulation. In addition, it is stated that because the definitions used in the Finnish and EU rules<br />

are synonymous, the Commission’s notices and case law can be used as guidelines when interpreting the national rules.<br />

However, at least previously, the FCA has applied a somewhat wider definition of a concentration than is applied under<br />

the EU merger control. This has meant that some acquisitions of business operations or parts of business operations,<br />

which would not be regarded as concentrations under EU rules, have been caught by the Finnish merger control rules. It<br />

remains to be seen, whether the new Act will bring about a change to this practice.<br />

The proposed guidelines include a somewhat wider definition of “strategic decisions” than is customarily used in assessing<br />

control. This definition in the proposed guidelines encompasses also decisions relating to acquisitions and mergers, which<br />

would not be regarded as the type of decisions conferring control. Such decisions usually relate to the protection of<br />

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minority shareholders. However, the FCA clarifies that the most fundamental decisions, from the control point of view,<br />

relate to the adoption of the business plan and budget.<br />

Furthermore, although not a development as such, it is worth noting that in the preparatory works for the new Competition<br />

Act, it is clearly stated that the right to conduct inspections on business premises in connection with merger control<br />

investigations to ensure that the rules are being complied with. The FCA was interpreted to have this right also under the<br />

previous Act, which allowed the FCA to carry out inspections for the safeguarding of the provisions of the Act. The<br />

preparatory works of the new Act confirm this interpretation, which has been applied few times in practice.<br />

Reform proposals<br />

No other reforms have been proposed.<br />

* * *<br />

Endnotes<br />

1 Source: FCA’s official website (www.kilpailuvirasto.fi).<br />

2 Government bill 243/1997, p.15.<br />

3 Decision 10/14.00.10/2010, Alma Media Oyj, Keskisuomalainen Oyj, Ilkka-Yhtymä Oyj, Pohjois-Karjalan Kirjapaino<br />

Oyj, Keski-Pohjanmaan Kirjapaino Oyj, Länsi-Savo Oy, Alma Markkinapaikat Oy, Arena Interactive Oy.<br />

4 Decision 1102/14.00.10/2009, HKScan Finland Oy / Järvi-Suomen Portti Osuuskunnan Mikkelin liiketoiminta.<br />

5 Decision 1116/14.00.10/2010, Terveystalo Healthcare Oy / ODL Terveys Oy.<br />

6 FCA prohibition proposal to the Market Court, NCC Roads Oy / Destia Oy:n ja Destia Kalusto Oy:n Suomen<br />

asfalttipäällysteliiketoiminta, case number 249/14.00.10/2010.<br />

7 The previous prohibition proposal was Decision 1010/81/99, Sonera Oyj / Yleisradio Oy / Digita Oy, given in the<br />

year 2000. The matter involved joint control over a digital communications company that was a subsidiary of a<br />

major state-owned media corporation.<br />

8 Competition Act 2010 Working group report, appendix 1 “Yrityskauppavalvontaa koskevien säännösten toimivuutta<br />

tarkasteleva asiantuntijaselvitys”, Tomi Laamanen.<br />

9 FCA draft merger control guidelines 14.2.2011, p.46.<br />

10 Decision 52/81/2006, 2.6.2006, Fortum Power and Heat Oy / E.ON Finland Oyj.<br />

11 Judgments on 20 October 2006, case number 2755, and on 27 August 2010, case number 1980. The Supreme<br />

Administrative Court judgment allowing the immediate implementation of the remedies was published as a<br />

yearbook decision (KHO 2006:78).<br />

12 Decision 579/81/2008, 27.11.2008, TV4 AB / C More Group AB.<br />

13 Market Court judgment on 30 October 2009, case number MAO:525/09.<br />

14 Supreme Administrative Court decision Sonera / Loimaan Seudun Puhelin in the merger case 4.7.2002, 1712 224,<br />

227, 246, 247, and 1477/2/02, p. 832.<br />

15 The FCA cases during the past 12 months have included the following cases in connection to the food sector:<br />

356/14.00.10/2011, Polarica Finland Oy / Lapin Liha Oy, 882/14.00.10/2010 Ruokakesko Oy / Euromarket<br />

Järvenpää, Euromarket Forssa, Euromarket Imatra, Euromarket Kaarina, Valintatalo Jäkärlä, 82/14.00.10/2010<br />

Osuuskauppa Arina / Euromarket Linnanmaa, Euromarket Raksila, Euromarket Kemi, 1275/14.00.10/2009,<br />

Keskimaa Osk / Euromarket Jyväskylä, 1226/14.00.10/2009, Pirkanmaan Osuuskauppa / Euromarket Ideapark ja<br />

Euromarket Tampere, 1102/14.00.10/2009, HKScan Finland Oy / Järvi-Suomen Portti osuuskunnan Mikkelin<br />

liiketoiminta, 1102/14.00.10/2009 Osuuskauppa Hämeenmaa Osuuska 1102/14.00.10/2009.<br />

16 Decision 1102/14.00.10/2009, HKScan Finland Oy / Järvi-Suomen Portti Osuuskunnan Mikkelin liiketoiminta and<br />

FCA’s prohibition proposal to the Market Court, NCC Roads Oy / Destia Oy:n ja Destia Kalusto Oy:n Suomen<br />

asfalttipäällysteliiketoiminta, case number 249/14.00.10/2010.<br />

17 FCA’s yearbook 2011.<br />

18 Decision 2/81/2001, 2.2.2001, Suomen Posti Oy / Atkos Printmail Oy.<br />

19 Government proposal 243/97.<br />

20 Agreement on action between the Ministry of Trade and Industry and Finnish Competition Authority for the year<br />

2008, Agreement on action between the Ministry of Employment and the Economy and Finnish Competition<br />

Authority for the year 2009.<br />

21 FCA prohibition proposal to the Market Court, NCC Roads Oy / Destia Oy:n ja Destia Kalusto Oy:n Suomen<br />

asfalttipäällysteliiketoiminta, case number 249/14.00.10/2010, para 142-143.<br />

22 Decision 1021/2000, 8.3.2001, Metsäliitto Osuuskunta/ Vapo Oy.<br />

23 Decision 573/81/2000, 2.1.2001, Carlsberg AS / Orkla ASA:n panimoliiketoiminnat.<br />

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Krogerus Attorneys Ltd Finland<br />

Petteri Metsä-Tokila<br />

Tel: +358 29 000 6249 / Email: petteri.metsa-tokila@krogerus.com<br />

Mr. Metsä-Tokila is ranked by Chambers Europe and described as “dedicated and hardworking lawyer”.<br />

According to the 2011 edition, he “understands business problems”. He has especially strong expertise<br />

in creating and operating different kinds of distribution systems (from vertical, horizontal and dominant<br />

position perspectives) and in complex merger control cases. In addition, he has handled many cases<br />

concerning cooperation between competitors, especially joint ventures, and related structurings of<br />

business operations.<br />

Leena Lindberg<br />

Tel: +358 29 000 6371 / Email: leena.lindberg@krogerus.com<br />

Leena Lindberg joined Krogerus as the co-head of the Competition Law practice group in December<br />

2010. Previously, Ms Lindberg was a Management Group member at the Finnish Competition Authority,<br />

where she was in charge of several major investigations and litigations, including the recent asphalt<br />

cartel case. Ms Lindberg also headed the FCA’s merger control unit for several years. She has also<br />

served as group member and secretary in the working group set by the Ministry of Employment and the<br />

Economy to assess the need to amend the current Act on Competition Restrictions. Ms Lindberg has<br />

worked for a year at the Directorate General for Competition of the European Commission, in addition<br />

to which she has represented Finland in a number of EU competition policy reform projects, including<br />

<strong>Merger</strong> Review and Commission case proceedings.<br />

Krogerus Attorneys Ltd<br />

Unioninkatu 22, 00130 Helsinki, Finland<br />

Tel: +358 29 000 6200 / Fax: +358 29 000 6201 / URL: http://www.krogerus.com/en<br />

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France<br />

Pierre Zelenko & Stanislas de Guigné<br />

Linklaters LLP<br />

Overview of merger control activity during the last 12 months<br />

Following the Law of Modernisation of the Economy dated 4 August 2008 (the “LME”), the French Competition Authority<br />

(the “Autorité”) has been in charge of French merger control since 2 March 2009. It issued useful Guidelines in December<br />

2009 (the “Guidelines”), whose main provisions are in line with the EU Commission’s practice, but also contain some<br />

differences.<br />

Statistics<br />

The summary table below shows relevant indicators of the Autorité’s activity in 2009, 2010 and 2011:<br />

2009<br />

(from 2 March)<br />

The immediate comments raised by this table are that:<br />

• there has been an increasing trend in the number of merger filings assessed by the Autorité that could be explained<br />

partly by a recovery of the economy after the limited activity in 2009, and partly also by an increase in the number<br />

of notifications in the retail sector (in particular by ITM), perhaps because market players now have a better<br />

understanding of the rules and have realised that many seemingly routine transactions in fact required an obligation<br />

to notify a merger filing;<br />

• during the period 2009-2011, conditional clearances represented a constant rate of around 3-4% of all merger<br />

decisions; and<br />

• the EU Commission made four Article 9 (ECMR) referral decisions to France in less than two years (after<br />

SNCF/Keolis 1 in 2009, referrals in 2010 and 2011 were Eurovia/Tarmac 2 , Veolia/Transdev 3 , Univar /Eurochem 4 and<br />

HTM/Saturn 5 ), in other words, almost half of the total of nine Article 9 referrals to all EU Members States during<br />

that period. That statistic could give rise to several interpretations, the one favoured by the Autorité being that it<br />

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2010<br />

2011<br />

(until 25 July)<br />

Number of notifications 115 213 112<br />

(Including number of referrals by<br />

the EU Commission)<br />

1 3 1<br />

Number of decisions 94 198 115<br />

Number of Phase II openings 1 3 2<br />

Number of conditional clearances<br />

(Phase I)<br />

Number of conditional clearances<br />

(Phase II)<br />

Conditional clearance decisions<br />

3 5 4<br />

0 2 0<br />

- Banque Populaire/Caisse<br />

d’Epargne<br />

- SNCF/Novatrans<br />

- LDC/Arrivé<br />

Mr Bricolage/Passerelle<br />

SNCF/CDPQ/Keolis/Effia<br />

TF1/TMC-NT1 (Phase II)<br />

Hoio/Delhaize<br />

Teroes/Quartier Français<br />

Eurovia/Tarmac<br />

Veolia Transport/ Transdev<br />

(Phase II)<br />

- GDF SUEZ/Ne Varietur<br />

- HTM/Saturn<br />

- Rubis/Chevron<br />

- Credit Mutuel/Est Republicain<br />

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proves the EU Commission’s trust in this (rather new) national merger control authority. It can be noted that the<br />

last previous downward referral to France dated back to 2002.<br />

Beyond statistics<br />

There are other notable aspects of the activity of the Autorité in merger control which do not appear in the above table but<br />

are worth mentioning:<br />

• it is understood that there was a (rare) example of article 22 upward referral from France in the case of SC<br />

Johnson/Sara Lee insecticides business (several Member States, including Spain, France, Belgium, the Czech<br />

Republic and Greece asked the EU Commission to review the merger);<br />

• there has been an intense activity in June and July 2011 where the Autorité rendered three conditional clearance<br />

decisions and opened two Phase II proceedings in less than two months;<br />

• so far, the Autorité has opened only six Phase II proceedings. It is remarkable that, in three of those cases, the<br />

parties then decided to withdraw their notification (NMPP/Turinvest in 2009, Univar/Eurochem in 2010, and<br />

Geodis/Tatex in 2011). Therefore, at this stage we have little background to comment on Phase II decisions;<br />

• as a consequence of the lower thresholds set by the LME for retail stores (in short, turnover achieved in France<br />

exceeding €15 million instead of €50 million), around 45% of merger decisions concern the retail sector6 (we will<br />

comment further below on the specific issues raised by the retail sector in France); and<br />

• even lower thresholds were set in July 2010 for those mergers that concern retail stores in overseas territories (in<br />

short, turnover exceeding €7.5 million instead of €15 million). As far as we know, at least one case was notified<br />

because of those very low thresholds7 .<br />

New developments in jurisdictional assessment or procedure<br />

Regarding assessment and procedure, several issues have been clarified during the recent months.<br />

Review of simple cases<br />

<strong>First</strong>, the Autorité has proven its pragmatic approach as regards simplified filing forms/accelerated procedures. It must be<br />

recalled that there is no legal obligation for the Autorité to handle certain cases in less than the standard 25 working days.<br />

However, in its Guidelines and in different public speeches, the Autorité had mentioned that it would endeavour to reach<br />

a decision in a shortened timeframe of 15 working days for those cases that do not raise any specific competition issues.<br />

This reduced timescale was further opened specifically to investment funds (whose transactions rarely have an impact on<br />

competition).<br />

To our knowledge, there has been no public report or update on the practice of simplified forms/short proceedings (it is<br />

mentioned at §171 of the Guidelines that there would be a review after one year, in order to check how the system<br />

performed). But it is our experience that the Autorité has proved flexible when handling simple cases in significantly<br />

reduced timeframes. A survey of the last ten decisions on private equity transactions shows that 5 transactions were cleared<br />

in less than 15 working days, and only one took more than 20 working days. However, the timing of a review of such<br />

transactions also depends on the contemporary workload of the Autorité.<br />

De facto control issues<br />

Second, the Autorité has over the last few months adopted significant decisions on complex situations of de facto control.<br />

To mention only three examples:<br />

• the Autorité assessed a rare instance of a de facto merger (defined by the European Commission’s Consolidated<br />

Jurisdictional Notice as a situation where “undertakings, while retaining their individual legal personalities,<br />

establish contractually a common economic management” 8 ). Three insurance companies, MACIF, MAIF and<br />

MATMUT, had decided to pool some of their activities in a new entity. The Autorité undertook a detailed and<br />

careful analysis of the different contractual and financial agreements involved, as well as of the existing links<br />

between these companies. The Autorité reached the conclusion that, in fact, their business strategies were so<br />

intertwined in so many different markets that the “pooling of their activities” was de facto tantamount to their<br />

amalgamation into a single economic unit9 . The press release of the Autorité is unusually apologetic on the timing<br />

of the decision, as it seems that the “notification date” (when the case is regarded as complete) occurred at a rather<br />

late stage of the parties’ discussions with the Autorité10 ;<br />

• in the GDF SUEZ/Ne Varietur case11 , the Autorité assessed an original scenario where the pre-merger situation was<br />

a de jure joint control of GDF SUEZ and Merle over Ne Varietur, but a de facto sole control of Merle because, due<br />

to disputes between shareholders, GDF SUEZ’s board representatives had not attended meetings for several years;<br />

and<br />

• the Mr Bricolage/Passerelle case12 led to a detailed assessment of the impact of franchise agreements on control in<br />

merger control law. Indeed, the acquisition of control by Mr Bricolage over Passerelle (two DIY brands with a<br />

strong network of stores in France) had to be assessed by the Autorité, taking into consideration Mr Bricolage’s<br />

extensive network of franchisees. The Autorité detailed the contractual arrangements and analysed three different<br />

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types of franchisees, each of them leading to a specific legal approach, depending on the level of commercial<br />

autonomy of the franchisee concerned. The franchisees that were regarded as truly independent commercially from<br />

their franchisor company were not taken into account for the determination of the market power held by Mr<br />

Bricolage.<br />

Beyond the Mr Bricolage/Passerelle case, the current focus of the Autorité on the retail sector in France has led to useful<br />

- but sometimes debatable - developments on possible situations of de facto control (that will be further developed below).<br />

Other notable developments<br />

Four additional points are worth noting:<br />

• the Autorité incidentally mentioned that it was currently investigating three cases of infringement of the suspensive<br />

effect of merger control (gun-jumping). Although there is, at this stage, not much information on the seriousness<br />

of those cases, practitioners are waiting to see how severe the Autorité will be in those cases;<br />

• the issue of warehousing, addressed by the EU General Court in a recent Odile Jacob ruling13 , is also mentioned in<br />

the Guidelines14 , with a direct reference by the Autorité to article 3, paragraph 5 of Regulation n°139/2004 and to<br />

the approach adopted by the EU Commission. There is also a specific provision about warehousing in the retail<br />

sector15 according to which when the identity of the ultimate purchaser is unknown and when there are no clear and<br />

binding agreements for the resale, the Autorité takes a more cautious view with respect to intermediate transactions.<br />

This was illustrated by an operation that was presented by the parties as provisional but was assessed by the Autorité<br />

as a concentration in its own right16 ;<br />

• in several 2010 decisions17 , the Autorité also assessed whether links between separate transactions were close<br />

enough to entail “inter-conditionality” between them (either de facto or de jure) and to lead to a single merger<br />

assessment. It is however not necessary to enter into a detailed analysis of these cases since they do not lead to<br />

different positions from that of the European Commission (the same importance is attached to cross-conditionality<br />

and to final acquisition by one and the same party); and<br />

• finally, while the recent period could have provided a good opportunity to apply the failing firm criteria to certain<br />

acquisitions concerning targets undergoing financial difficulties, the strict and cumulative criteria have proved<br />

difficult to meet and, while presumably taking the situation of the target into account, the Autorité has applied a<br />

classic merger control analysis to acquisition of companies under liquidation or redressement judiciaire18 .<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The retail sector<br />

Clearly, the sector that has taken the lion’s share of the Autorité’s resources over the past two years - in merger control as<br />

well as in general antitrust law - is retail distribution, more particularly retail food distribution.<br />

As mentioned above, the introduction by the LME of specific lower thresholds for merger control in the retail distribution<br />

led to scores of merger decisions in that sector, which accounted in 2010 for more than one-third of the overall number of<br />

decisions. One single group, ITM (retail brand “Intermarché”) has been involved in for more than 25 merger decisions.<br />

Most of those merger cases in retail distribution were cleared within short timeframes, which meant that the Autorité’s<br />

resources were not engulfed by this administrative burden.<br />

This being said, in certain of these decisions, the Autorité addressed challenging issues of jurisdiction and had to solve<br />

some relatively significant competition issues.<br />

With respect to jurisdictional aspects, the Autorité had to assess a wide variety of contractual arrangements through which<br />

“independent” retailers belong to a wider retail group. The principle remains that a distribution contract (or franchise agreement)<br />

normally does not entail in itself any “decisive influence”. However, given the business model of several large retail groups<br />

in France (Leclerc, ITM etc.) who amalgamate independent local stores, the Autorité took great care to make a “case by case”<br />

factual assessment of the commercial/financial links. On some occasions, the Autorité reached the conclusion that this network<br />

of contractual and commercial links conferred on the group company a decisive influence on the “independent” retail stores.<br />

Moreover, the Autorité has made it clear that the issue of control was distinct from the issue of market power. In some<br />

cases, the sales of independent stores (not controlled by the retail distribution group but operating under its store name)<br />

might well be aggregated with the sales of the stores controlled by the retail group in order to estimate the market power<br />

of that retail group in a given local trade area.<br />

With respect to competition issues, it can be noted that three of the remedy decisions rendered by the Autorité in 2010 and<br />

2011 concerned retail distribution:<br />

• in the Mr Bricolage/Passerelle19 case, the merger would have led to overlaps of over 50% in DIY in eight local trade<br />

areas. Mr Bricolage committed to divest one of its stores and, in the seven other areas, not to renew the contracts<br />

signed with certain of its independent network members. It is interesting to note that Mr Bricolage (and one of its<br />

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franchisees) appealed the clearance decision before the Conseil d’Etat which confirmed the Autorité’s decision in<br />

December 2010. This is a rare example of a party to a merger challenging its own clearance decision (even though<br />

it was conditional). Not surprisingly however, the Conseil d’Etat rejected this appeal;<br />

• in the Hoio/Delhaize20 case, the merger would have led to the strengthening of a dominant position in one local trade<br />

area of the French overseas département of Martinique. Hoio had to commit to divest the Ecomax store (accounting<br />

for a local market share of 19%) that it was acquiring in that area; and<br />

• in the HTM/Saturn21 case, concerning the distribution of household appliances and consumer electronics (under the<br />

trade brands Boulanger and Saturn), the Autorité noted that the transaction would lead to a substantial increase in<br />

market presence of HTM in seven local trade areas. In order to address the Autorité’s concerns, HTM committed<br />

to divest five Saturn stores and one Boulanger store. In the seventh area, HTM committed to give up a planned<br />

opening of a new Saturn store (a rare example of a commitment to give up a planned development project).<br />

The public transport sector<br />

Another sector has experienced particularly interesting decisions this year: the public transport of passengers. Two of the<br />

seven commitment decisions of 2010 concerned that sector (SNCF/CDPQ/Keolis/Effia in January 2010 and Veolia<br />

Transport/Transdev in December 2010) 22 . A few months earlier, the Autorité had set out “the conditions for a successful<br />

introduction of competition in the passenger rail transport sector” (in a formal opinion of November 2009). The opinion<br />

of November 2009 on “intermodal” transport constituted the background against which the SNCF/CDPQ/Keolis/Effia<br />

and Veolia Transport/Transdev cases were reviewed. Both led to remedy decisions, following Phase II proceedings with<br />

respect to the Veolia Transport/Transdev decision (these remedies are detailed further below).<br />

Regulated sectors<br />

Beyond retail distribution and transport, energy and telecoms remain traditional sectors closely monitored by the Autorité,<br />

as by many other competition authorities across Europe. However, apart from the GDF SUEZ/Ne Varietur case in the<br />

energy sector (which is further developed below), this year has not seen any particularly significant decisions.<br />

Key economic appraisal techniques applied<br />

In terms of economic appraisal, it must first be stressed that the Guidelines not only refer frequently to economic theory,<br />

but also include a specific annex offering practical recommendations for the submission of economic studies. This signals<br />

the firm resolution of the Autorité to use detailed economic analysis when handling complex merger cases.<br />

This coincided with the setting up of a team of economists, now including 7 economists and headed by a chief economist,<br />

which is involved whenever a merger raises complex competition issues.<br />

The first Phase II case handled by the Autorité (TF1/TMC-NT123 ) was one of the cases that required the most thorough<br />

economic assessment because of the mutual influences of the markets for broadcasting rights and advertising on TV and<br />

on the supposed ability to build on the market share of a strong channel (namely TF1) to develop two smaller generalist<br />

channels (TMC and NT1). The assessment involved the analysis of several scenarios for different segments of TV<br />

advertising (unilateral effects) as well as of possible conglomerate effects. The transaction was cleared through a detailed<br />

set of behavioural remedies further detailed below.<br />

As regards economic appraisal of concentrations, it is also noteworthy that, in the two latest conditional decisions to date<br />

(Rubis/Chevron24 and Crédit Mutuel/Est Républicain25 ), the theory of harm relied almost exclusively on non-price effects:<br />

• in the Rubis/Chevron case (petrol stations in the overseas départements of Guadeloupe and French Guiana), the<br />

Autorité had concerns that the merger would result in a lower quality of services (Rubis committed to divestiture<br />

commitments); and<br />

• in the second case (regional press in eastern France), the Autorité feared horizontal effects which would have led to<br />

a reduction in the quality and diversity of the regional press. The parties took behavioural commitments not to<br />

harmonise the content of the press titles.<br />

One interesting point to monitor in the coming months is whether the Autorité will consider using the new “GUPPI” test<br />

for carrying out the economic analysis in future cases, particularly in the retail sector.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation.<br />

There have been few Phase II proceedings handled by the Autorité: only six decisions to open a Phase II since March<br />

2009; and only two Phase II clearance decisions so far (TF1/TMC-NT1 and Veolia Transport/Transdev respectively in<br />

January and December 2010). One case (in which the Phase II was opened only in July 2011) is still ongoing.<br />

Half the Phase II proceedings opened by the Autorité could not lead to a final decision because the parties decided to<br />

withdraw their notification (NMPP in 2009 that had contemplated the purchase of Turinvest; Univar in 2010 that had<br />

contemplated the acquisition of French assets of Eurochem; and Geodis in 2011 that had contemplated the acquisition of<br />

Tatex). Although little public information is available, it is likely that the impact of an in-depth examination (longer<br />

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timeline for clearance, and higher likelihood of significant commitments) was critical in the decision of those companies<br />

to withdraw the notification and to call off the contemplated deal (or at least its French aspects).<br />

Two Phase II decisions only are not really sufficient to elaborate on the distinction between remedies following a Phase I<br />

and remedies following a Phase II.<br />

Behavioural remedies<br />

However, following either Phase I or Phase II proceedings, one of the most distinctive features of the Autorité when it<br />

comes to merger remedies is its willingness to assess and accept behavioural commitments (whereas the European<br />

Commission gives a clear and almost systematic preference to divestiture commitments).<br />

As mentioned above, the Autorité had to assess a large merger in the TV sector, namely the acquisition by TF1 of TMC<br />

and NT1, which would have strengthened the TF1 group’s position in the markets for broadcasting rights and advertising<br />

(around 40-50%) 26 .<br />

According to its press release, “the Autorité nevertheless found that with nearly 50% market shares, the TF1 group was<br />

keeping a dominant position in this market that could only be strengthened by this acquisition, given the seemingly<br />

considerable growth potential of TMC and NT1 and despite their currently very low market shares (less than 2% in all)” 27 .<br />

The remedies offered by TF1 were essentially behavioural and span over a period of 5 years (with apparently flexible<br />

review clauses). In short, TF1 undertook to facilitate the circulation of broadcasting rights for the benefit of competing<br />

channels, to renounce any kind of cross-promotion on TF1 of the programmes shown on the acquired channels (TMC and<br />

NT1), and to handle separately the advertising business of TF1 on the one hand, and of TMC and NT1 on the other.<br />

Innovative remedies<br />

In addition to behavioural remedies, the Autorité has proved that it can be open to innovative commitments.<br />

In this regard, the single commitment that was most widely commented in the recent months is certainly the creation of a<br />

“competition stimulation fund”, proposed by Veolia Transport and Transdev in order to remedy the Autorité’s concerns<br />

that their merger could reduce the incentive for the smaller competitors to participate in public tenders.<br />

This Veolia/Transdev28 case involved the merger of two of the three national leaders in urban and intercity passenger<br />

transport. The Autorité identified competition concerns on five local markets for intercity transport, and on the national<br />

market for urban transport. The concerns on local markets were addressed mostly by “standard” divestitures, but it proved<br />

more difficult for the Autorité to deal with the national market for urban transport, because this market is organised through<br />

public tenders launched by local public entities, which own the assets concerned (vehicles, garages etc.). Therefore, the<br />

Autorité could not directly strengthen competitors through divestitures, but it had to ensure that future public tenders<br />

would see credible competitors facing the merged entity.<br />

The Autorité accepted the parties’ innovative and unprecedented remedy to finance a competition stimulation fund (for<br />

the amount of €6.54 million) designed to allow the relevant public authorities to finance two types of measures:<br />

• compensating all or part of the response expenses for unselected candidates following calls for tenders, thereby<br />

encouraging more competitors to take part in them; and<br />

• the use by local and regional administrations, notably small ones, of project management assistance services in<br />

order to help them improve their knowledge of the networks and obtain the best prices in the framework of the<br />

tenders that they organise.<br />

Another example of innovative and unprecedented remedies accepted by the Autorité is provided by the GDF SUEZ/Ne<br />

Varietur case29 (following Phase I proceedings). The Autorité considered that the acquisition of sole control by GDF SUEZ<br />

of one of its few competitors in the market for delegated management of district heating networks would have a significant<br />

impact on competition. The Autorité’s concerns focused on three local areas, which were already highly concentrated and<br />

where the additions of market shares were significant. The decision was conditional upon behavioural remedies offered<br />

by GDF SUEZ (i) to allow certain local authorities in these areas to unilaterally terminate their delegation contracts with<br />

Ne Varietur, and (ii) to allow one competitor in the market to unilaterally terminate one of its subcontracts. Therefore the<br />

Autorité preferred a free choice by the customers (in that case local authorities) to imposing divestiture remedies.<br />

It remains to be seen how such innovative remedies could work in other cases, and what further innovative remedies the<br />

Autorité’s merger practice will endorse in the coming years. What remains certain, however, is that in France, as before<br />

many other competition authorities, a well prepared and explained set of remedies proposed in Phase I is the best way to<br />

avoid Phase II proceedings for those cases that raise competition issues.<br />

Key policy developments<br />

Role held by the Minister for the Economy<br />

As mentioned above, pursuant to the LME, the Autorité has now replaced the DGCCRF (a directorate reporting to the<br />

Minister for the Economy) in terms of jurisdiction over merger control cases.<br />

It would however be incorrect to state that, after the LME, the Minister for the Economy has lost all prerogatives in merger<br />

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control. While entrusting the Autorité with the main role with respect to merger control, the French legislation has set<br />

two important possibilities of intervention. <strong>First</strong>ly, following a Phase I clearance, the Minister for the Economy can ask<br />

the Autorité to reconsider the need to carry out an extensive examination (Phase II). Secondly, at the end of a Phase II,<br />

the Minister for the Economy can decide to overrule the Autorité’s decision on the grounds of public interest considerations.<br />

As far as we know, there has been no such official intervention of the Minister for the Economy in a merger control case.<br />

That possible interference from the Minister for the Economy in merger control is one of the significant areas of uncertainty<br />

for French practitioners when they are faced with a complex case, all the more since there are no precedents and little<br />

guidance in this respect.<br />

Another area of policy development that is worth mentioning is the focus on competition in French overseas territories,<br />

mainly the five Départements d’Outre-Mer (the “DOM”). We have already mentioned the lowered thresholds concerning<br />

these geographic areas. This has led mechanically to a number of notifications which enabled the Autorité to assess the<br />

level of competition in the DOM. And indeed, out of the seven commitment decisions taken by the Autorité in 2010, two<br />

concerned DOM exclusively: (i) the above mentioned Hoio/Delhaize case in Martinique; and (ii) the acquisition by Tereos<br />

of Groupe Quartier Français30 in May 2010 which raised concerns on the market for wholesale distribution of sugar in the<br />

overseas département of La Réunion. Tereos committed to divest local assets and to sign a 20-year supply contract to<br />

enable a third party to develop a competing business.<br />

The June 2011 Rubis/Chevron case (already mentioned above) provides a third example of a conditional clearance<br />

exclusively addressing competition issues in French DOMs (Guadeloupe and French Guiana).<br />

But, even more interestingly, in one of the first significantly developed decisions taken by the Autorité, the Banques<br />

Populaires/Caisses d’Epargne case in 200931 , clearance was granted on the basis of only one remedy concerning the<br />

overseas département of La Réunion (the new group committed to maintain the legal independence and management<br />

autonomy of three local branches for a period of five years). This speaks volumes about the particular interest of the<br />

Autorité for competition in the DOM since this case related to a merger between two nationwide banks which, contrary<br />

to the three previous cases, led to overlaps in several other geographic areas across France besides La Réunion.<br />

New merger control Guidelines of the Autorité<br />

To clarify its new approach to merger control, the Autorité has issued new Guidelines, building upon the former Guidelines<br />

issued by the DGCCRF but adding several further provisions.<br />

It would be too long to describe all those provisions. One good example of clarification which it is interesting to stress is<br />

the assessment of ancillary restrictions.<br />

The Autorité is now encouraging merging parties to signal “those restrictions whose compatibility with competition law seems<br />

doubtful, either because of their form, their scope, their combination with other restrictions, or the general competitive<br />

landscape” 32 . While the European Commission no longer reviews or clears such ancillary restrictions, the Autorité provides<br />

more legal certainty in this respect. This is particularly interesting for the merging parties because (i) the status of these ancillary<br />

restraints was less clear at the time when the DGCCRF had jurisdiction for merger control cases, and (ii) legal certainty following<br />

the review of such clauses is high since the same Autorité is also in charge of anticompetitive practices. One example of such<br />

a review is provided by the Berto/Lovefrance case33 in which the Autorité considered that a non-compete clause of 10 years<br />

could only be regarded as directly related and necessary to the transaction for a duration of 3 years.<br />

Other interesting new developments in the Guidelines include the introduction of a simplified form and the review process<br />

of simple cases, useful explanations on the application of the new and specific lower thresholds and procedural<br />

methodology relating to the submission by the parties of economic analyses.<br />

Reform proposals<br />

<strong>Merger</strong> control prerogatives have only recently been entrusted to the Autorité (a little over two years ago) and the reforms<br />

set by the LME are still at an early stage of implementation. Therefore, this is not really a time for further reforms in<br />

French merger control.<br />

However, further developments and clarifications could take place in two areas:<br />

• Will the role played by the Minister for the Economy (as developed above) remain limited and devoted to<br />

exceptional cases?<br />

• With respect to the monitoring of remedies offered in conditional clearance decisions, the Autorité has shown a<br />

strong determination to ensure that commitments are effectively implemented, even several years after the clearance<br />

decision. A new section in its annual report tracks the merger cases where remedies were supposed to be<br />

implemented and there are apparently two (pending) procedures handled by the Autorité for failure to implement<br />

the remedies properly.<br />

* * *<br />

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1<br />

Endnotes<br />

Decision 10-DCC-02 of the French Competition Authority of 12 January 2010.<br />

2 Decision 10-DCC-98 of the French Competition Authority of 20 August 2010.<br />

3 Decision 10-DCC-98 of the French Competition Authority of 30 December 2010.<br />

4 Decision C289 of the European Commission of 26 October 2010.<br />

5 Decision 11-DCC-87 of the French Competition Authority of 10 June 2011.<br />

6 Including trade/repair of motor vehicles.<br />

7 Decision 10-DCC-197 of the French Competition Authority of 30 December 2010, Hoio/Delhaize.<br />

8 See paragraph 10 of the Commission’s Consolidated Jurisdictional Notice of 16 April 2008.<br />

9 Decision 10-DCC-52 of 4 June 2010.<br />

10 http://www.autoritedelaconcurrence.fr/user/standard.php?id_rub=368&id_article=1411.<br />

11 Decision 11-DCC-34 of the French Competition Authority of 25 February 2011.<br />

12 Decision 10-DCC-01 of the French Competition Authority of 12 January 2010.<br />

13 European Commission press release No 84/10 of 13 September 2010.<br />

14 See paragraph 64 of the Guidelines.<br />

15 See paragraph 591 of the Guidelines.<br />

16 Decision 11-DCC-02 of the French Competition Authority of 17 January 2011, ITM Alimentaire/Leman.<br />

17 See Decisions 10-DCC-79, 10-DCC-81, 10-DCC-83, 10-DCC-197, 10-DCC-119 and 10-DCC-132.<br />

18 See Decisions 10-DCC-90, Caravelle/Girard and 10-DCCC-42 3 Suisses International/Quelle-La Source.<br />

19 Decision 10-DCC-01 of the French Competition Authority of 12 January 2010.<br />

20 Decision 10-DCC-25 of the French Competition Authority of 19 March 2010.<br />

21 Decision 11-DCC-87 of the French Competition Authority of 10 June 2011.<br />

22 The Autorité had already required commitments in the SNCF/Novatrans case in the same sector in 2009. See<br />

Decision 09-DCC-54 of the French Competition Authority of 16 October 2009.<br />

23 Decision 10-DCC-11 of the French Competition Authority of 26 January 2010.<br />

24 Decision 11-DCC-102 of the French Competition Authority of 30 June 2011.<br />

25 Decision 11-DCC-114 of the French Competition Authority of 12 July 2011.<br />

26 Also in the TV sector, one of the landmark decisions of the DGCCRF was its 2006 clearance of the acquisition by<br />

Vivendi/Canal Sat of TPS, which led to a quasi-monopoly in several pay TV markets, but was conditional only on<br />

behavioural commitments (although there were no less than 59 different commitments).<br />

27 http://www.autoritedelaconcurrence.fr/user/standard.php?id_rub=368&id_article=1338.<br />

28 Decision 10-DCC-198 of the French Competition Authority of 30 December 2010.<br />

29 Decision 11-DCC-34 of the French Competition Authority of 25 February 2011.<br />

30 Decision 10-DCC-51 of the French Competition Authority of 28 May 2010<br />

31 Decision 09-DCC-16 of 22 June 2009.<br />

32 Autorité’s <strong>Merger</strong> Control Guidelines, paragraph 486.<br />

33 Decision 09-DCC-74 of 14 December 2009.<br />

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Linklaters LLP France<br />

Pierre Zelenko<br />

Tel: +33 1 5643 57 04 / Email: pierre.zelenko@linklaters.com<br />

Pierre Zelenko is a partner in the Competition/Antitrust practice of Linklaters in Paris, specialising in<br />

EU and French competition law (merger control, cartels, horizontal cooperation, vertical restraints, abuses<br />

of dominant position, litigation before the European and French Competition Authorities). Pierre<br />

graduated from the École Nationale d’Administration (ENA), the École Supérieure de Commerce de<br />

Paris (ESCP), the Institut d’Études Politiques de Paris (Sciences Po) and earned a PhD in philosophy of<br />

law at the Paris Sorbonne University and a PhD in economics at the École des Hautes Études en Sciences<br />

Sociales (EHESS).<br />

Transactions in which Pierre has been involved include the acquisition of International Power by GDF<br />

SUEZ, the acquisition of joint control by la Caisse des dépôts et consignations over La Poste, the<br />

acquisition of Ne Varietur by GDF SUEZ, the acquisition by Lyonnaise des Eaux of water distribution<br />

companies, the creation of the Atmea joint venture between Areva and Mitsubishi in the nuclear reactor<br />

sector, and the merger between Suez and Gaz de France.<br />

Stanislas de Guigné<br />

Tel: +33 1 5643 57 40 / Email: stanislas.de_guigne@linklaters.com<br />

Stanislas de Guigné is an Associate in the Competition/Antitrust Law Department of Linklaters Paris.<br />

Stanislas is a graduate from HEC business school (2003) and Paris I Sorbonne. His main fields of<br />

practice include antitrust law and European and French merger control.<br />

Transactions in which Stanislas has been involved include the acquisition of International Power by<br />

GDF SUEZ, the merger between Suez and Gaz de France and the acquisition of Quelle by 3 Suisses<br />

International.<br />

Linklaters LLP<br />

25 rue de Marignan, 75008 Paris, France<br />

Tel: +33 1 5643 56 43 / Fax: +33 1 4359 41 96 / URL: http://www.linklaters.com<br />

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Germany<br />

Marc Besen & Dimitri Slobodenjuk<br />

Clifford Chance<br />

Overview of merger control activity during the last 12 months<br />

In July 2011, the German Federal Cartel Office (“FCO”) published its biannual activity report for 2009/2010. i In 2010 a<br />

total of 987 transactions were notified to the FCO, of which 62 transactions were not considered to be subject to merger<br />

control under sections 35 et seq. of the German Act against Restraints of Competition (“ARC”). The number of transactions<br />

cleared in Phase I, i.e. within one month after the notification is deemed to be complete by the FCO, amounted to 879.<br />

Only 15 transactions were examined by the FCO in Phase II proceedings, i.e. within four months upon the receipt of a<br />

complete notification, of which six transactions were cleared without any conditions, three were conditionally cleared and<br />

only one was prohibited. In the remaining five Phase II cases, the parties withdrew their notifications.<br />

Whereas in comparison to 2009 with an overall number of 998 notified transactions the number of notifications remained<br />

on more or less the same level, the amount of notifications reduced by approx. 40% in comparison to 2008 when an overall<br />

number of 1,675 notifications were made and even by approx. 55% in comparison to 2007 with an overall number of<br />

2,242 notified transactions. It can be assumed that, apart from the economic crisis in 2009, this development is certainly<br />

a result of a second domestic threshold of EUR 5 million, which was introduced in March 2009. Since then, a concentration<br />

in the sense of section 37 ARC has to be notified to the FCO if:<br />

• the relevant parties in the last completed financial year preceding the transaction achieved a combined aggregate<br />

worldwide turnover of more than EUR 500 million; and<br />

• at least one party had a turnover of more than EUR 25 million in Germany; and<br />

• the domestic turnover in Germany of another party exceeded EUR 5 million. ii<br />

The ARC also provides for two exemptions from the filing requirement, which apply under the following conditions:<br />

• one party to the merger had a worldwide turnover of less than EUR 10 million in the last completed business year<br />

preceding the transaction; or<br />

• on the relevant market, which must have existed for at least five years, the total turnover achieved by all market<br />

participants in Germany amounted to less than EUR 15 million (so-called de minimis market).<br />

However, with regard to the de minimis market exemption, it should be noted that the FCO under certain conditions may<br />

also bundle neighbouring markets in order to determine the overall size of the relevant market in the sense of the ARC.<br />

Hence, the second exemption is only applicable for a rather negligible number of mergers.<br />

New developments in jurisdictional assessment or procedure<br />

In its activity report 2009/2010 the FCO clarified a number of controversial legal issues.<br />

With regard to joint ventures, the introduction of the second domestic turnover threshold leads to the question of whether<br />

the turnover of the joint venture has to be fully allocated to both the joint venture itself and the parent companies. The<br />

FCO stated that such a double turnover allocation would not be appropriate and would not reflect the factual economic<br />

importance of the transaction.<br />

In relation to the turnover allocation in the banking sector, the FCO now clarified that, in accordance with Art. 5 para 3 of<br />

the EC <strong>Merger</strong> Regulation (“ECMR”), the turnover of a credit or a financial institution should be allocated to the branch<br />

or division of that institution and not to the location of the customer.<br />

Concerning the outsourcing merger notifications, the FCO abandoned its administrative policy established in the activity<br />

report 1995/1996 according to which outsourcing asset mergers did not have to be notified to the FCO if the relevant<br />

turnover achieved by the assets amounted to less than EUR 5 million in the last completed financial year preceding the<br />

transaction. iii Due to the significantly increasing volume of such mergers in the last 15 years and the adoption of the<br />

second domestic turnover threshold of EUR 5 million the FCO is now of the view that the exemption has to be revoked.<br />

In future, such asset outsourcing transactions will be judged under general merger control rules.<br />

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Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

In 2010 and 2011, FCO’s scrutiny inter alia focused on merger control notifications in the food retail sector. In some<br />

merger cases over the past couple of years, the FCO was of the view that the major German food retail chains hold a very<br />

strong position vis-à-vis their suppliers in the respective procurement markets. In its merger decision with regard to the<br />

acquisition of the beverage supplier, Trinkgut, by one of the largest food retails chains, EDEKA, in October 2010, the<br />

FCO considered that EDEKA, REWE and the Schwarz Group (the latter including Kaufland and Lidl) could constitute a<br />

potential oligopoly in relation to beverage suppliers (according to the FCO’s findings, the fourth largest German retail<br />

chain in the food sector, Aldi, held only a minor market share in the relevant beverage procurement market). Due to the<br />

significant competition concerns, the FCO finally cleared the merger after an in-depth analysis in Phase II subject to<br />

conditions to be fulfilled by the parties prior to implementing the merger. iv In the merger case between EDEKA and<br />

another food retail chain, RATIO, in 2010, the parties even had to withdraw their initial merger notification after the FCO<br />

indicated that the notified merger would lead to significant competition concerns. v Therefore, the parties had to exclude<br />

problematic regional markets from the transaction scope and notified the transaction again which was then cleared by the<br />

FCO without any conditions already in Phase I.<br />

In addition to the very close analysis of the respective merger notification, the FCO has also launched a sector inquiry<br />

into the food retail sector in February 2011. The FCO’s sector inquiry focuses on the competitive conditions in the markets<br />

for the procurement of food and luxury food products by food retailers. The FCO is of the view that the increasing<br />

consolidation in the food retail sector leads to a high level of concentration in favour of the leading trading companies not<br />

only in the sales markets, but also in the procurement markets. The four leading retail companies, EDEKA, REWE, the<br />

Schwarz Group and Aldi, control approx. 85% of the total sales market in Germany. The FCO intends to use the<br />

investigation to support its previous analyses of the procurement markets in the food retail sector. The scope of the sector<br />

inquiry will be narrowed to specific individual questions, such as the examination of positions held by the individual retail<br />

companies in the procurement of goods on the basis of selected product groups. The FCO aims at determining whether<br />

and to what extent the leading food retailers enjoy purchasing advantages over their competitors. In addition, the FCO<br />

will also analyse the effects of such advantages on competition in the sales markets. vi<br />

Apart from the food retail sector, the FCO continued to follow its rather strict approach with regard to mergers in the TV<br />

broadcasting sector. In 2011, the FCO prohibited a proposed joint venture between Germany’s largest private broadcasters<br />

RTL and ProSiebenSat.1 to create an internet platform for catch-up television on demand. The purpose of the joint venture<br />

was to create a central online platform on which consumers could watch television programmes aired in Germany and<br />

Austria up to seven days after their initial broadcast on television. vii Initially, the parties notified the joint venture to the<br />

European Commission. However, the Commission referred the case to the FCO and the Austrian competition authority<br />

upon the respective requests. The FCO was of the view that the joint platform would have further strengthened the existing<br />

dominant duopoly between the two broadcasting groups on the market for TV advertising. Therefore, the FCO requested<br />

RTL and ProSiebenSat.1 to open the platform to third parties and broadcasters and to lift the restrictions on the time of<br />

availability and quality of content. However, RTL and ProSiebenSat1 refused to accept such changes to the original<br />

concept of the joint venture which lead to the prohibition of the transaction.<br />

With regard to the fuel sector, the FCO published the results of its respective sector inquiry on 26 May 2011. viii The sector<br />

inquiry was launched in May 2008 following antitrust concerns about high price levels at German petrol stations. In the<br />

course of the inquiry, the FCO representatively collected and evaluated data on all price changes from 1 January 2007 to<br />

30 June 2010 at more than 400 petrol stations in Hamburg, Cologne, Leipzig and Munich. In its final report the FCO<br />

stated that the five largest petrol station operators in Germany, Aral, Jet, Esso, Shell and Total, form an oligopoly on the<br />

relevant market in Germany accounting for approx. 65% of fuel sales. According to the FCO’s findings, the transparency<br />

of the fuel market and, in particular, the use of monitoring systems, enabled the oligopoly members to quickly react to any<br />

price changes initiated by other market players. Additionally, the FCO considered that the oligopoly members followed<br />

certain price-setting patterns enabling them to set the fuel prices more or less uniformly. Finally, the inquiry also revealed<br />

numerous links between the oil companies making it difficult for members to break away from the oligopoly. However,<br />

as a conclusion, the FCO found that there are no anti-competitive agreements between the oligopoly members due to the<br />

particular market structure which as such leads to higher prices without necessarily requiring anti-competitive agreements<br />

between the oligopoly members. In this respect, it should be additionally noted that in one of its recent rulings relating to<br />

the fuel sector, the Higher Regional Court in Düsseldorf did not support the FCO’s conclusions with regard to the<br />

oligopolistic structure of the market and overruled the FCO’s prohibition decision with regard to the acquisition of 59 gas<br />

stations by Total from OMV in Eastern Germany.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

FCO’s approach to remedies generally depends on the stage of the merger investigation. As mentioned above, in Phase I<br />

the FCO has one month to examine a notified transaction after the FCO deems the notification to be complete. If a Phase<br />

II investigation is conducted, the waiting period is four months from receipt of a complete notification and may additionally<br />

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Clifford Chance Germany<br />

be extended with the consent of all notifying parties. A notified merger is deemed to be cleared if the FCO fails to issue<br />

a decision within the period set for Phase I and/or Phase II. In general, the ARC does not provide for any tools to “freeze”<br />

the clock. However, the parties can generally reset the clock by withdrawing and re-filing the notification.<br />

When examining a notified merger the FCO can approve the transaction, prohibit it or clear it subject to conditions and<br />

obligations. Before prohibiting a merger or imposing clearance conditions or obligations, the FCO is obliged to inform<br />

the parties about the reasons for its decision in order to give them the opportunity to argue against the FCO’s statement of<br />

objections and/or to offer remedies. The latter is, however, only possible in Phase II proceedings. In Phase I there is,<br />

however, the possibility to discuss with the FCO under which circumstances (i.e. changes to a transaction) it would grant<br />

a clearance letter within the initial one-month period. If a “remedy” was found, the parties could withdraw the filing and<br />

file the transaction again, however, in the new/agreed form.<br />

Under the current ARC, the FCO expects to be offered only structural remedies, e.g. the sale of a particular business or<br />

shareholding, rather than behavioural remedies, e.g. third parties’ supply obligations. With regard to the time frame, there is<br />

no particular legal deadline to offer the remedies. However, if the parties offer the remedies at a rather late stage of the<br />

investigation process, the FCO may require an extension of its review period. Generally, if a structural remedy has been<br />

accepted by a competition authority in another jurisdiction, the FCO will tend to consider such remedies. However, the FCO<br />

will probably not waive its request for a formal remedy offer. In addition, it should be noted that the remedies offered might<br />

be tested by the FCO with other market participants or third parties that have been admitted to the examination proceedings.<br />

From a procedural point of view, the FCO mostly used subsequent orders to enforce the remedies offered, i.e. the parties<br />

could first complete the transaction and then comply with the conditions agreed upon with the FCO. If the parties failed<br />

to fulfil the conditions in the agreed time frame, the clearance decision automatically turned into a prohibition of the<br />

merger. However, it now seems that the FCO has changed its administrative practice in this respect. In a number of recent<br />

cases, commitments were included by way of a condition precedent meaning that the parties could not close the envisaged<br />

merger prior to fulfilling the obligation. This approach leads to a number of problems for the parties, e.g. voidness of<br />

contracts, in particular if the parties cannot complete the notified merger for a relatively long time. Apart from the voidness<br />

of the agreements the parties may also face significant fines if they infringe the completion prohibition. In two cases in<br />

2008ix and 2009x the FCO imposed fines of approx. EUR 4 million each. In 2011xi two other decisions were issued in<br />

which the FCO sanctioned the violation of the completion prohibition. For the sake of completeness, it should be noted<br />

that the ARC contains in section 41 para 2 ARC a provision according to which the FCO may – at least in theory – grant<br />

exemptions from the prohibition of putting a concentration into effect if the undertakings concerned put forward important<br />

reasons, in particular to prevent serious damage to a participating party. However, the chances that the FCO will grant<br />

such an exemption are in general relatively low.<br />

Key policy developments<br />

On 21 July 2011, the FCO published “Draft Guidance on Substantive <strong>Merger</strong> Control” which is the first substantial overhaul<br />

to the application of merger rules for more than a decade. xii The draft is subject to a public consultation procedure and is<br />

expected to be published in its final version in autumn 2011.<br />

In contrast to the previous guidance document on the “Principles of Interpretation of Market Dominance”, the new draft<br />

places greater emphasis on the necessary appraisal of all relevant conditions in the market and examines how the merger<br />

will change market conditions and whether this will be harmful to competition. In the light of the upcoming amendments<br />

of the ARC (see further below) a particular focus of the discussion is whether the prohibition criterion under German<br />

merger control rules should be harmonised with the ECMR. If that was the case, the SIEC test (“significant impediment<br />

to effective competition”) would replace the current dominance test laid down in section 36 para 1 ARC. However, it<br />

should be noted that whether a merger would create or strengthen a dominant position would still remain the main example<br />

for the SIEC test, i.e. the FCO could apply the vast majority of its established decision practice.<br />

The purpose of the draft is to provide guidance to companies and their legal or economic advisers as to how they can<br />

better predict which issues the FCO will be likely to focus on in its appraisal. However, it should be noted that the draft<br />

guidance does not contain a check list for a straight-forward assessment, i.e. the companies would still have to conduct a<br />

thorough analysis on a case-by-case basis.<br />

Reform proposals<br />

On 1 August 2011, the German Ministry of Economics and Technology published a key issue paper which will be the<br />

basis for the so-called “8th ARC Novel” expected to come into force on 1 January 2013. According to the paper, the<br />

Federal Ministry of Economics and Technology does not intend to completely overhaul the ARC. However, some of the<br />

envisaged changes might have a significant impact on the German merger control practice. The proposed changes include<br />

the following issues:<br />

• As already indicated above, the substantive dominance test will be replaced by the SIEC test, i.e. the prohibition<br />

criterion to be applied by the FCO would be the same as under the ECMR.<br />

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• The market share thresholds at which market dominance is presumed under the ARC will be increased. Currently,<br />

under section 19 para 3 ARC an undertaking is presumed to be market dominant (monopoly presumption) if it has<br />

a market share of at least one third. A number of undertakings is presumed to be market dominant (oligopoly<br />

presumption) if it:<br />

- consists of three or fewer undertakings reaching a combined market share of 50%; or<br />

- consists of five or fewer undertakings reaching a combined market share of two thirds.<br />

In comparison to the European Commission’s decision practice according to which market dominance of a single<br />

undertaking is generally presumed at 50%, the dominance market share thresholds under the ARC are rather low.<br />

Albeit, the key paper does not contain any exact thresholds to be adopted, a harmonisation with the European<br />

Commission’s decision practice would certainly lead to more legal certainty and consistency in this respect.<br />

• The FCO considers to accept behavioural commitments in the context of Phase II proceedings. As described above,<br />

the current administrative practice of the FCO allows only structural commitments.<br />

• According to a statement of the Monopoly Commission (an independent advisory body of the German Federal<br />

Government established under sections 44 ARC et seq.) in its XVIII. Biannual Report published on 14 July 2010, xiii there<br />

is a risk that the second domestic turnover threshold may be circumvented by the parties by artificially splitting the<br />

transactions into smaller parts in order not to meet the relevant turnover thresholds. As a risk mitigating tool it is<br />

intended to adopt a provision similar to Art. 5 para 2 sentence 2 ECMR according to which two or more transactions<br />

within a two-year period between the same persons or undertakings are treated as one and the same concentration.<br />

• Under ARC section 41 para 1 sentence 2 ARC a transaction which has been implemented prior to obtaining a<br />

respective clearance decision is void. Under the previous administrative practice of the FCO, the voidness could<br />

be healed by a subsequent clearance from the FCO. However, in 2008 the FCO changed its administrative practice<br />

in this respect and now refuses to issue such ex-post clearance decisions even in cases in which the transaction does<br />

not lead to any competitive concerns. Instead, the FCO launches a de-concentration proceeding which is closed if<br />

the transaction does not lead to any competition concerns. However, the closing of the de-concentration proceeding<br />

is not equivalent to a clearance decision. Hence, in the absence of a clearance decision, there is a degree of legal<br />

uncertainty in relation to the validity of the respective agreements. This uncertainty is intended to be resolved by<br />

a respective provision in the ARC.<br />

• Under Art. 7 para 2 ECMR the implementation of a public bid is possible prior to receiving a respective clearance<br />

decision from the European Commission. The ARC does not contain such an exemption for public tenders.<br />

Considering that a notification is usually published on the FCO’s homepage, this may lead to implications in<br />

particular with regard to confidentiality issues. Currently, this aspect has to be negotiated with the relevant panels<br />

on a case-by-case basis. However, the Federal Ministry of Economics and Technology intends to resolve this issue<br />

by adopting a respective provision in section 41 para 1 ARC.<br />

• As described above, under section 35 para 1 sentence 2 ARC transactions in which the parties meet the relevant<br />

turnover thresholds do not have to be notified to the FCO if the transaction affects a market in which goods or<br />

commercial services have been offered for at least five years and in which sales of less than EUR 15 million were<br />

generated in the preceding financial year by all companies active on this market. The geographic scope of such a<br />

de-minimis market was the subject of a controversial debate in the recent past. The German Federal Court of Justice<br />

established that the scope of the de-minimis market is limited to Germany or relevant parts thereof. xiv However,<br />

according to the so-called bundling theory, the turnover on neighbouring markets in Germany would have to be<br />

added under certain conditions. Having said that, the exact details of the bundling theory are still unclear.<br />

Therefore, the Federal Ministry of Economics and Technology intends to re-shift the de minimis market exemption<br />

from formal to substantive merger control as it was the case before the 6th ARC Novel in 1998. If that was the case,<br />

a transaction would need to be notified to the FCO even if only a de minimis market was concerned. However, if<br />

the FCO during its substantive assessment came to the conclusion that a de minimis market is concerned it could<br />

not prohibit the transaction irrespective of competition concerns.<br />

• With regard to the harmonisation of the ARC with the European competition law provisions, the Federal Ministry<br />

of Economics and Technology intends to include additional unbundling powers for the FCO into section 32 para 2<br />

ARC similarly to Art. 7 para 1 of the Regulation 1/2003.<br />

* * *<br />

Endnotes<br />

i. Available on the FCO’s website at www.bundeskartellamt.de/wDeutsch/publikationen/Taetigkeitsbericht.php.<br />

ii. For certain industries, e.g. media, banking and retails sectors, the ARC provides for different turnover thresholds.<br />

iii. Outsourcing share deal transactions were never subject to the exemption and were always judged under general<br />

merger control rules.<br />

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Clifford Chance Germany<br />

iv. Case B2-52/10, available on the FCO’s website at www.bundeskartellamt.de/wDeutsch/archiv/EntschFusArchiv/<br />

2010/EntschFusion.php.<br />

v. Case B2-125/10, available at www.bundeskartellamt.de/wDeutsch/entscheidungen/fusionskontrolle/<br />

kurzberichtfus/KurzberichteFusionW3DnavidW2676.php.<br />

vi. The respective press release is available at www.bundeskartellamt.de/wDeutsch/aktuelles/presse/2011_02_14.php.<br />

vii. Available on the FCO’s website at www.bundeskartellamt.de/wDeutsch/aktuelles/presse/2011_03_18.php.<br />

viii. The full report is available on the FCO’s website at www.bundeskartellamt.de/wDeutsch/<br />

publikationen/Sektoruntersuchung.php.<br />

ix. Available on the FCO’s website at www.bundeskartellamt.de/wDeutsch/archiv/PressemeldArchiv/<br />

2008/2008_12_15.php.<br />

x. Available on the FCO’s website at www.bundeskartellamt.de/wDeutsch/archiv/PressemeldArchiv/<br />

2009/2009_02_13.php.<br />

xi. Available on the FCO’s website at www.bundeskartellamt.de/wDeutsch/aktuelles/presse/2011_01_28.php and<br />

www.bundeskartellamt.de/wDeutsch/aktuelles/presse/2011_05_10.php.<br />

xii. Available on the FCO’s website at www.bundeskartellamt.de/wDeutsch/merkblaetter/Fusionskontrolle/<br />

Ankuendigung_Konsultation_Leitlnien_2011.php.<br />

xiii. Available on Monopoly Commission’s website at www.monopolkommission.de/aktuell_hg18.html.<br />

xiv. Cf. BGH WuW DE-R 21 33 et seq. – Sulzer/Kelmix.<br />

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Clifford Chance Germany<br />

Marc Besen<br />

Tel: +49 211 4355 5324 / Email: marc.besen@cliffordchance.com<br />

Marc Besen is a partner at Clifford Chance. He works in the Düsseldorf office and is specialised in EC<br />

and German competition law. In particular, he advises companies during the implementation of merger<br />

control proceedings at the German Federal Cartel Office and the European Commission and coordinates<br />

world-wide multi-jurisdictional filings. In addition, he focuses on cartel investigations as well as on<br />

issues of compliance systems, contractual implementations of competition and antitrust law requirements,<br />

joint ventures, licensing agreements and on distribution law across a wide range of industry sectors.<br />

This particularly includes the pharmaceutical, medical device, biotech, food and chemicals sectors, in<br />

respect of which he also advises on regulatory matters. He graduated from the University of Bonn in<br />

1997 and was admitted to the bar in 2000.<br />

Dimitri Slobodenjuk<br />

Tel: +49 211 4355 5943 / Email: dimitri.slobodenjuk@cliffordchance.com<br />

Dimitri Slobodenjuk is an associate at Clifford Chance in Düsseldorf. His practice focuses on European<br />

and German competition law matters. In particular, he advises regarding mergers and acquisitions, joint<br />

ventures, outsourcing, restructuring, distribution and sourcing, as well as market dominance and cartel<br />

issues including inter alia licensing and R&D agreements. Dimitri has experience in a wide range of<br />

industrial sectors including pharmaceutical, medical device, biotech, food and chemicals sectors,<br />

telecommunications, consumer goods/retail. He graduated from the University of Münster in 2005,<br />

where he also obtained a PhD degree. He also received an LLM degree from the University of the West<br />

of England in Bristol and was admitted to the bar in 2010.<br />

Clifford Chance<br />

Königsallee 59, 40215 Düsseldorf, Germany<br />

Tel: +49 211 4355 0 / Fax: +49 211 4355 5600 / URL: http://www.cliffordchance.com<br />

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Introduction i<br />

Greece<br />

Emmanuel J. Dryllerakis & Cleomenis G. Yannikas<br />

Dryllerakis & <strong>Associates</strong><br />

A new competition law. As of April 2011 Greece has a new law “re protection of competition”, under the serial number<br />

3959/2011ii . It replaced the long-lived Law 703 of the year 1977, which was introduced much before Greece became a<br />

Member of the then EEC. Both the new and the old law are tailored upon the European legislation. Articles 1 and 2 of<br />

both laws literally translate the then Articles 85 & 86 of the Rome Treaty, later 81, 82, and now Articles 101, 102 of the<br />

TFEU, to prohibit any agreement, concerted practices or decisions of associations as well the abuse of dominant position.<br />

The new law does not introduce radical changes. Basically it integrates the changes of the past, as developed during all<br />

these long years, especially the ones introduced in 2009. The later amendments are the ones which changed, in many<br />

ways, the operation of the Hellenic Competition Commission.<br />

The old law originally totally exempted mergers from the jurisdiction of the Hellenic Competition Commission. This is<br />

something which is not surprising for a country suffering from a lack of units of a certain size and which, even today,<br />

gives tax and other incentives for mergers. Gradually, but systematically, the concept of merger control prevailed to reach<br />

a point where the law expresses, in general, the concept of European Law not only in substance but also in the procedure<br />

followed.<br />

Only major concentrations fall under the jurisdiction of the Hellenic Competition Commission, which examines whether<br />

they significantly impede competition, as analysed below.<br />

The Hellenic Competition Commission (HCC)<br />

2.1. The HCC is the Independent Authority, which not only enforces Articles 1 and 2 of the law but also Articles 5-10<br />

which deal with the merger control of mergers with a national dimension. In this capacity, the HCC has the decisive power<br />

to verify whether there is a significant impact on competition from the concentration and can decide whether to allow or<br />

prohibit it, or to accept remedies or impose conditions.<br />

The HCC is exclusively competent to apply merger control provisions in all market sectorsiii , but for specific liberalised<br />

industries, such as telecoms and energy, there are separate National Regulatory Authorities (“EETT”, “RAE”), which are<br />

also assigned with the application of competition rules, including merger control provisions, in co-operation with the HCC.<br />

L.3959/11 (Article 24 par. 2) specifies the terms of co-operation between the authorities, given that in most cases coordination<br />

is required.<br />

There also used to be a separate authority for cases of sea transportation (“RATHE”), which was abolished in 2004.<br />

Competence now lies with the HCC for such cases as well, but L. 3260/2004 provides that an expert from the Ministry of<br />

Development, Competitiveness and Shipping must participate in the hearings and the deliberations of the HCC, as a nonvoting<br />

member.<br />

The HCC is also competent to handle mergers with a Community dimension, which are referred to it by the European<br />

Commission, as per the provisions of EU Regulation 139/2003. Reference will be made below (under “Recent HCC<br />

Decisions on Concentrations”) to two recent cases where such referral has taken place.<br />

2.2. The HCC comprises of 8 members: the President; the Vice President; and 6 more members, 4 of which are full time,<br />

exclusive employment executives (“Rapporteurs”).<br />

Before 2009 the composition and the role of the HCC was quite different. Apart from the President, who was a full time,<br />

exclusive employment executive, the other members had no relations with the organisation of the HCC. Some of them<br />

were designated by Business Associations, while the remaining were appointed by the supervising Minister of<br />

Development, among qualified individuals. Therefore the HCC consisted of two parts, the Service (General Directorate<br />

of Competition) and the (independent) Committee, which had no other relation with the Service but for being assigned<br />

the task to review and approve or reject the Recommendation Reports of the Service. The umbilical cord of the two parts<br />

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Dryllerakis & <strong>Associates</strong> Greece<br />

was the President, who not only presided over the Committee, and actually having a double vote, but at the same time was<br />

the Head of the Service. Under this scheme the HCC has been assigned quasi judicial tasks although, being a part of the<br />

Administration and not of the judiciary, the only exception is the double role of the President.<br />

2.3. On the contrary, under the current structure, the HCC is a single organ and the Rapporteures (the members of the<br />

HCC) are assigned the cases. They then prepare, in co-operation with the Service, a Statement of Objections, which<br />

constitutes the basis of the examination of the case by the HCC. A Rapporteur participates in the hearing and the<br />

deliberations, but he/she does not vote, according to the last amendment.<br />

Pre-merger Notification<br />

3.1. Thresholds. Concentrations which fall under the definition of the law (Article 6) are subject to a pre-merger<br />

notification. If they are implemented prior to the clearance by the HCC or contrary to the prohibition decided by HCC,<br />

the undertakings concerned are subject to serious sanctions, i.e. penalty and possible invalidity of the concentration. A<br />

penalty is also given for late notification, even if the parties did not yet implement the concentration or if the concentration<br />

was finally approved.<br />

<strong>Merger</strong> control is exercised when a concentration exceeds the following turnover thresholds:<br />

(a) the combined aggregate worldwide turnover of all the undertakings concerned is at least €150M; and, cumulatively;<br />

(b) the aggregate turnover of each of at least two of the undertakings concerned in the Greek market exceeds the €15M.<br />

The above thresholds apply for all market sectors except for mass media, where special legislation (L. 3592/07) defines<br />

the respective thresholds as follows:<br />

(a) the combined aggregate worldwide turnover of all the undertakings concerned is at least €50M; and, cumulatively;<br />

(b) the aggregate turnover of each of at least two of the undertakings concerned in the Greek market exceeds the €5M.<br />

3.2. Deadline – Notifying party. While EU Regulation No. 139/2004 does not set any notification deadline, and while it<br />

is in the parties’ interest to move quickly in order to get clearance and implement the merger, in Greece, notification must<br />

be made within thirty days from the entry into an agreement or the publication of an offer or an exchange, or the obligation<br />

from the undertaking to acquire participation, which secures the control of another undertaking. Up until the new law, the<br />

deadline was only 10 working days, which was really tight for proper notification.<br />

Parties to a concentration, which consists of a merger or in the acquisition of joint control, shall notify the concentration<br />

jointly. In all other cases the notification shall be effected by the person or undertaking acquiring control of the whole or<br />

part of one or more undertakings.<br />

3.3. Definition of concentration. A concentration shall be deemed to arise where a change of control on a lasting basis<br />

results from the merger of two or more previously independent undertakings or parts thereof or the acquisition of direct<br />

or indirect control of the whole or part of undertaking(s) regardless of the way this acquisition is affected. Article 5 of<br />

l.3959/11 follows the definitions of Regulation (EC) No 139/2004.<br />

Both stock and asset deals can be considered as a concentration, once they lead to the acquisition of control. Cases of a<br />

change of control (e.g. turning from joint to full control) do also constitute a concentration to be notified once the above<br />

thresholds are met.<br />

Creation of a joint venture constitutes a concentration only if the new entity performs all the functions of an autonomous<br />

economic entity on a lasting basis. Otherwise, it would be a co-operative joint venture, falling under the scope of Article<br />

1 (Article 101 TFEU) and possibly qualifying for exemption.<br />

3.4. Substantive test. Greek law, following the EU substantive test (SIEC), provides that a concentration is prohibited if<br />

it may lead to a significant impediment of competition in the whole or a substantial part of the Greek market, especially<br />

by creating or strengthening a dominant position.<br />

Therefore, market share is to be examined, but it is not the only decisive criterion. In the framework of the test adopted,<br />

the law itself specifies the basic criteria to be considered thereof, i.e. structure of the relevant markets, actual or potential<br />

competition, barriers to entry, market position of the participating undertakings, available sources of supply and demand,<br />

consumers’ interest and efficiencies, etc.<br />

The above test applies in all market sectors, except for mass media where special law (L. 3592/2007) provides for the<br />

dominance test. For the purposes of this law, “dominance” is translated into a market share from 25-35%, depending on<br />

the case.<br />

3.5. Turnover calculation. The turnover for the calculation of the thresholds comprises the amounts derived by the<br />

undertakings concerned (as the case may be in the national or international market) in the preceding financial year from<br />

the sale of products and the provision of services falling within the undertakings’ ordinary activities after deduction of<br />

sales rebates and of value added tax and other taxes directly related to turnover. The aggregate turnover of an undertaking<br />

concerned shall not include the sale of products or the provision of services between any of the undertakings within the<br />

group of companies (intra group) iv .<br />

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Dryllerakis & <strong>Associates</strong> Greece<br />

Where the concentration consists of the acquisition of parts, whether or not constituted as legal entities from one or more<br />

undertakings, only the turnover relating to the parts which are the subject of the concentration shall be taken into account<br />

with regard to the seller or sellers.<br />

The aggregate turnover of an undertaking concerned shall be calculated by adding together the turnover of the “group” v .<br />

Special rules apply for the calculation of the turnover, in the case that the participating undertakings are banks or insurance<br />

companies (Article 10 par. 3). Again, these rules follow the respective European framework.<br />

3.6. Approval by the Minister. Under the previous law, in case the HCC prohibited a merger, the interested parties had<br />

the right to request approval of the concentration from the competent Minister of Development. Such request would not<br />

lead to a new competitive assessment by the Minister to challenge the decision of the HCC. On the contrary, the law itself<br />

provided that such approval would be granted on the basis of different criteria, i.e. the overall economic interest of this<br />

merger (that it could be for “political” reasons). This possibility, which had been used only once throughout the 35-year<br />

life of the law, has now been abolished under the new law. Once a merger is prohibited, the parties may only appeal<br />

against the decision of the HCC before Court (see below under “Judicial Protection”).<br />

3.7. Post merger notification. The new law also abolishes the obligation for post-notification to the HCC of concentrations<br />

of undertakings, the share of which in the Greek market was at least 10% or their aggregate turnover in Greece was at<br />

least €15M. Such concentration did not require any approval by the HCC but it should be notified within one month after<br />

its closing. It was intended to be a tool for market mapping, i.e. to follow up the trends of the market, but it did not work<br />

so. It ended up adding an unnecessary workload to the HCC and for this reason it was abolished in the past and reinstituted.<br />

Hopefully the repeal will now be final. When the notification obligation was in force, failure to comply was subject to a<br />

fine.<br />

The Procedure<br />

4.1. Notification form. The content of the notification is defined by a decision of the HCC. The latter has recently issued<br />

a new draft notification form (Decision No. 523/VI/2011), together with a separate form for submitting remedies (Decision<br />

No. 524/VI/2011). The format of these templates generally follows the guidelines of the European Commission and the<br />

purpose is to make the minimum information they have to substantiate as part of the notification clear to the notifying<br />

parties. The notification form must be submitted in Greek, together with all supporting documents and the receipt of the<br />

filing fee, which currently amounts to €1,100. A summary of the notification must also be published in a daily financial<br />

newspaper, as well as in the website of the HCC, so that any third party (competitor, supplier, customer, customer’s<br />

association) may take knowledge of the transaction and express its comments to the HCC.<br />

Without filling in and submitting the notification form properly, the notification is not complete, the deadlines for the<br />

submission are not met and the deadlines for the HCC to issue its decision(s) will not commence. Depending on the extent<br />

of omission, it may be considered as a failure to notify.<br />

4.2. Two-Phase examination. Within a month from receipt of proper notification, the President of the HCC has to issue<br />

an Act to certify that the concentration concerned does not fall within the scope of the law.<br />

If the concentration falls within the scope of the law, the concentration may be examined in one or two phases, in line<br />

with the practice defined by EU Regulation 139/2004.<br />

Where the HCC finds that the notified concentration does not raise serious doubts as to its compatibility with the<br />

competition requirements of the relevant national markets, the HCC issues a decision approving the concentration within<br />

a month from the date of notification i.e. within the same period granted for the verification that the concentration is within<br />

or outside of the scope of the law.<br />

Where the HCC finds that the concentration raises serious doubts, its President issues a decision initiating the Phase-II<br />

proceedings, which is notified to the interested parties. This decision has to be issued within a month from notification.<br />

Following this decision, the case must be introduced within 45 days to the HCC, which has to decide within ninety (90)<br />

days to approve or prohibit the concentration. If the HCC fails to issue a decision within this period of 90 days, the<br />

concentration is deemed as approved. Both the 45- and 90-day deadlines start as of the initiation of the Phase-II<br />

examination, instead of the notification date under the previous law.<br />

In summary, the first month after the notification is the most critical. Within this period, the following developments will<br />

or may occur: the concentration will be declared as not falling within the scope of the law; the concentration will be<br />

approved if it does not raise serious doubts that it will significantly impede competition; or a Phase-II proceeding will be<br />

initiated, i.e. it will be decided whether a full investigation has to follow. The total maximum period, provided that the<br />

notification is complete (see paragraph 4.3 below) and no remedies have been submitted (see paragraph 4.4 below), is a<br />

monthvi plus 90 days, i.e. 118-121 days depending on the length of the month.<br />

4.3. Extension, suspension or interruption of deadlines. The legal deadlines may be extended if the notifying<br />

undertakings are in agreement. Also the deadline is extended by 15 days in case the HCC accepts a delayed proposal of<br />

remedies. If the notification is incorrect or misleading, or if the format of notification has not been completed properly,<br />

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Dryllerakis & <strong>Associates</strong> Greece<br />

so that the HCC cannot evaluate the notified concentration then the deadlines start when the notifying parties have been<br />

advised of their failure from the HCC. This notice from the HCC must be given within seven (7) days from the notification.<br />

The deadlines are also suspended when the undertakings do not meet their obligation to supply information, provided that<br />

the participating undertakings are advised by a notice communicated to them within 2 days from the expiration of the<br />

deadline to supply the information. The deadline period restarts from the submission of the information requestedvii .<br />

4.4. Modifications and Remedies. From the day the notifying parties are advised of the initiation of Phase-II, and within<br />

a period of seven (7) days therefromviii , they may jointly proceed to modifications to the concentration or propose remedies<br />

to remove the serious doubts as to its compatibility with the competition in the relevant market. Although the possibility<br />

of making modifications was introduced in 1995ix , the term “remedies” was added by the new law. The HCC may, in<br />

exceptional cases, accept the proposal of remedies after the expiration of the 7-day deadline. In this case, the deadline of<br />

90 days may be extended by 15 days, reaching 105 days in total. A Rapporteur must submit his/her recommendation on<br />

the proposed remedies within twenty (20) days from their submissionx .<br />

4.5. Conditions. The HCC may approve the notified concentration, attaching to its decision conditions and provisions to<br />

ensure compliance of the participating undertakings with the commitments undertaken by them, with a view of rendering<br />

the concentration compatible with the provisions of the law requiring that the concentration must not raise serious doubts<br />

on its significant impact to competition in the national market or, in the case of a joint venture, the latter operates as an<br />

autonomous unitxi .<br />

The HCC may threaten the participating undertakings with fines in case they fail to comply with the conditions and<br />

provisions in the framework of the remedies.<br />

4.6. Derogations. The prohibition of its implementation prior to its clearance does not prevent a concentration in certain<br />

cases:<br />

a) In case of the acquisition of control following a public offerxii or other stock exchange transactions under the proviso<br />

that the relevant actions are notified in time (i.e. within 30 days from the date of the transactions) and the buyer<br />

does not exercise its voting rights related to the acquired titles except (after special permit by the HCC) in order to<br />

maintain the value of its investment.<br />

b) By special permission of the HCC, to avoid serious damages to one or more of the undertakings participating in the<br />

concentration or to a third party.<br />

4.7. Revocation. In addition to the general rules of the administrative law regulating the revocation of legal or illegal<br />

administrative acts, the new law maintains special rules concerning the decision approving the implementation of a<br />

concentration. It maintains the provision allowing revocation of the HCC decision based on inaccurate or misleading<br />

dataxiii . The revocation in case the participating undertakings in the concentration violate any condition or accepted remedy<br />

is specifically regulatedxiv allowing as well the HCC to take any measures to dissolve the concentration or to restore prior<br />

conditions or to split the merged enterprises or to order the sale of the acquired shares or assets. The above arrangement<br />

applies as well in case of concentrations implemented without approval.<br />

Sanctions<br />

5.1. Apart from its authority to revoke any decision approving a concentration and to restore conditions in the relevant<br />

national market, the HCC may impose fines, the size of which depends on the kind of violation. In this respect the fine<br />

amounts to:<br />

(a) at least €30,000 and up to 10% of the aggregate turnover (a.t.o.) in case of violation of the obligation of the<br />

undertaking to notify in time a concentration subject to prior notification, regardless of whether failure was not<br />

intentional but was due to light negligence;<br />

(b) the same as (a) for the implementation of the concentration before the approval is granted;<br />

(c) up to 10% of the a.t.o. of all participating undertakings, which do not comply with the undertaken remedies; and/or<br />

(d) up to 10% of the a.t.o. of all participating undertakings for failure to comply with the conditions of the HCC<br />

decision in the framework of the approved concentration.<br />

5.2. In addition, the law provides for criminal sanctions, which are cumulative to the fines imposed by the HCC. Article<br />

44 §1 provides for a fine ranging from €15,000 to €150,000 to be imposed by the criminal court to anyone who violated<br />

the provisions on merger control or does not comply with the relevant decisions of the HCC. The criminal character of<br />

the offence is eliminated for the culprits or the accomplices who notify the HCC, the prosecutor or any other competent<br />

authority of the violation, submitting any evidence of the offence as well.<br />

Statute of Limitation<br />

6.1. Article 42 of the new law provides that any violations of the law are subject to a five-year statute of limitationxv , which<br />

starts on the date the violation was committed. In case of a continuous violation or a repeated violation, it starts on the<br />

date the offence ceased.<br />

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Dryllerakis & <strong>Associates</strong> Greece<br />

Contrary to EU Regulation 1/2003 which clearly only refers to the violation of Articles 101 & 102 TFEU, the above<br />

provision, speaking for “any violations of the law”, appears to also cover infringements of Greek merger control provisions.<br />

Such a provision on the limitation period is absent from the respective EU Regulation 139/2004, but is indirectly found in<br />

Regulation 2988/74 (Article 1), which remains applicable for any competition infringements other than those falling under<br />

Regulation 1/2003xvi .<br />

The main question is whether late notification and/or prior implementation of a merger would be considered to be a<br />

continuous violation or not. It must be noted that issues of a statute of limitation have not been tackled by the HCC in<br />

merger cases.<br />

Still though, the general rule of the administrative law should apply, which does not allow for the revocation of an illegal<br />

act after the lapse of a reasonable time; a period of 5 years is always considered as such.<br />

6.2. The statute of limitation is interrupted by any act of the HCC (or EC) in the framework of the investigation of the<br />

violation or of the procedures related with the specific violation, including but not limited to written requests of the HCC<br />

or another authority for providing information or orders for audit (or dawn raids), assignment of the case to a Rapporteur,<br />

servicing of an SO or of a Recommendation Report etc. The interruption starts from the communication of the relevant<br />

act to at least one of the undertakings participating in the violation and applies to all accomplices. The deadline for<br />

completion of the statute of limitation is suspended during the time that the act or decision of the HCC, in relation with<br />

the case, is pending before courts. In any case the statute of limitation is completed upon the lapse of 10 years (i.e. double<br />

the basic period of prescription).<br />

6.3. Strictly legally speaking, the statute of limitation is an institution of the civil law and it refers to claims against a<br />

person. The term is not compatible with the public law terminology, where the authorities do not exercise any right but<br />

they perform their duties in accordance with the law. Therefore, in terms of administrative law, we should refer to a<br />

peremptory deadline, following the lapse of which the HCC is deprived of its authority to act and enforce the specific<br />

provisions of the law.<br />

Judicial Protection<br />

7.1. The enforceable decisions of the HCC are subject to appeal (application for annulment) directly to the Athens Appellate<br />

Administrative Court. In merger cases, an appeal would normally challenge a decision of the HCC that either prohibited<br />

a merger or fined the undertaking for the alleged violation of merger control provisions (e.g. late notification). Still, we<br />

had a case in the past where a third party successfully challenged the approval of a merger in court.<br />

The court examines both the legality and the substance of the decision, which may be annulled in full or in part. This<br />

includes the reduction of a fine (if any), something which is not unusual at all. On the contrary, the annulment of the<br />

decision is not as common and in many cases this is due to technicalities due to the inability of the HCC to adhere strictly<br />

to administrative procedural rules.<br />

7.2. The appeal does not suspend the payment of the fine or the enforcement of other conditions or remedies imposed by<br />

the opposed decision. The court may, though, suspend enforcement, in full or in part, conditionally or unconditionally, in<br />

extreme cases, for example in an unfounded decision or due to a complete inability of the undertaking(s) to pay the fine.<br />

A provision strongly contested as unconstitutionally limiting is the authority of the court to suspend the fine up to 80%.<br />

7.3. The decision of the Appellate Court is subject to appeal (cassation) before the Supreme Administrative Court (Conseil<br />

d’ Etat) for legal reasons only (i.e. the wrong application of the law assuming as correct the factual basis accepted or the<br />

dictum not supported by reasoned arguments). Exceptionally as well, the law allows the suspension of the contested<br />

decision of the Appellate Court by the Conseil d’ Etat.<br />

7.4. In case that the decision of the HCC is totally annulled, the case may be re-examined anew by the HCC, which will<br />

re-judge the case based on the conditions prevailing in the market at the time of re-examination. A new or supplementary<br />

notification will be required in case the conditions of the market have changed or the data submitted needs to be updated<br />

(Article 8 § 13). This is a new provision introduced by the current law and as a result increases the discretionary authority<br />

of the HCC, as the decision of the court is based on different facts than the ones which will be the basis for the reexamination<br />

of the notification for a second time.<br />

Recent HCC Decisions on Concentrations<br />

8.1. Overview of M&A activity. 2010 has been characterised by the substantial deepening of the financial crisis in Greece.<br />

The economic depression has continued to worsen in the first half of 2011, even with the EU, European Central Bank and<br />

International Monetary Fund financing mechanisms being activated.<br />

In this sense, the surrounding financial environment has heavily affected M&A activity and there have been only a few<br />

recent deals that have occurred either constituting developments that started earlier or mainly referring to ‘rescue mergers’<br />

(i.e., to ensure the viability of the involved enterprises).<br />

Indeed, the number of concentrations notified in 2010 (6) xvii and in the first half of 2011 (2) were lower than those notified<br />

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in 2009 (19). However one could note that the HCC, under its current composition, has shown a significant progress in<br />

looking successfully into merger cases and imposing remedies that reduce its anti-competitive concerns and safeguard<br />

conditions of effective competition.<br />

8.2. Aegean Airlines – Olympic Air. One of the recent highlights for M&A deals in Greece would certainly be the merger<br />

between Aegean Airlines and Olympic Air, which was announced at the end of February 2010 and was finally blocked by<br />

the European Commission on January 2011, after a 10-month investigation of the case. The significance of this deal was<br />

based on the intended formation of one consolidated Greek air carrier, following the international tendency for consolidation<br />

in the aviation industry. The deal aimed to create a stronger national carrier with potential international standing.<br />

Argumentation also included the failing-firm defence for Olympic Air. The European Commission though, seeing the<br />

formation of a quasi monopoly for some local routes, was not sufficiently satisfied with the remedies proposed by the<br />

parties. The deal was finally prohibited, this being the second EC prohibition in the sector, following the Ryanair case.<br />

8.3. Oil sector. The significant structural change that took place in the oil sector in 2010, due to the exit from the Greek<br />

market of two major international players (Shell and BP), must also be noted. Following the deal in 2009 between Hellenic<br />

Petroleum and BP (worth €359 million), which was cleared and implemented by the end of 2009 (Decision No.<br />

465/VI/2009), Shell also sold its fuel sector to Motor Oil Group and its lubricants sector to Petropoulos SA. This latter<br />

deal (Shell-Motoroil) was initially notified to the European Commission, but was finally referred to the HCC upon request<br />

of the latter, which cleared it conditionally in 2010, after a Phase-II examination (Decision No. 491/VI/2010). Similar to<br />

the case of Hellenic Petroleum/BP, the remedies referred to a reduction of market share of the merged entity in two specific<br />

areas (Kefallonia and Ioannina prefectures) to the maximum level of 55%, by releasing gas stations accordingly. The<br />

peculiarity of this merger is that both acquirers (Hellenic Petroleum and Motoroil) are the only players active in the Greek<br />

upstream market of refinery, but this did not seem to worry the HCC.<br />

8.4. Food – dairy sector. Another significant deal that occurred this year took place in the dairy market and referred to<br />

the acquisition of MEVGAL (a dairy company with a strong presence in Northern Greece) by Vivartia. After a Phase-II<br />

examination, the deal was conditionally cleared by the HCC (Decision No. 515/VI/2011). Remedies included the<br />

divestment of a specific chocolate-milk brand (“TOPINO”) under the agreed terms and conditions. Furthermore, the<br />

merged entity has undertaken: a) to supply raw milk to competitors at a maximum yearly volume of 30,000 tonnes, at cost<br />

basis and pursuant to an objective, transparent and verifiable set of criteria, for a total period of five (5) years; and b) to<br />

procure milk, under the current volumes and general trading terms from producers situated in five (5) prefectures of<br />

Northern Greece for a transitional period of three (3) years, at the producers’ absolute choice and freedom. Finally, the<br />

merged entity was committed to refrain, for a total period of five (5) years, from any practice which may result in, or may<br />

otherwise be deemed to induce, directly or indirectly, exclusivity at retail outlets, including freezer-cabinet exclusivity.<br />

Another deal referred to the notified concentration of EVGA S.A. and ELAIS UNILEVER HELLAS S.A., whereby the<br />

latter acquired the ice cream brands of the former, through an asset deal. The market leader before the merger was Nestle<br />

(EVGA and Unilever coming next), but after the transaction it was the merged entity who became the leader in the relevant<br />

market. The concentration was examined in two phases and was finally cleared by the HCC (Decision No. 513/VI/2011),<br />

with the following conditions: a) any exclusivity clause should be deleted from all EVGA’s existing cooperation and<br />

distribution contracts and contracts for the provision of freezer cabinets on a rent-free basis; and b) the duration of the<br />

non-compete clause against EVGA, regarding the production and marketing of branded ice cream in cooperation with<br />

third parties, was reduced from three (3) years to one (1) year. Interestingly enough, the HCC also considered the<br />

efficiencies in this case, while the failing-firm defence argument was rejected, because it was not shown that there was<br />

any less anti-competitive, alternative merger.<br />

8.5. Banking sector. In the banking sector, consolidation through M&A activity has been long-awaited, but here again<br />

there remains the question of timing, as the financial results of the banks show a dramatic decrease. Last year, Aspis<br />

Group faced the collapse of its insurance arm (‘Aspis Pronoia’), while its banking subsidiary (‘Aspis Bank AE’) recently<br />

came to an agreement with Hellenic Postbank (‘TT’), which acquired a minority stake, offering full control of Aspis Bank.<br />

The case was unconditionally cleared by the HCC (Decision No. 488/VI/2010) in Phase-1.<br />

Due to the deteriorating circumstances with the Greek economy, rumours constantly formulate several scenarios and<br />

possible combinations for consolidation in the banking sector, but nothing concrete has been announced up until now.<br />

Recently (in August 2011), Alpha Bank and EFG Eurobank announced a friendly merger and the deal is expected to be<br />

cleared by the end of 2011, possibly by the European Commission.<br />

8.6. Other Phase-1 clearances. DIA (retailer) was fully controlled by Carrefour, but in 2010 it was agreed that it will pass<br />

into joint control by Carrefour and Marinopoulos (50:50). This transaction had Community-dimension, due to the turnover<br />

of the participating undertakings, but the parties requested that the European Commission send the case to the HCC, according<br />

to Article 4 par. 4 of Regulation 139/2004. The case was cleared by the HCC (Decision No. 496/VI/2010), with the<br />

commitment of Carrefour that it will not activate the 3-year non-compete clause existing in the franchise agreements.<br />

There was also a case of establishing a concentrative joint venture between Humana and Nordmilich. The new joint<br />

venture would be headquartered in Germany (Zenen, Lower Saxony), but due to the presence of the companies in Greece,<br />

it should also be notified before the HCC. Clearance was granted by HCC the (Decision No. 509/VI/2010) and, given the<br />

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existing legal framework, the merger was not approved retroactively, as the parties had requested.<br />

The final two cases of 2010 referred to mass media (Decision Nos. 474/VI/2010 and 503/VI/2010), which were assessed<br />

based on the dominance (instead of SIEC) test applying specifically to this sector (L. 3592/2007, see also paragraph 3.4<br />

above) and were unconditionally cleared in Phase-I.<br />

* * *<br />

Endnotes<br />

i. Reference of an Article in the text without any other identification is deemed to refer to the new law 3959/2011.<br />

ii. Under the Greek system, laws voted in the Parliament have a continuous numbering. The first number is the<br />

number of the law and the second is the year of publication in the Government Gazette.<br />

iii. Including mass media, for which special rules apply only as to the thresholds and the substantive test (L. 3592/07).<br />

iv. The notion of the group is not used in the law. Instead there is a clear definition of when an undertaking has control<br />

over another undertaking: a) if an undertaking has directly or indirectly: i) a participation of more than 50% on the<br />

share capital; ii) the majority of the voting right; iii) the right to appoint or revoke the majority of the members of<br />

the board of directors (administration); or iv) the right to manage the cases of those undertakings; b) if an<br />

undertaking has the rights or powers mentioned hereinabove in cases i to iv (both ways, i.e. controlling and under<br />

control; and c) if there is more than one undertakings that jointly have the above rights.<br />

v. Again the term “group of companies” is not used in the law. See herein above Endnote number iii.<br />

vi. I.e. 28, 29, 30, 31 days depending on the month.<br />

vii. Article 8 § 12 , Article 3, 4 & 5, Article 38.<br />

viii. Article 8 § 8.<br />

ix. L. 2256/1995 Article 2 § 5.<br />

x. Currently an amendment regarding the deadlines for remedies is underway. According to a new draft law pending<br />

for voting before the Hellenic Parliament, the above described system is to be amended as follows: The Rapporteur<br />

will prepare his recommendation within 45 days from the initiation of Phase-II proceedings and the parties will have<br />

the right to propose remedies within 20 days after the receipt of the Recommendation.<br />

xi. Article 8 § 8 , 7 § 1, 5 § 5 and 1 § 3.<br />

xii. See L 3461/2006.<br />

xiii. Article 8 § 14.<br />

xiv. Article 9 § 4.<br />

xv. The new provision resolved a controversial issue, in cases of violation of Articles 1 & 2 of the law (equivalent to<br />

101, 102 TFEU). Up until this provision, the HCC denied to accept the concept of prescription, as well as to apply<br />

at least the direct-effect provision of article 23 § 2a of Regulation 1/2003. On the contrary, theory as well as some<br />

court decisions argued that many generally accepted principles applicable in administrative law require the<br />

Administration to act timely i.e. within reasonable time and not at any time. In addition for violations of Articles<br />

1 & 2 of the law, corresponding to Articles 101 & 102 of the TFEU, the rule of uniform application and<br />

interpretation of European and national law would advocate to this direction.<br />

xvi. See e.g. COMP/M.4994-ELECTRABEL/COMPAGNIE NATIONALE DU RHONE, 10.06.2009, referring to the<br />

previous regime of Regulation 4064/89.<br />

xvii. Figures based on public available data from the HCC.<br />

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Dryllerakis & <strong>Associates</strong> Greece<br />

Emmanuel J. Dryllerakis<br />

Tel: +30 21 1000 3456 / Email: ed@dryllerakis.gr<br />

Partner and one of the Administrators of Dryllerakis & <strong>Associates</strong>.<br />

He is specialised in competition law, being involved in most of the major competition cases in Greece.<br />

Mr. Dryllerakis is also active in the fields of corporate law, contracts, telecoms, corporate financing and<br />

privatisation. He graduated from the Law School of Lille II University in 1995 and from the Athens<br />

University Law School. He is a member of the Athens Bar, the International Bar Association, the<br />

Hellenic Society of Tax Law & Fiscal Studies and the Competition Law Association. He is qualified to<br />

practice before courts of all degrees, including the Supreme Courts. Mr. Dryllerakis is an author and/or<br />

contributor to several local and international publications on competition law and a speaker in<br />

competition conferences. He speaks Greek, English and French fluently.<br />

Cleomenis G. Yannikas<br />

Tel: +30 21 1000 3456 / Email: cy@dryllerakis.gr<br />

Partner of Dryllerakis & <strong>Associates</strong>.<br />

Member of the firm’s competition team, having handled numerous antitrust cases before the Hellenic<br />

Competition Commission. He is also active in corporate law, M&A and investment incentives, having<br />

considerable experience in major M&A and project finance deals with international profile. He graduated<br />

from the Athens University Law School in 2002. He is a member of the Athens Bar and qualified to<br />

practice before Courts of Appeal of all jurisdictions. Mr. Yannikas is an author and/or contributor in<br />

several local and international publications on competition law, corporate law and investment incentives.<br />

He speaks Greek, English and German fluently.<br />

Dryllerakis & <strong>Associates</strong><br />

25 Voukourestiou str., 106 71 Athens, Greece<br />

Tel: +30 21 1000 3456 / Fax: +30 21 1000 5200 / URL: http://www.dryllerakis.gr<br />

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Hungary<br />

Dr. Judit Budai & Dr. Bence Molnár<br />

Szecskay Attorneys at Law<br />

Overview of merger control activity during the last 12 months<br />

Since August 1, 2010, the Hungarian Competition Office (the “HCO”) has issued 37 clearances in merger cases, six of<br />

which were started in 2011 and one in 2009. The number of notifications is not publicly available.<br />

While five procedures were cleared in the second stage, all other 32 cases were cleared in the first stage.<br />

We are not aware of any notified (and not withdrawn) concentrations that were not cleared by the HCO.<br />

Three further proceedings were terminated by an order of the HCO due to the parties withdrawing the notifications. Of<br />

these three, the most significant is the abandoned concentration of Axel Springer AG and Ringier AG.<br />

In two cases (Vj-153/2009 Holcim/Východoslovenské stavebné hmoty, Vj-117/2010, Magyar Telecom/FiberNet Hungary),<br />

obligations or conditions have been prescribed for the applicants.<br />

New developments in jurisdictional assessment or procedure<br />

We are not aware of any development in jurisdictional assessment.<br />

As regards procedure, a new law on the special rules on reorganising and liquidating business entities with outstanding<br />

significance in the national economy became effective from August 4, 2011. Pursuant to this new law (which also amended<br />

the Competition Act (Act LVII of 1996)), the Government may qualify a business entity as a business entity having<br />

outstanding significance in the national economy, if:<br />

a) the payment of their debts, the agreement with their creditors or their reorganisation is in the interest of the national<br />

economy or is an outstanding public interest; or<br />

b) (when it cannot be expected that the lack of assets can be remedied and insolvency avoided) it is an outstanding<br />

interest of national economic policy that the termination without legal successor be conducted in an expedited, more<br />

transparent and unified procedure.<br />

Only certain entities may be qualified as business entities having outstanding significance in the national economy.<br />

Although the new act gives a list of aspects that determine the range of such entities, this list is rather vague and broad,<br />

concluded with a point that extends to all entities pursuing an activity that has an outstanding strategic significance for the<br />

national economy.<br />

Pursuant to the amendment of the Competition Act, somewhat different procedural rules are applicable in mergers realised<br />

in the course of the liquidation of business entities having outstanding significance in the national economy (“significant<br />

undertakings”), which result in control being acquired or changed over the significant undertaking or a part of it (“Section<br />

28 (4)-type mergers”). The points of deviation are as follows:<br />

• The deadline for notifying the merger is 15 days (instead of 30 days), counted from (the earliest of) the publication<br />

of the public offer, the conclusion of the agreement or acquisition of the control rights.<br />

• Pursuant to the general rules, the agreement establishing the merger shall not be deemed concluded without<br />

clearance from the HCO. Pursuant to the amendment, in Section 28 (4)-type mergers, the party acquiring control<br />

may exercise its control right even before obtaining HCO clearance, to the extent indispensable to continue ordinary<br />

business.<br />

• Additionally, if the acting competition council decides that a second stage of the procedure is necessary, it may<br />

restrict the exercise of control, make it conditional or may prescribe obligations with regards to it, effective until<br />

the final resolution. Any transaction that violates this restriction, condition or obligation is null and void.<br />

• When adopting its final resolution on the merger, the competition council also takes into account the effects on<br />

competition that originate from the pre-clearance exercise of the restricted control rights. The final resolution shall<br />

also contain the competition council’s decision on whether or not the pre-clearance exercise of the control right by<br />

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the acquirer was in line with the above-mentioned statutory ‘indispensability’ condition, and the restrictions,<br />

conditions or obligations potentially prescribed by the HCO.<br />

• The general deadline for the clearance in a procedure where a second stage is necessary is four months from the<br />

filing. In case of Section 28 (4)-type mergers, this deadline is reduced to three months. (In simplified procedures<br />

– first stage only – the deadline is 45 days both in normal and in Section 28 (4)-type mergers.)<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The HCO has a statutory obligation to examine each notified concentration between independent groups of undertakings<br />

that meets the turnover thresholds. The HCO has not set any priorities for certain industries. Nevertheless, actual economic<br />

trends can of course influence the depth of the investigation in certain, more sensitive sectors. We summarise below the<br />

concentrations cleared in the last year that were put under relatively more scrutiny.<br />

CONCENTRATIONS IN THE MEDICINE MARKET<br />

There were numerous notifications concerning the merger of groups of undertakings active on the retail and/or wholesale<br />

market of medicine. Most notifications concerned the acquisition of pharmacy stores, and the HCO’s main concern was<br />

usually the concentration of competing pharmacy owners or operators. (Cases: Hungaropharma/Lavandula Pharma Vj-<br />

104/2010; FarmFaro/DrogeryMed Vj-83/2010; Pharmanova/Zalár Patika Vj-70/2010; Al-Ma Gyógyszertár/others<br />

Vj-81/2010; Al-Ma Gyógyszertár/Unipharm 2006 Vj-38/2010.) In other cases, the vertical effects of the concentration<br />

had to be analysed (Farmfaro/PatikaProfi-Plaza Patika Invest-Patika Invest Vj-84/2010, Nordic/UTA Pharma Vj-71/2010).<br />

There have been no new developments in this field due to the fact that in most of the cases, the majority of the undertakings<br />

had acquired a relatively small undertaking that did not own more than one or a few pharmacy stores. The relative simplicity<br />

of these cases can also be traced back to the established market definition in medicine market cases, according to which<br />

the relevant geographic market with regard to pharmacy stores is local, usually not bigger than the town itself.<br />

Concentrations on the medicine market also have a special feature in that they are not only regulated by ordinary<br />

competition law, but also by the detailed prohibitions and requirements of Act XCVIII of 2006 on Medicine Distribution.<br />

In the following few paragraphs, we summarise the HCO’s reasoning in a concentration with relatively considerable<br />

vertical effects.<br />

The NORDIC/UTA Pharma concentration<br />

Among the concentrations on the medicine markets, the acquisition of UTA Pharma Beteiligungs GmbH by NORDIC<br />

Beteiligungs GmbH (Vj-71/2010) was a significant transaction. As described in the HCO resolution, NORDIC is a<br />

holding company with subsidiaries active in wholesale medicine distribution and in the production and packaging of<br />

medicine. One of the subsidiaries also has a cooperation agreement with numerous Hungarian pharmacies. UTA Pharma<br />

is also a holding company, having a minority share in several pharmacies, operating pharmacies and offering accounting<br />

and management services to pharmacies via its subsidiaries.<br />

The HCO separated the retail and wholesale markets of medicine. The HCO mentioned that on the retail market, the<br />

relevant product markets are usually the main therapeutic groups (ATC level 2); however, in this case, the HCO decided<br />

that it is not necessary to narrow down the market definition to this level, since the relevant product (service) is not the<br />

individual medicine, but the sale of medicine to purchasers, and medicine retailers generally sell all kinds of medicine.<br />

The HCO also decided that it is not necessary to divide the relevant market into narrower markets since no harmful<br />

competition effects can be expected.<br />

On the wholesale market of medicine, the HCO did not identify any sub-markets, and determined that the relevant<br />

geographic market is countrywide.<br />

In the NORDIC/UTA case, no horizontal effects of the concentration were identified.<br />

On the contrary, the HCO carefully examined vertical effects as upstream and downstream refusal to trade. The HCO<br />

referred to its established practice, according to which three conditions have to be met in this regard to find a concentration<br />

anticompetitive: (i) (as the result of the concentration) the applicant shall be able to close down the market, i.e. block<br />

access to inputs on the downstream market; (ii) the applicant shall have enough incentives to close down the market, i.e.<br />

the loss on refusal to trade suffered on the upstream market shall be recovered in the long run by the decrease in competition<br />

on the downstream market; and (iii) the refusal shall have an actually harmful effect on competition on the downstream<br />

market, i.e. not be balanced by new competitors or better efficiency.<br />

The HCO examined two possible methods of upstream market (wholesale medicine trading) refusal to trade: ‘global’<br />

refusal against all competitors; and ‘local’ refusal against local competitors of the applicant’s (acquired) local pharmacies.<br />

The HCO considered that the latter is a potential threat to competition. The HCO also established that refusal to trade<br />

would probably affect independent pharmacies and smaller pharmacy networks, due to the fact that refusal to trade with<br />

pharmacies of competing wholesalers and hospitals would not be effective. The HCO established that it couldn’t be<br />

excluded that the applicant would have incentives to refuse trading with certain pharmacies, and the analysis of the single<br />

local markets is necessary. The HCO only examined local markets where the market share of the relevant groups of<br />

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undertakings was above 25% (taking into account the number of pharmacies). The HCO grouped such towns into 7<br />

regions, with respect to the fact that pharmacies of a bigger town often substitute pharmacies of neighbouring smaller<br />

towns. (According to the HCO however, these regions are not necessarily geographical markets.) The analysis showed<br />

in each region that the applicant’s group of undertakings either does not profit from, or is unable to close, the downstream<br />

market by refusal to trade with independent pharmacies. Therefore, the HCO did not identify any threat to competition<br />

on the upstream market.<br />

The HCO also examined whether refusal to trade on the downstream market would be a potential result of the concentration,<br />

i.e. whether the pharmacies acquired by the applicant could deny purchasing medicine from the competitors of the applicant.<br />

It has been established that due to existing vertical integrations and vertical agreements between wholesalers and<br />

pharmacies, the downstream market is already closed to a medium extent. However, the HCO concluded that the<br />

pharmacies to be obtained by the applicant would not be able to refuse purchasing from competitors from the applicant.<br />

CONCENTRATIONS IN THE TELECOMMUNICATIONS MARKET<br />

Another case requiring a more elaborate market definition and a careful consideration of effects on competition was the purchase<br />

of FiberNet Hungary Kft. by Magyar Telecom B.V., the owner of Invitel. (Magyar Telecom B.V. should not be confused with<br />

Magyar Telekom Nyrt., a subsidiary of Deutsche Telekom AG.) As the concentration concerning telecommunications<br />

companies consisted of two simultaneous transactions, the HCO therefore also issued two resolutions (Vj-117/2010 and Vj-<br />

118/2010). The first transaction was the sale of FiberNet Hungary Kft. to Magyar Telecom B.V.; and the simultaneous<br />

transaction was the sale (divestiture) of certain cable networks and related customer contracts of FiberNet’s subsidiaries (the<br />

“Assets”) to UPC Magyarország Kft. The sale of the assets was an autonomous decision of the parties to the first transaction<br />

to remove obvious barriers of clearance to the purchase of FiberNet. Due to the obvious factual connection between the two<br />

transactions, the content and method of the two clearances issued by the HCO were also similar.<br />

The HCO determined that the relevant product markets can be divided into two bigger groups, namely retail services and<br />

wholesale/infrastructural services.<br />

The following relevant product markets have been identified in the retail sphere:<br />

• access provision services in connection with the retail wire-based voice transmission services;<br />

• the call transmission segment of the retail wire-based voice transmission services market;<br />

• the retail broadband internet market;<br />

• telephone access and call services to business customers and business internet access and data transfer solutions;<br />

and<br />

• television programme signal distribution services ensuring multi-channel access.<br />

The HCO mentioned that while mobile networks may be providing substituting solutions, it decided not to use broader<br />

market definitions since no competition problems arise even in the narrower markets.<br />

Several relevant geographic markets were identified on the retail market, taking into account which parties or competitors<br />

are present at a given location, and by what means of transmission (e.g. cable, PSTN, WiFi).<br />

The following relevant product markets have been identified in the retail sphere:<br />

• call origination, call termination and transit services on fixed location telephone networks;<br />

• access to fixed location physical infrastructure;<br />

• wholesale broadband access;<br />

• leased-line trunk segment and leased-line termination services;<br />

• dark fibre lease services; and<br />

• underground structure lease/cable location lease.<br />

As regards the retail market of broadband internet services, the HCO took the position that competition is harmfully affected<br />

in small towns/villages, where two different service infrastructures would be owned by the same group of undertakings as a<br />

result of the concentration. The HCO rejected the applicant’s arguments that new service providers could profitably enter<br />

the market either by providing satellite services or by leasing infrastructure from the competitor. The applicant made<br />

behavioural commitments, which became part of the resolution on clearance. At one location, the applicant undertook to<br />

terminate its exclusive agreement with a local infrastructure provider, whereas at two other locations, the applicant undertook<br />

to provide services for three years at the best prices and quality available in its own Invitel network countrywide.<br />

A similar market definition and approach was followed in connection with the related sale of the Assets to UPC<br />

Magyarország Kft. In this latter case, in spite of the diligent review of the details, the HCO did not find any competition<br />

concerns, so it was cleared without prescribing any obligations, conditions or commitments.<br />

HORIZONTAL CONCENTRATIONS IN THE CEMENT MARKET<br />

Finally, in the Holcim/Východoslovenské stavebné hmoty (Vj-153/2009) concentration, the HCO principally examined<br />

the coordinative effects of the concentration, namely, whether the disappearance of a competitor may bring about a tacit<br />

concerted practice between the remaining two competitors. Holcim and Východoslovenské stavebné hmoty (“VSH”)<br />

were both manufacturers and sellers of cement (used for concrete), having a total 35-55% market share. There is one<br />

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more significant participant on the cement market, Heidelberg, which has a 40-50% market share. The rest of the market<br />

is supplied by smaller importers. The transaction concerned the acquisition of VSH by Holcim.<br />

The HCO distinguished the markets of cement, concrete for transportation and aggregates (gravel and sand). The HCO<br />

could not identify competition concerns on the aggregates market, and determined that the applicant may become able to<br />

adversely influence competition on the transport-concrete market by refusing to sell from the upstream cement market.<br />

The most important considerations of the HCO are made with regard to the effects on the cement market. The HCO<br />

investigated whether the disappearance of VSH may cause Holcim and Heidelberg to tacitly coordinate their market<br />

behaviour. The HCO relied on the decision of the Court of <strong>First</strong> Instance of the European Court of Justice in Airtours v.<br />

Commission (T-342/99). Based on the conditions specified therein, the HCO established that: (i) Holcim and Heidelberg<br />

have the ability to coordinate their behaviour; (ii) probably either participant would be able to monitor coordination; (iii)<br />

there is a possibility to “punish” a participant that does not comply with the coordinated behaviour; and (iv) with the<br />

disappearance of VSH there would be no outsider competitor (‘maverick’) to destabilise coordination.<br />

Due to the anticompetitive coordinative effects, the applicant and VSH offered commitments. While an effective structural<br />

remedy would have been divestiture of a cement production facility, in this case this was not possible. Therefore, the<br />

commitment was that Holcim would alienate one of its subsidiaries active in cement sales, DTG Optimus Kft, to an<br />

independent party, and supply it with cement for 5 years on agreed terms. This commitment, creating a competing market<br />

participant that is capable of impeding tacit coordination, was accepted by the HCO.<br />

THE NEW HCO MEMORANDUM ON MARKET DEFINITION<br />

In September 2010, the HCO issued a general, non-binding memorandum on the main aspects of defining the markets<br />

relevant for a concentration. This memorandum does not have the authority of an HCO notice (the issuance of which is<br />

authorised by the Competition Act). According to this memorandum, the basis of market definition is still the hypothetic<br />

monopolist test (a.k.a. SSNIP-test). The HCO points out that this does not necessarily mean a strict statistical/econometrical<br />

demand estimation, but rather a framework for thinking. As regards the relevant product market, the HCO analyses<br />

substitutability, and, first of all, functional substitutability. If this is not sufficient, quantitative methods analysing data<br />

are used, such as shock analysis, the analysis of price trends, and detailed demand analysis (including demand estimation).<br />

In most cases, competitors are also requested to provide information and/or opinions. Further quantitative methods using<br />

information from customers are also described in the memorandum. The memorandum explains the conditions and<br />

requirements of using surveys for market definition. Data is usually collected by an outside firm mandated by the HCO,<br />

but analysed by the HCO itself. In examining the relevant geographic market, the HCO follows Commission Guidance<br />

no. 97/C 372/03, OJ C. 372, 1997. 12. 9. on market definition, and examines whether the conditions for competition are<br />

homogenous at two geographical locations. The HCO explains that most quantitative methods used for defining the<br />

relevant product market are also proper for the definition of the relevant geographic market, and adds one more method:<br />

the examination of the capability and the incentives of competitors outside the relevant geographic territory to supply<br />

goods to the relevant geographic territory if there is a price increase. The examination of transportation costs is also a<br />

method that gives information on whether the relevant geographical market may be widened.<br />

Key economic appraisal techniques applied<br />

We are not aware of any sudden shift or change in the economic appraisal techniques applied. In our view, the HCO<br />

mainly follows the practice of the European Commission in merger control matters.<br />

In September 2010, the HCO issued a non-binding memorandum on the relevant aspects in evaluating non-coordinative<br />

horizontal effects of a concentration. This memorandum does not have the authority of an HCO notice (the issuance of<br />

which is authorised by the Competition Act). The memorandum provides three levels of assessment, as described below.<br />

FIRST PHASE OF THE EVALUATION: MARKET SHARES<br />

In most cases, the market shares provide information on whether a more detailed analysis is needed. However, the<br />

analysis of market shares may not be sufficient if the market changes swiftly or a transaction (e.g. a tender) is capable of<br />

significantly altering the market.<br />

SECOND PHASE OF THE EVALUATION: HORIZONTAL EFFECTS<br />

If, based on the analysis of market shares, it cannot be stated clearly that there will be no significant (detrimental) effects<br />

to competition, the HCO examines the horizontal effects of the concentration. For this analysis, the HCO differentiates<br />

between three main types of the market: (i) markets of relatively homogenous products; (ii) markets of differentiated<br />

products with prices set without respect to customers; and (iii) markets with individualised prices. (Of course, the HCO<br />

does not stick to force any market into one of the categories.)<br />

(i) In case of homogenous products, the HCO mentions the following methods for the analysis of the effects: (a)<br />

examination of structural indexes, i.e. market share, based on either income, or volumes sold, or production<br />

capacities; (b) price-concentration analysis; and (c) examination of the effects of the presence of a competitor to<br />

another competitor’s pricing.<br />

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(ii) In case of markets where products are differentiated but prices of a single participant are standardised (e.g.<br />

chocolate bars, newspapers, internet access packages), the HCO takes into account that the same relevant market is<br />

segmented by the fact that certain products are better substitutes to each other than other products. Therefore, there<br />

is a greater price (cross-) elasticity (and more intense competition) between products that are closer substitutes to<br />

each other, and nude market shares do not give a fair view of competition. Due to this, a concentration between<br />

participants with more substitutable products may have a more detrimental horizontal effect on competition than a<br />

concentration of more distant participants. The HCO notes that due to potential entries to the market and the<br />

hypothetical situations that shall be taken into account, customer queries and surveys are often the means of<br />

discovering market behaviour. The HCO takes into account the difficulty of comparing prices of relatively different<br />

products. This difficulty may often be solved by identifying the elements of the prices, or creating an artificial<br />

average price. Price-concentration analysis and the examination of the effects of the presence of a competitor on<br />

another competitor’s pricing are also used on differentiated markets. The HCO also pays attention to the fact that<br />

the participants may compete in factors other than prices, such as marketing or innovation.<br />

(iii) Markets with individual prices have two main (proto) types, according to the HCO: (a) markets where products are<br />

similar, but single customers may receive individual discounts; and (b) markets where rare auctions or biddings with<br />

great value generate demand for the product/service. The HCO points out that, in the first case, analysing methods<br />

used for homogenous markets and differentiated markets may be well adopted. In the second case however,<br />

different methods are necessary for markets with big unique transactions. Prices applied towards individual<br />

customers or (if necessary) in individual transactions shall be collected from customers. According to the HCO,<br />

market shares on this market are less representative and longer trends shall be analysed, due to the fact that the<br />

winner of bidding may “take it all” for a certain period. Therefore, it may be important to precisely explore the<br />

rules of the individual biddings and the relations between the participants. For example, the number of tenders<br />

where certain market participants actually compete may describe whether they are actual competitors or not.<br />

According to the HCO, close competitors often have close positions at the outcome of the biddings, thus outcome<br />

analysis may also give a description of the market. The HCO also takes into account whether prices offered by an<br />

undertaking change whether a competitor undertaking is also participating in the bidding/auction.<br />

THIRD STEP OF THE EVALUATION: PRO-COMPETITIVE EFFECTS AND DEFENCES<br />

Finally, if anticompetitive effects of the concentration have been identified, the HCO deliberates the potential procompetitive<br />

effects. These are categorised in the memorandum as follows:<br />

(i) New entrants. New entrants can counterbalance anticompetitive effects if the entrance is: (a) likely to happen; (b)<br />

happens soon enough after the concentration; and (c) has an impact sufficient enough to counterbalance<br />

anticompetitive effects. When investigating the possibility of new entrances, events in the past (entrances and exits)<br />

and the possibilities to enter (minimal costs, return rate, minimum market share necessary to compete effectively,<br />

chance to reach such market share) must be taken into consideration. If such information is available, the HCO<br />

investigates whether there is any undertaking that is likely to enter the market.<br />

(ii) Buyer power. The HCO takes the position that it is not enough if there is a certain buyer power on the market.<br />

Customers having buyer power must cover a sufficiently large part of the market. The HCO notes that on markets<br />

without a possibility to discriminate prices, there is a greater probability that buyer power will be effective. It is<br />

important that buyers have a strong bargaining position, and the loss of a buyer is a significant loss for the sellers.<br />

There is less chance that buyer power is effective if the costs of changing business partners (suppliers) are high.<br />

(iii) Increase in efficiency. The HCO takes into account that a concentration may have effects decreasing costs or<br />

otherwise increasing efficiency. However, following the horizontal guidelines of the European Commission<br />

(2004/C 31/03 – OJ C 31, 2004.2.5.), four conditions must be met to accept such argumentation: (a) only such<br />

improvements may be taken into account that would not occur without the concentration; (b) improvements shall<br />

be represented in decreasing prices; (c) improvements must be verified by calculations, not just arguments; and (d)<br />

improvements that are more likely to happen in the close future are more convincing. Furthermore, increases in<br />

efficiency shall match the anticompetitive effects and effectively counterbalance them.<br />

(iv) Failing firm defence. It may be argued that the intensity of competition would also decrease without the<br />

concentration, due to the fact that the acquired undertaking would also disappear from the market due to its poor<br />

financial situation. The HCO notes that this argumentation may only be accepted with certain restrictions, namely:<br />

(a) it cannot be expected that the failing firm would be replaced by a new entrant; and (b) it is likely that the assets<br />

and production of the failing firm would actually disappear from the market. It is the obligation of the concentrating<br />

parties to prove such conditions.<br />

In the memorandum summarised above, the HCO describes its methods for analysing non-coordinative horizontal effects.<br />

However, the analysis of coordinative effects also forms part of the HCO’s practice, as shown above in the summary of<br />

the Holcim/Východoslovenské stavebné hmoty case.<br />

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Szecskay Attorneys at Law Hungary<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

Pursuant to Notice 3/2009 of the Head of the Hungarian Competition Office and the President of the Competition Council<br />

on simplified and full proceedings, if commitments or obligations are attached to the clearance, the concentration will be<br />

investigated in a full proceeding and will therefore consist of two stages. However, the HCO may exceptionally accept<br />

commitments in the simplified proceeding as well, provided that:<br />

(i) the competition problem can be easily identified;<br />

(ii) the remedy for the competition problems can be simply assessed;<br />

(iii) the notification filed by the applicant already contains the commitment for the competition problem foreseen and<br />

not disputed by the applicant; and<br />

(iv) with the commitments, the concentration meets the requirements set out in the same Notice for simplified<br />

proceedings.<br />

The Head of the HCO and the President of the Competition Council issued a Notice on prescribing conditions and<br />

obligations in merger clearances (Notice 1/2008). As explained in the Notice, a condition may be a condition precedent<br />

(the clearance is not effective until the condition is fulfilled) or a condition subsequent (the clearance is annulled if the<br />

condition is not fulfilled). Obligations do not affect the effectiveness of the clearance, but the HCO may revoke the<br />

clearance on non-compliance. The HCO points out that these are only the forms, so the same behaviour may be prescribed<br />

in any of the above three constructions, depending on the circumstances of the case.<br />

The HCO has set the following principles for prescribing remedies:<br />

• The condition or obligation shall be applied to solve only the competition problems that are caused by the<br />

concentration.<br />

• The condition or obligation may only be prescribed if the applicant has offered the remedy as a commitment or<br />

accepted it before adopting the final resolution. If neither is the case, the HCO does not prescribe the<br />

condition/obligation not agreed to by the participant, but rather denies the concentration.<br />

• The condition/obligation shall be clear, unambiguous, precise, enforceable and compliance shall be verifiable.<br />

• The HCO continuously negotiates with the applicant and (if necessary) foreign competition authorities.<br />

Pursuant to Notice 1/2008, the HCO prefers structural remedies over behavioural remedies. As a third category of<br />

remedies, the HCO often prescribes obligations to provide information, most likely about the fulfilment of other conditions<br />

and compliance with other obligations. The Notice also explains the practice of the HCO in connection with divestitures.<br />

We are not aware of any circumstances where the HCO’s actual practice deviates from the above policy statements.<br />

Key policy developments<br />

In May 2010, the HCO published its draft information memoranda on methods of analysing concentrations covering the<br />

following subjects: (i) the general methodology of analysing concentrations; (ii) the principles related to the quality and<br />

depth of data used for the HCO’s quantitative analyses; (iii) aspects of defining the relevant market affected by the<br />

concentration; and (iv) aspects governing the evaluation of non-coordinative horizontal effects of concentrations.<br />

The drafts were submitted for open consultation and received a few comments from law firms. The final information<br />

memoranda (covering the same subject matters) were published on the HCO’s website in September 2009. The content<br />

of the last two memoranda [(iii) and (iv)] are summarised under the “Key industry sectors reviewed, and approach adopted,<br />

to market definition, barriers to entry, nature of international competition etc.” and “Key economic appraisal techniques<br />

applied” sections of this article.<br />

Reform proposals<br />

We are not aware of any reforms of the Competition Act or other reforms to be executed by legislation.<br />

In May 2011, the HCO invited market participants, law firms and other interested parties for a public consultation regarding<br />

the notification of concentrations, especially: (i) the notification form; (ii) (informal) consultations with the HCO before<br />

and during the notification procedure; (iii) the proceeding related to negotiating conditions and obligations; and (iv) the<br />

turnover thresholds determining whether a notification should be made.<br />

Although the HCO received a few comments, no final document has been published yet.<br />

Nevertheless it can be summarised that the commenting parties criticised the notification form because it requires the<br />

collection of a great amount of data, and therefore it makes a notification significantly more cumbersome compared to<br />

other European Member States or the merger notification proceeding of the European Commission.<br />

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Szecskay Attorneys at Law Hungary<br />

Dr. Judit Budai<br />

Tel: +36 1 472 3000 / Email: judit.budai@szecskay.com<br />

Dr. Judit Budai is a Hungarian attorney admitted to the Budapest Bar (1994). She received her JD, cum<br />

laude, from Eötvös Loránd Faculty of State and Legal Science in Budapest in 1991 and an MBA from<br />

the Budapest Economic University in 1996 (joint BEU/London Business School programme) and<br />

participated in an EC Law Post Graduate Program of the Center of European Law, School of Law, King’s<br />

College London in 2004. She is a member of various professional organisations (UIA/President of the<br />

Banking Law Commission and Standing Member for Hungary of the M&A, Corporate and Financial<br />

Services Committees, Head of the Legal and Strategic Committee of the Hungarian Venture Capital<br />

Association, active member in LIDC and IBA). Author of several articles and frequent speaker at<br />

conferences in M&A, corporate finance, competition law and capital markets areas. She was an associate<br />

at Weil, Gotshal & Manges before associating with the Firm in 1992. She currently specialises in M&A,<br />

competition law, finance, including project finance, capital markets and banking law and IP. She is fluent<br />

in English.<br />

Dr. Bence Molnár<br />

Tel: +36 1 472 3000 / Email: bence.molnar@szecskay.com<br />

Bence Molnár is a Junior Associate at Szecskay Attorneys at Law. He received his JD, cum laude, from<br />

Eötvös Loránd University Law Faculty in 2009. Bence Molnár studied at the University of Groningen<br />

in the Netherlands on an Erasmus scholarship in 2007/2008, including the Law of International<br />

Organizations, International Contracts Law and private international law. He currently specialises in<br />

corporate law, competition law and banking law. He is fluent in English and German.<br />

Szecskay Attorneys at Law<br />

Kossuth tér 16-17., H-1055 Budapest, Hungary<br />

Tel: +36 1 472 3000 / Fax: +36 1 472 3001 / URL: http://www.szecskay.com<br />

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India<br />

Farhad Sorabjee<br />

J. <strong>Sagar</strong> <strong>Associates</strong><br />

Overview of merger control activity during the last 12 months<br />

After much discussion and comment, the final merger control regulations were issued in May 2011, and the merger control<br />

provisions of the Indian Competition Act, 2002 were brought into force with effect from 1st June 2011. In view of the<br />

fact that the provisions have only been in effect for a few weeks, no statistics are available as yet regarding the number of<br />

notifications or clearances granted, or if any have been so granted at all. See “New developments in jurisdictional<br />

assessment or procedure” below.<br />

New developments in jurisdictional assessment or procedure<br />

Anyone who has been concerned with the twists and turns of the Indian merger control regime over the last few months<br />

is likely to find even the most dreaded rollercoasters of the world a trifle boring.<br />

The provisions were introduced by the original Competition Act as far back as 2002, and substantially revised in 2007,<br />

withheld from being brought into effect with the rest of the provisions of the Competition Act, 2002 in May 2009, and<br />

thereafter expected to be introduced on an almost constant basis ‘in a couple of months’. Meanwhile, draft merger control<br />

regulations, which were also circulated in 2007, were suddenly withdrawn after the coming into force of the Competition<br />

Commission in May 2009, and re-worked and finally published for comment in early March 2011. They were accompanied<br />

by significant exemption and clarificatory notifications issued by the government on diverse aspects of merger control.<br />

After much debate, the final merger control regulations were issued in May 2011, and the merger control provisions of the<br />

Indian Competition Act, 2002 were brought into force with effect from 1st June 2011.<br />

The regime, having been brought into force just a month ago at the time of writing this, has hardly been able to lay down<br />

its law. No information is yet available at the time of writing this as to its record on clearance, approaches to remedies,<br />

economic appraisal techniques or industry focus. However events over the last few months provide some indication as to<br />

how the Commission’s view has been developing.<br />

The draft merger control regulations as published for comment in early March 2011 were in numerous respects disastrous.<br />

Most notably, the provisions were applicable to all ‘combinations’ (the term used for mergers, acquisitions and<br />

amalgamations that would require a filing) which had not taken effect prior to 1st June 2011. This instantly meant that<br />

ongoing transactions that had commenced but not closed would require a filing.<br />

The regulations included a requirement to make a filing for transactions enumerated in Schedule 1, such as:<br />

• the acquisition of shares or voting rights of under 15% of the total shares or voting rights;<br />

• the acquisition of shares or voting rights where the acquirer already controls the target enterprise;<br />

• acquisitions made solely as an investment;<br />

• acquisition of stock in trade, raw materials, stores or spares;<br />

• acquisitions by securities underwriters;<br />

• acquisitions resulting from bonus issues or sub-division of shares; and<br />

• intra-group acquisitions.<br />

The earlier draft regulations proposed that most of these be entirely excluded.<br />

Companies and practitioners were driven to hitting the panic button. It is rumoured that the Competition Commission<br />

received 1,100 representations against numerous provisions and the effect they would have upon merger and acquisition<br />

activity and business in general. Careful but urgent calls had to be taken as to the chances of a revision to the provisions<br />

and timelines, and whether or not a gamble on such revision should be taken. The alternative was to post haste commence<br />

data collection for a filing and do so as soon as the Commission came into force so as to cause as little disruption as<br />

possible to the timelines of the ongoing transaction.<br />

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J. <strong>Sagar</strong> <strong>Associates</strong> India<br />

Unfortunately, the provisions regarding clearance of notifications, while requiring the Commission to arrive at its prima<br />

facie opinion within 30 days of filing and communicate the same to the applicant, did not provide for any deemed clearance<br />

in the absence of such communication within the period prescribed. In view of the impending onslaught of filings,<br />

considerable uncertainty existed as to whether the Commission was resourced to process the same within the time period<br />

prescribed. It was feared that the Commission may avail of the suspensory provision for the 30-day time limit to gain<br />

additional time by calling for additional information, if only to relieve the pressure and extend the limit.<br />

By way of abundant caution, the process of data collection for filling the appropriate forms was commenced in earnest in<br />

many ongoing transactions. This highlighted a further difficulty in light of the requirements of the Forms.<br />

Even the format of Form I, applicable to the cases that were likely to cause little or no competition concern, was an<br />

extraordinarily detailed filing, including, amongst other things, copies of due diligence exercises, reports and studies and<br />

any other documents taken into account to assess the viability of the combination, the entities’ charter documents, main<br />

products and services, production, distribution and supply facilities in India, and copies of notifications filed with other<br />

competition authorities. In practical terms, given the shortage of time, the data collection and filing exercise was proving<br />

well-nigh impossible. Both the prescribed forms appeared to be well in excess of the recommended practices of the ICN.<br />

The government issued four notifications, at the same time as the Commission published the regulations for comment.<br />

One of them was the notification bringing the provisions into force on 1st June 2011, the consequences of which, coupled<br />

with the draft regulations, have been discussed above.<br />

Another notification exempted a “…‘Group’ exercising less than fifty per cent of voting rights in other enterprise…” from<br />

the provisions of section 5 of the Act for a period of five years.<br />

This poorly-constructed notification suggests that the prescribed 26% voting right/interest mentioned in the Act stands<br />

revised upward to 50% for five years, thereby narrowing the net and consequently curtailing the assets and turnover to be<br />

included.<br />

The percentage mentioned apparently relates to Explanation (b)(i) in section 5 of the Act, which prescribe that:<br />

“…(b) “group” means two or more enterprises which, directly or indirectly, are in a position to —<br />

(i) exercise twenty-six per cent or more of the voting rights in the other enterprise.... or<br />

(iii) control the management or affairs of the other enterprise…”<br />

Explanation (b)(iii) set out above continues to be in force. Therefore, regardless of the enhanced percentage mentioned<br />

in the exemption notification, it will anyway be necessary to analyse on a purely subjective basis the various theories of<br />

control and their applicability to the entities concerned. It will also be open to the Commission to consider enterprises to<br />

be part of a group under Explanation (b)(iii) regardless of whether they fall under the threshold mentioned in Explanation<br />

(b)(i). The relaxation under the notification may eventually turn out to be cosmetic if the Commission chooses to invoke<br />

Explanation (b)(iii). No clarification on this has as yet been issued.<br />

Further, there is no clarity on any possible restrictions by way of either degree of relationship or geographic location with<br />

respect to the entities that would constitute part of the group.<br />

A third notification enhances the value of assets and turnover under section 5 of the Act for the purposes of meeting the<br />

thresholds by 50%. However, there continues to be an absence of any requirement for a two-party local nexus. This<br />

results in a situation where a large company meeting thresholds in India on its own would be required to make a filing<br />

regardless of the fact that the other entity had little or no connection to, or assets or turnover in, India. Thus, even foreignto-foreign<br />

transactions with minimal or no effect in India would also require a filing.<br />

The fourth notification grants an exemption from the provisions of section 5 of the Act to transactions where the target<br />

enterprise’s assets do not exceed Rs. 250 crore (approx USD 56 million) or its turnover Rs. 750 crore (approx. USD 167<br />

million). Such an enterprise has been exempted from qualification as an enterprise that would constitute a part of a<br />

“combination” under section 5 of the Act for a period of five years.<br />

The notification did not mention whether the said thresholds relate to assets and turnover in India or globally. This has<br />

now been corrected to relate to assets and turnover in India, a position which now provides an avenue for the hiving off<br />

of target businesses into new companies and the subsequent acquisitions of the new company. This has been elaborated<br />

upon later in this chapter.<br />

A further technical flaw remains in this notification. The Act requires notification by ‘any person or enterprise’ proposing<br />

to enter into a combination. Under the new draft regulations, the acquirer is the prescribed filing party for acquisitions<br />

and the joint filing party for mergers and amalgamations. While the notification exempts the target enterprise from the<br />

provisions of the Act, it is silent regarding the acquirer. While it is probably the intention of the notification to also exempt<br />

the acquirer from the provisions of the Act, this is not so stated in the notification. Though technical in nature, a clarification<br />

would be useful.<br />

In practice, a further issue arises. The definition of ‘enterprise’ under the Competition Act may be read to include the<br />

units, divisions and subsidiaries of the enterprise, and this may be required to be factored into the thresholds analysis of<br />

the target enterprise.<br />

Global Legal Insights ­ <strong>Merger</strong> Control <strong>First</strong> <strong>Edition</strong><br />

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J. <strong>Sagar</strong> <strong>Associates</strong> India<br />

In the face of widespread criticism, the Competition Commission and the Government of India both undertook a series of<br />

outreach seminars and took on board the grave concerns of both industry as well as practitioners. It was apparent that the<br />

Commission had realised the various problems and difficulties and was keen to assuage the concerns raised.<br />

The Commission has thereafter released the final merger control regulations, known as the Competition Commission of<br />

India (Procedure in Regard to the Transaction of Business relating to Combinations) Regulations, 2011.<br />

These regulations implement far-reaching changes and shifts from the earlier stance of the Commission and the<br />

Government, many of which amount to a near-complete U turn on the earlier position.<br />

Though the period prescribed for investigation remained unaltered at a total of 210 days, the commission has gone on<br />

record to state that it will endeavour to complete investigations within 180 days.<br />

The numerous transactions mentioned in Schedule 1 as requiring notification are now mentioned as being categories of<br />

combinations which are ordinarily not likely to cause an appreciable adverse effect on competition and therefore ‘need<br />

not normally be filed’. The result appears to be that these transactions are neither specifically exempted nor are there any<br />

guidelines whatsoever as to how they would normally be interpreted. It is possible that the Commission has been informed<br />

that the granting of a specific exemption by regulation is ultra vires their powers under the Act, and has therefore found<br />

this to be a reasonable via media. The Commission has also made it clear that these transactions will be treated as exempt<br />

in its statements to the media.<br />

In any view of the matter, the development is a significant and encouraging one, and lifts a huge burden off both businesses<br />

as well as the Commission itself.<br />

The Commission has also rightly heeded calls across the board for clarification and exclusion of ongoing transactions.<br />

The regulations prescribed that notice need only be filed for acquisitions where binding documents are executed on or<br />

after 1st June 2011, and for mergers or amalgamations for which the proposals have been approved by the Board of<br />

Directors on or after 1st June 2011.<br />

Interestingly, the regulations contain an explanation that the approval of the Board of Directors refers to the final decision of<br />

the Board of Directors, but makes no explanation for what the Commission would consider to be executed binding documents.<br />

The Commission has repeatedly stated that transactions which are known in the public domain or in relation to which<br />

filings have already been made before an authority need not make any notification. Apart from the disparity between this<br />

and the strict terms of the regulation, this provision has raised interesting issues on the ground.<br />

The Commission has made it clear that it will not tolerate attempts by parties to shoehorn their proposed transactions into<br />

complying with this regulation.<br />

The question that has variously arisen is what constitutes ‘binding documents’? The conservative view is that if documents,<br />

which contain numerous and extraordinary conditions precedent, are executed, the Commission may well take a view that<br />

the same is not in fact binding in nature at all. The penalties for failure to make a filing are significant, and there have<br />

been reports that the Commission is looking closely at transactions announced shortly before 1st June 2011.<br />

The absence of any exclusion of transactions between foreign entities taking place outside India also attracted strong<br />

protest.<br />

Schedule 1, which contains the de facto exempted transactions, now also includes foreign-to-foreign transactions, provided<br />

the combination taking place outside India has an insignificant local nexus and effect on markets in India.<br />

Quite obviously, this begs the question as to what constitutes an ‘insignificant’ local nexus or effect, and this is a question<br />

currently being dealt with in several matters. The simple fact is that there is no guidance on this at all, and obviously no<br />

precedent exists as yet. Some guidance may perhaps be drawn from the prescribed percentages for acquisitions by parties<br />

engaged in similar activities or manufacture, which would be entitled to make a simple form filing if their combined<br />

market share is less than 15%, or, if they are involved in activities in different stages of the production chain, their individual<br />

or combined market share is less than 25% in the relevant market.<br />

Form I, the simpler short form, has mercifully been rationalised and requires submission of less data than the previous<br />

version. Unfortunately, when actually put into practice it has been found that Form I continues to require information on<br />

total market size in terms of sales and volumes, including those of identical, substitutable, or similar products or services,<br />

and estimated market shares for such products including information on all parties of the group, if applicable.<br />

Another interesting development in the published regulations is the general provision that notice should ordinarily be<br />

filed in the simpler Form I, and the decision as to whether to make a filing in Form I or Form II has been left to the<br />

parties to determine. Other than clear-cut situations, this therefore obviously requires a significant amount of pre-filing<br />

analysis before deciding on this issue alone. Guidance on this issue is provided to a limited extent. The regulations<br />

suggest that in the following transactions, a Form I filing is sufficient:<br />

• where no party is engaged in the production, supply, distribution, storage, sale or trade of similar identical<br />

substitutable goods or services;<br />

• where an acquisition or control is acquired by an official liquidator, administrator or receiver under an approved<br />

scheme under certain Acts;<br />

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J. <strong>Sagar</strong> <strong>Associates</strong> India<br />

• where an acquisition results from a gift or inheritance, always by a trustee company from a change of trustees of a<br />

mutual fund; or<br />

• in horizontal mergers where the post-combination market share is less than 15% of the relevant market or in vertical<br />

mergers where the individual or combined market share is less than 25% of the relevant market.<br />

Objections to a filing may now only be made by parties who are, or are likely to be, adversely affected by the proposed<br />

combination, and appeals against orders on a combination can now only be filed before the appellate tribunal by the parties<br />

concerned. The latter provision raises some difficulty, as the Act itself permits any person aggrieved by an order of the<br />

Commission to approach the appellate tribunal. It remains to be seen as to how this apparent contradiction will be resolved.<br />

In practical terms, parties who are apprehensive that the transaction may raise concerns and not be directly approved will<br />

most likely choose to make a filing in Form II. Again, it remains to be seen as to whether the Commission will treat a<br />

Form II filing as some sort of admission that a prima facie case for further investigation exists and therefore invoke the<br />

210-day period.<br />

A welcome clarification issued recently provides for pre-filing consultations with the staff of the Commission on a nonbinding<br />

basis.<br />

The notification that provides an exemption to transactions where the target enterprise has assets or turnover of less than<br />

the threshold figures mentioned therein has also been clarified very recently. In effect, the target enterprise would be<br />

exempted if it is below any one of the thresholds for assets or turnover.<br />

This presents an interesting avenue for structuring deals, coupled with the absence of any explicit inclusion of joint ventures<br />

in the merger control provisions of the Competition Act.<br />

* * *<br />

a. An enterprise is defined under the Act as a (juridical) person who is or has been engaged in an activity relating to<br />

production storage supply etc, or the provision of services.<br />

b. A new joint venture would therefore not constitute an enterprise as it is not and has not been engaged in such<br />

activities. In fact we are informed that it was the intention of the drafters of the amended Act in 2007 to exclude<br />

joint ventures.<br />

c. It is technically possible for a target enterprise to set up a new company and transfer its assets into that company,<br />

subsequent to which the new company can be acquired without any filing as it does not meet the turnover<br />

requirements and is therefore exempt under the notification.<br />

d. In fact, even in general, this would be a fairly standard structure for transactions where a division or part of a larger<br />

business is to be acquired.<br />

In view of the fact that the provisions have only been in effect for a few weeks, no statistics are available as yet regarding<br />

the number of notifications or clearances granted, or if any have been so granted at all.<br />

In the granting of clearances and the approach to issues such as market definition, barriers, effect and remedy, the<br />

Commission has stated in the past that it is likely to largely rely on procedures and developments in the European Union<br />

jurisdiction.<br />

There is no information available as yet on the appraisal techniques, economic or otherwise, being applied. It is however<br />

a fact that the Commission and its directorate is not yet properly resourced in terms of manpower, and it is strongly<br />

rumoured that there is a disagreement between the Commission, which desires to engage staff on an outsourced expertise<br />

basis, and the Government which is inclined to insist on staffing to be effected from within the Government administrative<br />

services. It is currently believed that the Government approach is the one being adopted. It is also expected that the<br />

Commissions’ approach to remedies and modifications will also be largely influenced by developments in the European<br />

Union. This is of course not to say that this will be done to the exclusion of developments elsewhere, or indeed developed<br />

indigenously.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

In the granting of clearances and the approach to issues such as market definition, barriers, effect and remedy, the<br />

Commission has stated in the past that it is likely to largely rely on procedures and developments in the European Union<br />

jurisdiction. See “New developments in jurisdictional assessment or procedure” above.<br />

Key economic appraisal techniques applied<br />

There is no information available as yet on the appraisal techniques, economic or otherwise, being applied. See “New<br />

developments in jurisdictional assessment or procedure” above.<br />

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J. <strong>Sagar</strong> <strong>Associates</strong> India<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

The regime, having been brought into force just a month ago at the time of writing this, has hardly been able to lay down<br />

its law. No information is yet available at the time of writing this as to its record on clearance, approaches to remedies,<br />

economic appraisal techniques or industry focus.<br />

The provisions of the Act provide for modifications in a proposed transaction to be suggested by the commission. It is<br />

expected that the Commissions’ approach to remedies and modifications will also be largely influenced by developments<br />

in the European Union. See “New developments in jurisdictional assessment or procedure” above.<br />

Key policy developments<br />

See “New developments in jurisdictional assessment or procedure” above.<br />

Reform proposals<br />

See “New developments in jurisdictional assessment or procedure” above.<br />

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J. <strong>Sagar</strong> <strong>Associates</strong> India<br />

Farhad Sorabjee<br />

Tel: +91 22 4341 8502 / Email: farhad@jsalaw.com<br />

Farhad Sorabjee, Partner, is an experienced trade lawyer and litigator and heads the firm’s competition<br />

law team in Mumbai. Farhad acted in the very first cartel activity investigation filed before the<br />

Competition Commission of India, the first substantive abuse of dominant position complaint, and acts<br />

in several investigations concerning anti-competitive agreements and the abuse of dominance. He<br />

appears and argues before diverse authorities including the Competition Commission, Tribunals, High<br />

Courts and the Supreme Court of India. He advises and acts variously on merger control issues and<br />

filing. He is part of the India task force of the American Bar Association Anti-trust Section, and has<br />

been involved in the representations and comments made by the ABA to the Competition Commission<br />

from time to time, including comments on the recent draft merger control regulations and notifications.<br />

Farhad has also written variously in both Indian and international publications on several aspects of<br />

competition law.<br />

Farhad’s c.v. can be found at http://www.jsalaw.com/our-people/People-Details.aspx?PeopleId=MzQxrD8aJRQH4DI%3d.<br />

J. <strong>Sagar</strong> <strong>Associates</strong><br />

Vakils House, 18 Sprott Road, Ballard Estate, Mumbai – 400001, India<br />

Tel: +91 22 4341 8600 / Fax: +91 22 4341 8617 / URL: http://www.jsalaw.com<br />

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Ireland<br />

Helen Kelly & Bonnie Costelloe<br />

Matheson Ormsby Prentice<br />

Overview of merger control activity during the last 12 months<br />

The financial crisis and economic downturn currently being experienced in Ireland has had a significant impact on merger<br />

activity, with just 19 mergers notified in the first six months of 2011 and 46 mergers notified in 2010. The 2010 number<br />

constitutes an increase in merger activity over each of 2009 and 2008 when there were only 27 and 37 notified mergers<br />

respectively. However, merger activity is still well behind the Celtic Tiger days of 2007 when 72 mergers were notified to the<br />

Competition Authority (“Authority”).<br />

The 2011 merger of greatest note to date has been the first merger subject to the approval of the Minister for Finance pursuant<br />

to section 7 of the Credit Institutions (Financial Support) Act 2008 (“Credit Institutions Act”). This Act was introduced at the<br />

height of the 2008 financial crisis and was designed to ensure the stability of the financial systems in the State including<br />

provision for financial support for certain credit institutions. It also amended the Competition Act 2002 (“Act”) and provides<br />

that the Minister for Finance rather than the Authority has jurisdiction to approve certain mergers involving a “credit institution”.<br />

The Credit Institutions Act provides that the Minister for Finance has powers to review mergers involving credit institutions<br />

where he/she is of the opinion that the proposed merger is necessary to maintain the stability of the financial system in the<br />

State and there would be a serious threat to the stability of that system if that merger or acquisition did not proceed. The<br />

Minister has the power to approve such a merger where in his/her opinion the result of the merger or acquisition will not be to<br />

substantially lessen competition in markets for goods or services in the State (i.e. the standard SLC test) or, even if the merger<br />

will give rise to SLC, where he/she forms the opinion that the merger is nonetheless necessary having regard to any or all of<br />

the following: (i) maintenance of the stability of the financial system in the State; (ii) the need to avoid a serious threat to the<br />

stability of credit institutions; and/or (iii) the need to remedy a serious disturbance in the economy of the State.<br />

On 8 June 2011, the Minister for Finance received a notification concerning the proposed acquisition by Allied Irish Banks plc<br />

(“AIB”) of EBS Building Society (“EBS”). Each of AIB and EBS offer retail banking products including savings and current<br />

accounts, mortgages, credit cards and insurance products. Both institutions are under State control as a result of the financial<br />

crisis and are heavily loss making despite receiving substantial emergency funding. The rationale underpinning the merger is to<br />

form one of two “pillar banks” capable of meeting the needs of the Irish economy as part of a restructured Irish banking sector.<br />

The Minister’s statement approving the merger indicated that he made his decision on the basis that the result of the acquisition<br />

will not be to substantially lessen competition in the Irish banking market. The rationale given for this opinion was that “there<br />

is no realistic alternative, which would ensure that competition from EBS would be preserved”. While no merger determination<br />

has yet been published, it would seem that the Minister was persuaded by “failing firm” arguments in making his decision.<br />

The Authority, in its Notice in Respect of Guidelines for <strong>Merger</strong> Analysis, provides that a merger may not give rise to SLC<br />

where part or all of the merging parties’ assets are “certain to exit the market in the event of the merger not taking place”.<br />

Where the Authority is considering a “failing firm” defence, it normally requires that there have been good faith and verifiable<br />

efforts to elicit reasonable alternative offers of acquisition that would keep the relevant assets in the market and be less of a<br />

threat to competition than the proposed merger. In the event that the Minster for Finance applied a similar analytical framework<br />

in this case, he might well have been persuaded that EBS had no alternative realistic option, other than to combine with AIB,<br />

that was less problematic from a competition perspective. It had been reported that EBS had been in talks with various non-<br />

State owned and State-owned financial institutions apart from AIB in advance of the AIB deal. A merger with some of those<br />

financial institutions would also have given rise to significant overlaps.<br />

In his statement, the Minister for Finance confirmed that he had considered the advice of a competition advisor and the views<br />

communicated to him by the Governor of the Central Bank and the Authority in the consultation process carried out in relation<br />

to the proposed acquisition.<br />

Following the Minister’s approval decision, the European Commission (“Commission”) reported that it had granted temporary<br />

approval under the EU State aid rules to a recapitalisation of up to EUR 13.1 billion to the newly merged entity. The<br />

Commission’s final decision remains subject to its review of a new restructuring plan to be submitted by the Irish State.<br />

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Matheson Ormsby Prentice Ireland<br />

Apart from the AIB/EBS merger, as might be expected given the depth of the financial crisis, there has also been an increase<br />

in notifications to the Authority relating to firms in financial difficulty with “failing firm” arguments being made. To date,<br />

these cases have not led to any new failing firm analysis, but rather have involved the Authority expediting its normal review<br />

process from one month to shorter periods including, on one occasion, to ten working days to deal with the timing realities<br />

where firms are in liquidation or receivership.<br />

New developments in jurisdictional assessment or procedure<br />

Ireland’s merger control regime as set out in Part 3 of the Act is mandatory and imposes a prohibition on the merging parties<br />

putting a merger into effect prior to Authority clearance. The Authority has always been implacably opposed to implementation<br />

prior to clearance. However, the way in which the merger regime operates so as not to permit early notification and the absence<br />

of a discretion to exempt such conduct causes real difficulties for merging parties. These issues came under renewed focus in<br />

December 2010 when the Authority criticised the implementation of a notified merger, Stena/DFDS (M/10/043). In this case,<br />

the merger which was notified to both the UK’s Office of Fair Trading and the Authority signed and completed on the same<br />

day so that the authorities were considering an implemented merger. While this did not raise concerns under the UK’s voluntary<br />

merger control system, where “hold separate” undertakings are relatively commonplace, it did raise Authority concerns.<br />

The Authority issued a stern press release as follows:<br />

“Stena Acquisition of Certain Assets of DFDS A/S Void<br />

By implementing the acquisition of certain assets of DFDS A/S before receiving clearance from the Competition<br />

Authority, Stena AB (Stena) and DFDS A/S, have infringed section 19(1) of the Competition Act 2002. Consequently,<br />

as provided for by section 19(2) of the Act, this acquisition is void.<br />

[…]<br />

Dr Stanley Wong, Member of the Competition Authority and Director of the <strong>Merger</strong>s Division said “it is not acceptable<br />

for parties to implement a notifiable merger or acquisition prior to obtaining approval from the Competition Authority.<br />

Any such merger or acquisition is void.”<br />

The Competition Authority will proceed to assess the notified transaction in accordance with the provisions of the<br />

Competition Act 2002.”<br />

The merger was subsequently treated by the Authority as a proposal to put an acquisition into effect and was subsequently<br />

cleared by the Authority following a Phase II Investigation.<br />

However, it is clear that this case is not unique. The main practical difficulty that arises in multijurisdictional transactions<br />

involving Ireland is that the merging parties may wish to sign and complete a transaction simultaneously or may have received<br />

all other clearances and may not wish to delay completion solely in order to gain Authority clearance. Merging parties who<br />

are considering implementation prior to clearance must consider their strategy carefully.<br />

Unfortunately, there are no clear cut mechanisms to avoid a breach of the implementation prohibition where merging parties<br />

wish to implement a transaction prior to clearance. One mechanism often considered is to try and “carve out” the Irish aspects<br />

of the proposed transaction so that, although it would be put into effect elsewhere, it would not be put into effect in Ireland<br />

until clearance was obtained. However, the Authority does not tend to recognise a “carve-out” of the Irish aspects of the<br />

transaction as remedying a breach of the Act. In Aviva/CGU International Insurance plc/Gresham Insurance (M/05/013),<br />

while the Authority did not find that a “carve-out” employed by the parties was such as to prevent the entire transaction being<br />

void, it did note that the effect of the “carve-out” was to prevent the transaction having any effect in Ireland until Authority<br />

clearance was issued.<br />

Another mechanism sometimes considered is to provide the Authority with “hold separate” undertakings. There have been a<br />

number of cases where the merging parties have informed the Authority that they will “hold separate” until clearance is issued<br />

by the Authority, including Stena/DFDS. However, in all of the reviewed cases the Authority has still taken the view that a<br />

breach of the Act has occurred. The Authority has not, to date, taken any action against the parties in such circumstances.<br />

In Noonan Services/Federal Security (M/09/014) the purchaser acquired the competing security services business of the target<br />

in both Ireland and Northern Ireland. The transaction was completed prior to clearance, subject to a hold separate agreement.<br />

In both the public version of the determination and the press release which was issued on completion of the Authority’s review,<br />

the Authority made reference to the fact that the parties had completed prior to clearance and had therefore breached the Act<br />

so as to result in the transaction being void. It was apparent from both documents that the Authority was dissatisfied with the<br />

parties’ actions, as evidenced by the reference in both documents to its recommendation that the merger control regime be<br />

amended to provide for a substantial fine for breach of section 19 of the Act.<br />

The current situation gives the Authority a number of options where there is implementation prior to clearance. In particular,<br />

if the Authority were to become aware that merging parties were considering completion, it could seek a court injunction in<br />

the Irish High Court.<br />

An Irish court may be minded to grant such an injunction where the Authority is able to demonstrate that its preliminary<br />

examination of the merger gives rise to grave SLC concerns or where the Authority suggests that it may find it necessary to<br />

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Matheson Ormsby Prentice Ireland<br />

prohibit the merger on SLC grounds or approve it subject to conditions. It is also possible that the Authority could initiate the<br />

action solely on the grounds that the parties would breach their statutory obligations.<br />

If the Authority were to be successful in obtaining an injunction in the Irish courts preventing completion taking place, a court<br />

order would then be served on the merging parties or such of their subsidiaries that carry on business in Ireland requiring them<br />

to refrain from completing the proposed transaction prior to receipt of Authority clearance. Non-compliance with the terms<br />

of the court order could result in a finding of contempt of court against the parties.<br />

A finding of contempt of court could result in personal liability for the directors of the Irish entities (the court in such instance<br />

could require the directors of the companies in question to remedy any breach or bring the relevant companies into compliance<br />

with the court order).<br />

Another issue that has to be taken into account is the risk to the merging parties where the merger is ultimately blocked. Section<br />

26(4) of the Act provides that where the parties to a merger contravene a determination of the Authority prohibiting a merger,<br />

the parties will be guilty of an offence, punishable by fines of up to €10,000 or to imprisonment for a term not exceeding two<br />

years. Section 26(4) also provides for additional daily default fines for each day of continued contravention.<br />

While there is a lack of clarity on the correct statutory interpretation of section 26(4), because it relates to the commission of<br />

a criminal offence, it must be read restrictively, so that the Authority’s determination must first be in place before any<br />

contravention can occur. There has been no judicial interpretation of section 26(4) or precedent as regards this matter. The<br />

Act provides only that the determination shall state that the merger may not be put into effect.<br />

As part of a general consultation on reform of the Act initiated in late 2007 (see further below), the Department of Enterprise,<br />

Trade and Employment, now the Department of Jobs, Enterprise and Innovation (“Department”), which is responsible for<br />

competition legislation, has been asked to consider proposals to alleviate the problems surrounding this issue. Proposals<br />

include: (i) allowing notification of transactions prior to the conclusion of a binding agreement as is the case under the EU<br />

<strong>Merger</strong> Regulation where there is a good faith intention to merge; and (ii) granting an exemption from the obligation not to<br />

complete a merger where there are good reasons for allowing implementation.<br />

The Authority in its submissions to the Department on amendments to the Act sought an ability to allow early notification of<br />

transactions and the insertion of a civil penalty in the form of a “substantial fine” for implementation of a merger prior to<br />

clearance. It is to be hoped that a more flexible approach to this problem might be considered by the relevant Minister, so as<br />

to include, for example, a discretion to allow implementation in certain circumstances and/or to avoid the imposition of penalties<br />

in appropriate cases.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

Industry sectors most likely to be subject to merger control review by the Authority are mergers involving financial services.<br />

In 2010, 13 out of the 46 mergers notified involved a financial institution. However, because the Irish merger control system<br />

is mandatory and the only relevant factor is the turnover of the undertakings involved and not substantive overlap, the high<br />

proportion of such mergers is more a factor of the number of such institutions carrying on business in Ireland and their high<br />

turnover, rather than the approach of the Authority to market definition or to any other substantive concern.<br />

Media mergers continue to feature prominently due to the disapplication of turnover thresholds for all media mergers. Nine<br />

media mergers were notified in 2010, all of which were cleared following a Phase I review by the Authority (without conditions),<br />

i.e. with no competition issues or plurality concerns following review by the Minister for Jobs, Enterprise and Innovation.<br />

There remains some level of frustration that so many media mergers continue to be caught by the Act imposing an unnecessary<br />

regulatory burden on such businesses. However, there is no indication of a desire to modify the scope of the current media<br />

merger system so as to enable such mergers to escape merger control review (see “Reform proposals” below).<br />

Other industry sectors which featured prominently in 2010 and in 2011 to date include the technology and communications<br />

sectors and the food and drink sector. The latter sector has also produced the only merger control determination which has<br />

been the subject of an appeal to date – in August 2008, the Authority prohibited the proposed acquisition by Kerry Group plc<br />

of the consumer foods division of the former Dairygold Co-operative (Breeo Foods Limited and Breeo Brands Limited)<br />

(M/08/009). The Authority’s prohibition decision was overturned on appeal by Kerry Group to the High Court, based in part<br />

on the Court’s critique of the Authority’s approach to market definition which had focussed on very narrow segments within<br />

certain food sectors such as natural and processed cheese. During 2010, the Authority made an application for a priority hearing<br />

of its appeal, in turn, to the Supreme Court. However this application was not granted and, as of the time of writing, the<br />

Supreme Court case is still awaiting a hearing date.<br />

Key economic appraisal techniques applied<br />

The Authority’s Guidelines for <strong>Merger</strong> Analysis have been in place since December 2002. The Authority initiated a public<br />

consultation in December 2010 with a view to reviewing and updating these Guidelines. However, no revised Guidelines have<br />

yet been issued.<br />

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The Authority is very influenced by the work of the International Competition Network (the “ICN”) of which it is an active<br />

member, and also of the EU, UK and USA competition authorities. The Authority appears minded to follow the new US DOJ<br />

and FTC approach as set out in their 2010 Horizontal Guidelines to reduce the importance currently afforded to the SSNIP test<br />

and market definition describing it as “not always necessary and a pre-requisite to the conduct of a competitive effect analysis”.<br />

The Authority has consistently reviewed mergers by emphasising unilateral and coordinated effects as the main theories of<br />

harm and this position is not likely to change in any new guidelines. However, we might expect a more complete discussion<br />

of efficiencies, including consideration of the extent and probability of cost efficiencies and evidence of such efficiencies and<br />

the likely distribution of efficiency gains among consumers, staff and shareholders.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

The Authority is willing to consider remedies in each of Phase I and Phase II. Where remedies are voluntarily suggested by<br />

the merging parties in Phase I, this increases the period for Authority review from a one month period to 45 days. While the<br />

Authority states that it prefers for remedies to be set out as early as possible in the process, there is some frustration among<br />

practitioners that the Authority’s internal processes are not well suited to an early engagement on such matters. This can lead<br />

to mergers moving to Phase II even where there is an appropriate remedy offered early in Phase I (as the Authority does not<br />

allow itself sufficient time to consider the issues).<br />

The Authority’s preference when considering mergers is where possible to identify an available structural remedy and then to<br />

consider behavioural remedies. In practice, structural remedies are rare. Where behavioural remedies are adopted, the Authority<br />

prefers those which require the least possible oversight role by the Authority itself in demonstrating compliance. In the last<br />

Phase II merger involving remedies, Metro/Herald (M/09/013), the Authority imposed a requirement that an annual report be<br />

submitted by the independent Chairperson reporting on compliance. This mechanism has worked satisfactorily to date.<br />

The Authority has not to date published any guidelines in relation to remedies. However, its approach to the small number of<br />

cases in which structural remedies have been imposed to date (for example, Premier Foods/RHM (M/06/098) and<br />

Communicorp/Emap (M/07/040)) has increasingly relied on both EU and UK guidance and has required the appointment of<br />

an independent trustee with a mandate to oversee and, if necessary, enforce the divestiture process.<br />

As part of its commentary on the proposed reform of the Act by the Department, the Authority has proposed that the time<br />

period for Phase II be extended from three months to four in all cases (see “Reform proposals” below) and by a further period<br />

of 15 days in event that remedies are considered during Phase II.<br />

Key policy developments<br />

There are no new policy developments in Irish merger control as such. However, the Authority has faced severe cut backs and<br />

suffered significant staff shortages in recent times. The Authority has openly expressed its concern regarding the reduction in<br />

funding and the general freeze on public sector recruitment and promotion in place since April 2009. The Authority’s merger<br />

control function, however, seems the least likely area to be adversely impacted by these shortages. In a speech in late 2010,<br />

the Chairperson of the Authority noted that this is an area where the Authority has “no choice but to respond within statutory<br />

deadlines” even if this means redeploying staff from general competition enforcement work.<br />

The new disciplines imposed on the State as a result of the EU/IMF Memorandum of Understanding in November 2010 and<br />

change of Government in March 2011 seem to have introduced a possible new commitment to and focus on the role of<br />

competition and this could lead to a new stronger merger control regime and a re-energised Authority.<br />

The Government is also seeking to amend the Act to facilitate the merging of the Authority and the National Consumer Agency.<br />

However, this change is unlikely to cause any change to merger control policy as it is not envisaged that there be any change<br />

to the SLC test, which is a consumer welfare test.<br />

Reform proposals<br />

There are a number of proposals for reform which could impact on Irish merger control rules.<br />

Media mergers<br />

Changes to the Act are expected to include changes to the media merger control regime to take account of recommendations<br />

contained in the 2008 Report of the Advisory Group on Media <strong>Merger</strong>s (“Report”).<br />

The Report recommends that the Act be amended to provide for a separate system of notification of media mergers to the<br />

Minister for Jobs, Enterprise and Innovation for clearance. While the Authority would continue to review the competition<br />

aspects of media mergers under the SLC test, media mergers would require an additional notification to the Minister (on a<br />

specific notification form and attracting a separate fee) who would apply a statutory test (discussed below) to ensure that the<br />

merger is not contrary to the public interest.<br />

The Report proposes that media mergers which fall within the jurisdiction of the EU <strong>Merger</strong> Regulation should also be notified<br />

to the Minister for approval. This would appear to provide for a specific mechanism (not currently provided for under the Act)<br />

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Matheson Ormsby Prentice Ireland<br />

for the application in Ireland of Article 21(4) of the EU <strong>Merger</strong> Regulation, which allows Member States to take “appropriate<br />

measures” to protect legitimate interests, including media plurality.<br />

The Report defines a proposed new statutory test to be applied by the Minister in a review of media mergers, i.e.: “whether the<br />

result of the media merger is likely to be contrary to the public interest in protecting plurality in media business in the State”.<br />

Plurality of the media is defined in the Report as including “both diversity of ownership and diversity of content”.<br />

The Advisory Group also recommends the adoption of a revised set of “relevant criteria” to be considered in applying the<br />

above test, including the likely effect of the media merger on plurality; the undesirability of allowing any one<br />

individual/undertaking to hold significant interests within a single sector or across different sectors of media business in the<br />

State; the consequences for the promotion of media plurality of the Minister intervening to prevent the merger; and the adequacy<br />

of other mechanisms to protect the public interest.<br />

The Report recommends that these criteria should be supplemented by more detailed statutory guidelines to be issued by the<br />

Minister in consultation with the Minister for Communications, Energy and Natural Resources. Such guidelines are intended<br />

to assist the undertakings involved in knowing how the Minister will apply the “relevant criteria”. It is proposed that the<br />

guidelines would contain indicative guidance on levels of media ownership and in particular, cross media ownership, that<br />

would generally be regarded as unacceptable. They would also provide for concrete indicators of diversity and plurality which<br />

might operate as a “sort of checklist” which the parties to a media merger would be invited to address in their notification.<br />

Examples given include demographic audience information and market share data, shareholder information, compliance by<br />

the parties with industry codes of good practice, and whether the parties have a “record of truthful, accurate and fair reporting”.<br />

Should the Minister implement the proposals contained in the Report, parties will require a separate approval from the Minister<br />

prior to implementation of a media merger. The Report suggests a two-phase system for review, in which Phase I would last<br />

until 30 days after the date of notification to the Minister or the decision of the Authority / European Commission / Broadcasting<br />

Authority of Ireland (to which TV and radio mergers must also be notified) whichever is the later (i.e. effectively a two-month<br />

period for mergers notified to the Authority).<br />

At the end of this period, the Minister may decide to (i) approve the media merger on the basis that it does not contravene the<br />

public interest test, (ii) approve the media merger with conditions, or (iii) proceed to a Phase II examination.<br />

It is proposed that Phase II should last no more than four months from the date of the Phase I decision. In addition, at any stage<br />

in the process (Phase I or II), the Minister would be entitled to look for further information and extend time limits by the time<br />

required to respond.<br />

In the event of a Phase II review, the Report calls for the establishment of a five person Consultative Panel comprised of experts<br />

in law, journalism, media, business or economics, to advise the Minister on the application of “relevant criteria” (and to replace<br />

the existing role of the Authority in this regard).<br />

At the end of Phase II, unless concluded in the intervening period by a Ministerial decision, the Minister shall decide whether<br />

to approve, approve with conditions or block a media merger.<br />

The Report also recommends the ongoing collection and periodic publication by the Government of information in relation to<br />

media plurality in the State.<br />

Other proposed reforms<br />

In its response to the Department of Jobs, Enterprise and Innovation’s public consultation on a general reform package for the<br />

Act, the Authority requested that a number of changes be made to the Act, including changes to the merger control provisions<br />

in Part 3.<br />

The more important changes suggested by the Authority include:<br />

• Proposals to introduce “more appropriate sanctions”. At the moment the sanctions for breaching various elements of<br />

Part 3 of the Act including knowing and wilful failure to notify a notifiable transaction within the statutory one month<br />

period and breach of a provision of a binding commitment or a conditional clearance determination are criminal offences<br />

under the Act. It is, in the Authority’s view, more appropriate that the sanctions for these infringements are civil. The<br />

Authority is also seeking civil sanctions for implementation of a transaction prior to clearance for the first time.<br />

• Proposal to include partial investments. At the moment the Act refers to mergers that involve a change in decisive<br />

control. The Authority has noted a suggestion in the literature and case law that there is a case for analysis of partial<br />

investments – i.e. those that fall short of decisive control. The Authority makes some tentative proposals for discussion<br />

on this issue, although it makes no definitive recommendations.<br />

• Proposals to extend time limits for review. The Authority has two major suggestions: (i) to extend a Phase II review<br />

from three to four months; and (ii) to enable it to “stop the clock” during Phase II following a requirement for further<br />

information.<br />

• Proposal to review the media merger provisions. The main suggestion (consistent with recommendations of the 2008<br />

Report) is to remove the Authority from having to opine on “public interest criteria” in media mergers as it “is not within<br />

its area of competence”. The Authority also notes that even with recent revisions to the Media Order, media mergers with<br />

little nexus to the State are still captured under the Act and it is thus proposed to introduce revisions to resolve this issue.<br />

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Matheson Ormsby Prentice Ireland<br />

Helen Kelly<br />

Tel: +353 1 232 2000 / Email: helen.kelly@mop.ie<br />

Helen Kelly is a partner and head of the EU, Competition and Regulatory Law Group at Matheson<br />

Ormsby Prentice. Helen’s practice focuses on EU and Irish competition and regulatory law. Helen<br />

specialises in EU and Irish merger control work.<br />

Helen is a graduate of Trinity College Dublin and the London School of Economics and is a solicitor in<br />

Ireland and England and Wales.<br />

Helen regularly publishes articles and speaks at leading conferences. Helen has contributed articles to<br />

a number of publications including Global Competition Review, IFLR and the European Lawyer. Helen<br />

has frequently been recognised as one of Ireland’s leading EU competition and regulatory lawyers in<br />

international legal reviews.<br />

Bonnie Costelloe<br />

Tel: +353 1 232 2000 / Email: bonnie.costelloe@mop.ie<br />

Bonnie Costelloe is a partner in the EU, Competition and Regulatory Law Group at Matheson Ormsby<br />

Prentice. Bonnie specialises in advising on EU and Irish competition law including EU and Irish merger<br />

control, cartel and dominance issues, public procurement and State aid. She has made notifications and<br />

submissions to the Irish Competition Authority, the Broadcasting Commission of Ireland, the UK Office<br />

of Fair Trading and the European Commission. Prior to joining Matheson Ormsby Prentice, Bonnie<br />

worked in the competition group at a leading London City firm.<br />

Matheson Ormsby Prentice<br />

70 Sir John Rogerson’s Quay, Dublin 2, Ireland<br />

Tel: +353 1 232 2000 / Fax: +353 1 232 3333 / URL: http://www.mop.ie<br />

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Israel<br />

Dr. David E. Tadmor & Shai Bakal<br />

Tadmor & Co.<br />

Overview of merger control activity during the last 12 months<br />

The negative impact of the global economic crisis was manifested by the significant decline in the number of mergers<br />

notified to the Israeli Antitrust Authority (“the IAA”). While the average number of notifications in the years 2006-2007<br />

was around 240, the number declined to 181 in 2008, 160 in 2009, and in 2010 only 153 new notifications were made.<br />

During this time, the relevant filing thresholds have not changed, which indicates that the main reason was a real decline<br />

in M&A activity in Israel.<br />

* * *<br />

The Israeli Restrictive Trade Practices Law (“the Antitrust Law”) sets a general procedural framework which applies to<br />

all mergers. There is no formal division of the investigatory process into different phases and all mergers must be reviewed<br />

by the General Director up to thirty days from the date the merger notifications were filed. The term may be extended by<br />

the Antitrust Tribunal or by consent of the merging parties. If the General Director does not render a decision within the<br />

prescribed time period, consent to the merger is deemed to have been given.<br />

In 2010, 85% of the mergers were decided within the 30-day period and in 15% of the mergers, the period was extended.<br />

These figures have been stable in recent years.<br />

While the Antitrust Law sets a general procedural framework which applies to all mergers, in practice the IAA screens<br />

merger notifications upon filing and classifies them to one of the three following categories: “green” (clearly benign<br />

mergers); “yellow” (mergers that merit more detailed analysis); and the “red” (mergers that are seemingly anticompetitive).<br />

In 2010, 85.9% of the mergers were labelled “green” and were cleared within two weeks on average; 12.8% of the mergers<br />

were labelled “yellow” with decisions being issued within two months on average; and 1.3% of the mergers were labelled<br />

“red” and were decided within 4 months on average.<br />

* * *<br />

According to the Antitrust Law, the General Director has the power to either approve the transaction, block the transaction (if<br />

there is a reasonable likelihood that the merger will significantly harm competition in a relevant market), or approve the<br />

transaction subject to conditions (if such conditions can eliminate the harm to competition). Of the 153 mergers filed in 2010:<br />

• 90.3% of the mergers were cleared without conditions.<br />

• 5.8% of the mergers were approved with conditions (most of which were behavioural remedies).<br />

• 1.3% of the mergers were blocked by the General Director.<br />

• 2.6% of the mergers were withdrawn by the parties (parties withdraw applications mainly when the IAA indicates<br />

that it is likely to block the deal).<br />

An analysis of the IAA’s track record during the last decade shows that the relative share of mergers that are blocked is<br />

stable, ranging between 0% to 2%. However, there is an evident decrease in the use of remedies by the IAA. While in<br />

the years 2000-2005 around 18% of the merger decisions included remedies, the number decreased to only 6%-8% in the<br />

last years, with 2010 posting the lowest share ever for such decisions (5.8%).<br />

This trend seems to have continued in 2011. The information we have as of August 2011 (though unofficial and partial at<br />

this point) shows that the IAA blocked around 2% of notified transactions, approved without conditions 95% and required<br />

conditions in around 3%. These figures are in line with the new IAA’s guidance on remedies – see “Key policy<br />

developments” below.<br />

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Tadmor & Co. Israel<br />

We should note that in May 2011, the new General Director, Prof. David Gilo, started his term in office and it will be<br />

interesting to see the impact of his appointment on the trends reviewed above.<br />

New developments in jurisdictional assessment or procedure<br />

In 2010/2011, no significant developments occurred in either jurisdictional assessment or procedure. The main policy<br />

document in the area of merger procedure has remained the “Antitrust Commissioner’s Pre-merger Filing Guidelines”<br />

published in 2008.<br />

With a very limited number of cases that are brought each year before the Antitrust Court, merger procedure was pretty<br />

much shaped by the IAA and only rarely was the IAA’s practice contested in court.<br />

In 2010 and 2011, the IAA’s practice was twice contested in an area which had long awaited judicial guidance – the nature<br />

and scope of the IAA’s duty to reason its decisions in the field of mergers.<br />

It has been the IAA’s position for many years that when it approves a merger (with or without conditions), it is only<br />

required to provide the “bottom line”. According to the IAA, it is required to provide a reasoned opinion only if it blocks<br />

a merger.<br />

This position of the IAA is not clear of doubts. Under the law for administrative procedure (decisions and reasons) 1958<br />

(the “Reasoning Law”), a governmental authority which refuses to exercise its authority, must provide the applicant with<br />

the reasons for its decision.<br />

The IAA’s practice was first contested a few years ago in AT 515/04 Cellcom Israel Ltd. V. The General Diretor (2005).<br />

In Cellcom, the IAA approved a transaction by which Bezeq, Israel’s leading telecom firm, increased its share in Pelephone<br />

(one of three Israeli mobile carriers) from 50% to 100%. Cellcom, another mobile carrier, appealed the approval before<br />

the Antitrust Court requesting, among other things, that the IAA will reason its decision to ignore Cellcom’s plea to block<br />

the merger or impose upon it conditions.<br />

The Court ruled that it will be unnecessary and impractical to impose on the IAA a duty to reason every merger decision.<br />

The Court further explained that the Reasoning Law did not apply – at least directly – on a refusal by the IAA to block a<br />

merger at the request of a third party. The Antitrust Court implied that the outcome may have been different had it been<br />

the merging parties that requested the IAA to reason its decision. The Court explained that in such a case the Reasoning<br />

Law would seem to apply, since a conditional approval generally means that the original request of the merging parties<br />

was effectively denied.<br />

In 2010, the IAA’s practice was once again contested - this time by a merging party. In AT 803/08 Teraflex Compounds<br />

(1994) Ltd V. The General Director (2010), the IAA approved a merger between Israel’s sole manufacturers of PVC<br />

mixture: Teraflex and Kafrit. The decision was subject to conditions, one of which was the mandatory licensing of IP<br />

rights to interested third parties. Teraflex, the buyer in this transaction, preferred to waive the transaction in light of these<br />

conditions, but it was contractually compelled to complete the transaction and thus appealed the decision seeking – rather<br />

oddly – that the Antitrust Court will block the merger altogether.<br />

Teraflex argued, among other things, that the IAA was legally required to issue a reasoned decision explaining why such<br />

conditions were imposed and why were they preferred over an outright objection to the merger (which would have allowed<br />

Teraflex to terminate the merger agreement).<br />

The Court upheld the General Director’s decision, stating it was based on solid economic and legal grounds. The Court<br />

further stated that the IAA’s position was elaborately explained to Teraflex in an oral hearing which was held prior to the<br />

issuance of a formal decision. In these circumstances, the Court found the IAA’s position reasonable and valid. The Court<br />

did not analyse the IAA’s position in light of the Reasoning Law, which requires the relevant authority to explain its<br />

position in writing. It seems that the Court adopted a restrained approach, leaving the IAA broad discretion in shaping<br />

merger procedure, as long as its actions do not seem to cause grave injustice.<br />

A different and more critical approach was adopted by the Antitrust Court in AT 36014-12-10 Kniel Packaging Industries<br />

Ltd. V The General Director (2011), which was given earlier this year. This decision contested a different practice of<br />

the IAA, which was to first “stop the clock” with an unreasoned objection to the merger, which is followed by a reasoned<br />

opinion only after several weeks have passed. Naturally, this practice made it more difficult for the merging parties to<br />

launch a timely appeal on the IAA’s decision to block a merger, which many times meant abandoning the merger altogether.<br />

In Kniel, the IAA issued an unreasoned decision after four and a half months of investigation, stating that it will need an<br />

additional 45 days to issue the reasoned decision. Kniel appealed to the Court and, although the request was denied for<br />

technical reasons, the Court criticised the IAA, stating that it is expected to render reasoned decisions in an expedite<br />

manner, especially when it investigates mergers for such a prolonged period. The decision sent a clear message that the<br />

Court has the power to exert judicial review on administrative and procedural decisions of the IAA and that it will not<br />

hesitate to intervene when it deems it appropriate.<br />

* * *<br />

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The Antitrust Law sets a mandatory filing regime, which is enforced by the IAA. A breach of the mandatory filing<br />

requirement is a criminal offence and a source of potential civil liability. The likely impact of the transaction on competition<br />

may have some weight with the IAA, when it determines the type of enforcement actions that will be launched against the<br />

merging parties.<br />

Recently, the IAA entered a consent decree with parties that allegedly breached the mandatory filing regime. While the<br />

IAA found no competitive issues with the merger, the parties were required to pay 400,000 NIS (around 120,000 USD).<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

2010 and 2011 were very busy years for the IAA in the telecommunications sector. The IAA contributed to several<br />

governmental reforms initiated by the Ministry of Telecommunications, mainly in the cellular market, such as the bids to<br />

introduce two additional MNO’s (currently Israel has three), facilitating entry of MVNO’s and changes in the<br />

interconnection fees between mobile carriers.<br />

These regulatory changes were accompanied by significant structural changes in the market and the gradual formation of<br />

four telecommunications groups. These changes were brought about by the aspiration of local telecoms to become a ‘one<br />

stop shop’ for all their customers’ need. This desire was accomplished in two principal ways: natural growth of incumbent<br />

players to new or adjacent markets; and mergers between firms with activities in complementary telecom markets.<br />

The IAA was somewhat hesitant about the effects of such structural changes. The theory of harm which the IAA explored<br />

was that, over time, it will become difficult for smaller firms, operating only in one market, to compete with the “full line<br />

service” of the telecom groups. If that were the case, the number of players in the telecom markets will decrease over<br />

time with only the four groups remaining. The barriers to entry will then become significant, since any newcomer would<br />

need to enter, simultaneously, into several markets. According to this theory, once they are shielded from outside entry,<br />

the four telecom groups would have both the incentive and the ability to adopt parallel pricing behaviour.<br />

A review of the IAA’s track record on telecom mergers shows that merging parties were allowed to combine their operations<br />

in complementary markets and to form telecom groups that are capable of providing a full line telecom service to their<br />

customers. This may indicate that the IAA could not have sufficiently established the theory of harm presented above. Instead,<br />

the IAA focused on a traditional antitrust analysis, dealing with concrete horizontal (and, to a lesser extent, vertical) overlaps.<br />

The IAA’s approach is best illustrated by two major telecom mergers: the acquisition of “Bezeq” the Israeli Telecom<br />

Corporation Ltd by 012 Smile Telecom Ltd; and the acquisition of 012 Smile Communications Ltd by Partner<br />

Communications Ltd.<br />

In 2010, the IAA approved the acquisition of Bezeq, a proclaimed monopoly in several telecom markets, by 012smile,<br />

which was mainly active in the ISP and the international calls services market. The merger was approved after 012smile’s<br />

overlapping activities were divested. The IAA did not seek to prevent the combination of complementary services or nonsignificant<br />

horizontal and vertical overlaps between the parties.<br />

In 2011, a merger between Partner and 012smile, which formed Israel’s fourth Telecom group, was unconditionally<br />

approved. Partner was a significant player in the mobile market and a fringe player in the ISP and domestic calls market.<br />

012smile was a significant player in the ISP and international calls markets and a less significant player in the domestic<br />

calls market. The IAA cleared the merger after thorough investigation, concluding that the overlaps between the parties<br />

were not likely to injure competition. This conclusion stems from the relatively low barriers to entry in these markets and<br />

the fact that merging firm was subject to competition from other telecom groups.<br />

The merger directly confronted the IAA with the theory presented above, since the merger involved the combination of<br />

several complementary services that were offered by “semi telecom groups”. It was clear that the merger was a significant<br />

headway towards a ‘four telecom groups’ structure of the Israeli telecommunications market. The IAA allowed this<br />

combination to go ahead probably because it came to realise that the theory of harm associated with telecom groups was,<br />

at least at this point, speculative in nature.<br />

Another core issue, which was analysed carefully by the IAA in the Partner-012smile merger, was the potential loss of<br />

competition in the mobile market. The IAA had long perceived the mobile market, in which competition was held between<br />

three players, as concentrated and not sufficiently competitive. At the time the merger was notified, there were regulatory<br />

reforms aimed at introducing new competition to the market either as MVNO’s or MNO’s. 012smile was seemingly a<br />

natural candidate to enter the market in either of these paths. The core issue which the IAA struggled with was, therefore,<br />

whether the Partner-012smile merger would eliminate a potential competitor from the mobile market and whether such<br />

elimination would result in significant injury to the competition in that market. The IAA cleared the merger, probably<br />

having concluded that 012smile was not the only potential competitor to the market.<br />

The IAA’s focus on the telecom market is expected to continue into 2012.<br />

* * *<br />

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In 2010/2011, there were also several mergers in the electric appliances and consumer electronics retail sector. Prominent<br />

examples are the merger between Electra Consumer Products Ltd. and Mini-line Ltd., the merger between Newpan Ltd.<br />

and Mini-line Ltd. and the merger between Newpan and “Wholesale Electricity” (sofer & ben Eliezer group).<br />

Newpan is one of Israel’s largest importers of electric appliances and consumer electronics. In addition, Newpan has a<br />

minority interest in two retail chains of electric appliances: “Best Buy”; and “Big Box”. In 2010, Newpan requested the<br />

IAA’s approval to acquire 33.3% of the shares in “Wholesale Electricity”, a chain of electric appliances and consumer<br />

electronics retail stores which competed with “Best Buy” and “Big Box”. The IAA concluded the Newpan’s crossownership<br />

of a minority stake in these chains was unlikely to significantly impede competition, given the limited aggregate<br />

market share of these firms and the existence of competition from other market participants.<br />

The IAA was of a different view when, in the same year, Electra Consumer Products Ltd. and Mini-line Ltd. attempted to<br />

merge. Both parties imported and marketed electric appliances and consumer electronics for home use. The merger was<br />

investigated by the IAA for several months, during which time several market participants publicly expressed concerns<br />

over the parties’ alleged ability to foreclose competing importers from their powerful retail chains. The IAA concluded<br />

that importers needed access to nationwide retail chains, which are an essential advertising platform for new electrical<br />

appliances. The IAA argued that Electra and Mini-line were two out of very few such relevant platforms and, thus, that<br />

the merger posed real danger to competition. The IAA was wiling to approve the merger subject to divestment of a<br />

nationwide chain (“Shekem Electric” or “A.L.M”), but the parties preferred to withdraw their application.<br />

In 2011, Mini-line filed again, this time to merge with another competitor - Newpan. This transaction too was investigated<br />

for months by the IAA, which once again concluded that the aggregate share of the merging parties in the retail segment<br />

raised material concerns. The IAA approved the merger in August 2011, subject to divestiture of Newpan’s minority stake<br />

in the “Best Buy” retail chain.<br />

Key economic appraisal techniques applied<br />

The substantive test under section 21(a) of the Antitrust Law is “reasonable likelihood that, as a result of the proposed<br />

merger, competition in the relevant market may be significantly harmed or that the public would be injured”.<br />

In assessing the possible competitive outcome of a merger, the IAA usually applies the same methodology that the relevant<br />

U.S and E.C authorities use. The IAA would normally define the relevant market and then, if necessary, assess the relevant<br />

market shares of the parties, the existence of barriers to entry and expansion in the market, as well as other economic<br />

factors which may indicate how likely it is that the merger would result in either unilateral or coordinated effects.<br />

The definition of the relevant market is mostly based on qualitative evidence, usually obtained by conversations with the<br />

merging parties and other market participants, internal documents, surveys, public records, information from other<br />

governmental agencies and much more. In cases where the qualitative analysis is not sufficiently informative, the IAA<br />

may seek to strengthen the qualitative analysis by a quantitative analysis (critical loss analysis, price correlations, etc.).<br />

The IAA increased the use of econometric analysis in recent years, but the analysis is still fundamentally qualitative. The<br />

IAA attributes special importance in merger investigations to direct evidence, such as natural experiments, internal<br />

documents and market surveys.<br />

Earlier this year, the IAA published the “Guidelines for Competitive Analysis of Horizontal <strong>Merger</strong>s” which describe<br />

the theoretical economic and legal foundations which the IAA’s merger review is based upon.<br />

According to these guidelines, the core purpose of merger review is to prevent the creation or enhancement of market<br />

power. The guidelines further explain that such market power can be exercised either unilaterally (“merger to monopoly”)<br />

or collectively. The guidelines further explain that, in order to assess the competitive effects of a contemplated merger,<br />

the following steps will be carried out:<br />

<strong>First</strong>, the IAA will identify the relevant product and geographical markets in which the merging companies operate. The<br />

definition of the relevant market is based on the hypothetical monopolist test, which is implemented using practical indicia<br />

such as differences in the functional use of the products, price differences, price correlation, the perspectives of market<br />

participants, differences in quality etc.<br />

Second, the IAA will identify the players in the market, their market shares and the level of concentration before and after<br />

the merger.<br />

The guidelines stress that the merger investigation does not rest solely on static analysis. Therefore, when the initial<br />

assessment yields that the merger raises significant concerns, the IAA will enter a more detailed analysis of the “dynamic<br />

aspects”, i.e. the possibility that the new entry or expansion of existing players in the market will mitigate the immediate<br />

and potentially harmful effects of the merger.<br />

The analysis of entry and expansion will focus on a variety of entry and switching barriers, including regulatory barriers, scale<br />

economics, network effects, strategic behaviour by incumbent firms, branding, access to essential inputs and much more.<br />

If the analysis results in a conclusion that the merger is anticompetitive, the IAA will examine whether there are available<br />

remedies that can eliminate the potential harm to competition.<br />

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Tadmor & Co. Israel<br />

If such remedies are unavailable, the IAA will block the merger, unless one of the following rare situations is proven by<br />

the parties:<br />

• Efficiency defence – if the IAA is convinced that there are efficiencies directly resulting from the merger that<br />

outweigh the potential harm to competition, the merger will be approved. In order to enjoy the efficiency defence,<br />

one must meet certain conditions: (a) the efficiency must be merger specific, in the sense that the parties cannot<br />

obtain similar efficiencies in any other way; and (b) the efficiency must be significant, timely and such that the<br />

benefits will mostly be passed on to the consumers and outweigh the harm inflicted on them by the loss of<br />

competition.<br />

• The failing firm doctrine – this doctrine refers to situations by which the acquired entity is financially<br />

unsustainable and would likely exit the market, even absent the merger. In such cases there is no casual link<br />

between the merger and the injury to competition. In 2010, the IAA published guidelines detailing the legal basis<br />

and the practical requirements to meet the defence (see “Key policy developments”).<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

As we previously explained, the merger control procedure in Israel does not have a formal classification method. However,<br />

it is not uncommon for parties seeking swift approval for complicated mergers to offer upfront remedies, attempting to<br />

expedite the review process. An excellent example for such an approach is the Bezeq-012smile merger mentioned above.<br />

In that case, the parties identified several overlapping areas which were seemingly meaningful and would possibly have<br />

required a lengthy review. In order to avoid such lengthy proceedings the parties suggested divestment of the overlapping<br />

activities at the outset.<br />

However, it is more common that remedies are discussed only if the IAA reaches a tentative conclusion that the proposed<br />

merger may significantly lessen competition in the market. In such cases, the parties may propose remedies that will<br />

eliminate the harm to competition or, alternatively, the IAA may stipulate the conditions that are required in order to have<br />

the merger approved and these can then be discussed with the parties.<br />

Earlier this year, the IAA issued guidelines for merger remedies detailing key principles of its remedies policy – see “Key<br />

policy developments” below. In a nutshell, the new guidelines express a preference for structural remedies over behavioural<br />

remedies. Interestingly, the clear majority of remedies imposed until 2011 were behavioural, while so far in 2011 most<br />

cases involved structural remedies.<br />

Key policy developments<br />

In 2011 the IAA has published several key policy documents in the area of mergers.<br />

The first policy document is “Guidelines for Competitive Analysis of Horizontal <strong>Merger</strong>s” which describes the method<br />

the IAA will use to analyse the competitive effects of horizontal mergers on competition (see detailed explanation in “Key<br />

economic appraisal techniques applied” above).<br />

The second policy document is “Guidelines on Remedies for <strong>Merger</strong>s that raise a Reasonable Concern for Significant<br />

Harm to Competition”.<br />

The document outlines the governing legal principles in the area of merger remedies, out of which two stand out: (a) the<br />

IAA is authorised to request remedies only if the merger, as it was originally proposed, raises a real danger that competition<br />

will be harmed significantly. In other words, the IAA may impose conditions only for mergers that it can otherwise block;<br />

and (b) remedies are preferable whenever they are capable of mitigating the harm to competition.<br />

The guidelines explain that the decision if and what sort of remedies are suitable in a particular case is based on the specific<br />

circumstances. The following considerations serve an important role in such analysis:<br />

• The theory of harm to competition, which the remedies aim to disrupt. Different theories of harm will likely require<br />

different solutions. For instance, a remedy which may be optimal to eliminate potential vertical issues may not help<br />

in solving a significant horizontal overlap.<br />

• How effective is the remedy? From a set of different remedies, the IAA will prefer the more effective one. The IAA<br />

further explains that the more difficult it is to effectively address the potential harm to competition, the more likely<br />

it is to block a merger altogether. Such situations may arise when the injury to competition can be manifested in<br />

many, in part unpredictable, ways.<br />

• The ability to enforce the remedy and to monitor deviations of the parties from such remedy. The IAA will<br />

generally prefer remedies that are easy to enforce and require less monitoring.<br />

• The resources required for such enforcement and monitoring.<br />

• The remedy duration. In general, the IAA will prefer remedies that can be achieved in a single-shot or within a<br />

definite time frame over remedies that are ongoing over time.<br />

• The ability of the merging parties to comply with the remedy – the IAA will see if it is sufficiently probable that<br />

the merging parties will be capable of complying with the remedy imposed. The IAA will tend not to impose<br />

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Tadmor & Co. Israel<br />

remedies whose execution depends on the actions of their parties (for example – if a third party’s approval is needed<br />

to execute the remedy).<br />

The guidelines show that, given such considerations, it will generally prefer structural remedies over behavioral remedies.<br />

The IAA alleges that structural remedies are normally more effective as they deal with the disease and not merely the<br />

symptoms, do not require complex and ongoing monitoring, require less pubic resources and are executed within a defined,<br />

normally short, period. The IAA acknowledges, though, the fact that in certain instances behavioural remedies or a mix<br />

of behavioural and structural remedies would be more appropriate.<br />

In 2010, the IAA published another policy document – “Guidelines Regarding the Failing Firm’s Doctrine”. The<br />

guidelines explain that when a firm is insolvent and will likely exit the market regardless of the merger, there is no casual<br />

link between the merger and the competitive harm that will follow its inception. For the failing firm’s defence to exist,<br />

the following conditions must be met: (a) the firm’s chances to survive as an independent player in the market (including<br />

through debt restructuring and similar proceedings) are very slim; (b) there is no alternative buyer to whom the sale of the<br />

company is less anticompetitive; and (c) the merger is better, from a competition point of view, than letting the firm exit<br />

the market. While the IAA rarely acknowledges the failing firm’s doctrine, several mergers were approved under this<br />

doctrine during the years.<br />

Reform proposals<br />

There have been no reform proposals in Israel in 2010/2011 in the field of mergers.<br />

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Tadmor & Co. Israel<br />

Dr. David E. Tadmor<br />

Tel: +972 3 684 6000 / Email: David@tadmor.com<br />

Dr. Tadmor, a former General Director of the Israel Antitrust Authority (IAA), is the founding and<br />

managing partner of Tadmor & Co., a growing first tier antitrust firm. Dr. Tadmor was named by<br />

Chambers as being in the top class of antitrust lawyers in Israel and as being “in a league of his own”<br />

and “the first port of call”.<br />

David’s practice includes the representation of many leading multinational and Israeli clients in a large<br />

variety of industries.<br />

During his time as a General Director (1997-2001), the IAA trebled in size and much of the foundation<br />

for Israel’s competition law and enforcement policies was laid. As General Director, David introduced<br />

the IAA to the competition committee of the OECD, which has since included the IAA as an observant.<br />

In the past, David was a senior partner at Caspi & Co., a leading Israeli firm; a member of the Antitrust<br />

Court and a corporate attorney with the New York law firm of Wachtell, Lipton, Rosen & Katz (1988-<br />

1993).<br />

Shai Bakal<br />

Tel: +972 3 684 6000 / Email: Shai@tadmor.com<br />

Shai Bakal’s practice covers all areas of Antitrust Law and Regulation. Shai regularly advises and<br />

represents leading corporations in Israel and abroad with respect to complicated antitrust matters such<br />

as mergers, joint ventures, restrictive trade practices and dominant position cases. Shai’s practice includes<br />

representing clients in major antitrust cases before the IAA and in litigation before the Antitrust Tribunal,<br />

as well as representation before other governmental agencies.<br />

Prior to joining Tadmor & Co., Shai practiced law at the legal department of the IAA (2002-2007), where<br />

he was in charge of different sectors including the food sector, retailing and IP. He was later appointed<br />

as the head of the IAA’s mergers team. During his term at the IAA, Shai drafted several key policy<br />

documents, including the “Antitrust Commissioner’s premerger filing guidelines” and the “Antitrust<br />

Commissioner’s Position on Commercial Arrangements Between Suppliers and Large Retail Chains”.<br />

Shai has unique expertise and vast experience in merger control issues and in particular - in cross-border<br />

transactions.<br />

Tadmor & Co.<br />

5 Azrieli Center, The Square Tower 34th floor, 132 Begin Road, Tel Aviv 67021, Israel<br />

Tel: +972 3 684 6000 / Fax: +972 3 684 6001 / URL: http://www.tadmor.com<br />

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Italy<br />

Mario Siragusa & Matteo Beretta<br />

Cleary Gottlieb Steen & Hamilton LLP<br />

Overview of merger control activity during the last 12 months<br />

The number of operations of concentration notified in 2010 (495) was slightly lower than in 2009 (514), and significantly<br />

lower than in 2008 (842) but, in absolute terms, remained quite high.<br />

These figures can be explained by the alternative nature of the two turnover thresholds set forth in Article 16(1) of Law<br />

No. 287/1990 (the “Antitrust Law”), according to which an obligation to file a mandatory notification is also triggered<br />

upon acquisition of targets with a trivial/negligible presence in Italy if the acquiring undertaking alone meets the first<br />

turnover threshold (which makes reference to the aggregate Italian turnover of all the undertakings involved). 1 As a result,<br />

undertakings are frequently subject to (barely justifiable) procedural burdens and related costs, including possible fines<br />

for violation of the reporting obligation, for transactions with little or no impact in Italy.<br />

In more detail, in 2010, the Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato, the “ICA”)<br />

reviewed 495 mergers2 :<br />

• 471 cases were cleared during the so-called “Phase I” (i.e., the ICA issued a decision declaring that no further<br />

investigation was required because the notified transaction did not create or strengthen a dominant position as a<br />

result of which effective competition would have been significantly impeded).<br />

• 23 notifications resulted in a decision of inapplicability (i.e., a decision finding that the notified transaction: (i) did<br />

not fall within the scope of the Antitrust Law because it did not amount to a concentration within the meaning of<br />

Article 5 of the Antitrust Law; (ii) had Community dimension and, thus, fell within the European Commission’s<br />

exclusive jurisdiction; or (iii) did not meet the turnover thresholds set forth in Article 16 of the Antitrust Law).<br />

• In one instance only the ICA opened an in-depth investigation (so-called “Phase II”), because the notified<br />

transaction could have been prohibited under Article 6 of the Antitrust Law. (This procedure was closed in January<br />

2011 with a conditional clearance decision3 .)<br />

In 2010, the ICA carried out 7 proceedings for failure to notify a concentration pursuant to Article 19(2) of the Antitrust<br />

Law, and adopted a decision by which it revoked remedies previously imposed on a company and replaced them with<br />

other measures proposed by the latter. 4<br />

In 2011, as of June 13, the ICA reviewed further 180 transactions. The number of Phase I clearance decisions amounts to<br />

178, while only one concentration was cleared following a Phase II investigation. 5 The ICA has also imposed a fine equal<br />

to €5,000 for failure to notify a concentration pursuant to Article 19(2) of the Antitrust Law. 6<br />

New developments in jurisdictional assessment or procedure<br />

In 2010/2011, no significant developments occurred in the substantive assessment of mergers notified to the ICA. This is<br />

mainly due to the fact that almost all the concentrations were unconditionally cleared by the ICA during Phase I.<br />

By contrast, in Brico Business Corporation, 7 the Administrative Tribunal for Latium (Tribunale Amministrativo per il<br />

Lazio, i.e., the court having exclusive jurisdiction over the appeals lodged against the ICA’s decisions, “TAR Lazio”)<br />

addressed two important procedural issues.<br />

The proceedings were triggered by an appeal brought by Brico Business Corporation (“BBC”) against the decision by<br />

which the ICA conditionally cleared Adeo’s acquisition of Castorama, a competitor active in the do-it-yourself business<br />

and, in particular, in the distribution of these products through large outlets. BBC, the main competitor of the merging<br />

parties in Italy, deemed itself negatively affected by such merger, and filed an action for the annulment of the ICA’s decision<br />

based, inter alia, on a number of procedural pleas.<br />

BBC’s initiative gave the TAR Lazio the opportunity to shed light for the first time on a number of important procedural<br />

issues related to the ICA’s merger control review. Unlike EU merger control rules, 8 Italian merger control rules lack a<br />

comprehensive procedural framework. As a consequence, the ICA always enjoyed a certain degree of discretion in shaping<br />

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the terms of the merger control procedure and extending its rights and prerogatives, and the very limited number of appeals<br />

against merger control decisions9 hindered an effective and systematic jurisdictional review of the ICA’s practice.<br />

In detail, BBC’s claims raised the following procedural issues: (i) the nature of Phase I and of its statutory 30-day duration;<br />

and (ii) the possibility to condition Phase I clearances to commitments proposed by the notifying party.<br />

(i) Nature and duration of Phase I. Concerning the duration of Phase I, pursuant to Article 16(4) of the Antitrust Law,<br />

the ICA is required to render a decision within 30 calendar days of receipt of a complete notification. 10 During such period,<br />

the ICA may request informally clarifications or additional information to the notifying parties. Indeed, it is actually quite<br />

frequent that the case handler contacts the notifying company’s representative(s) or counsel to gather clarifications and/or<br />

additional information by phone. These informal requests do not stop the clock and the ICA remains bound to the obligation<br />

to adopt a decision within 30 calendar days of notification.<br />

By contrast, pursuant to Article 5(3) of Decree No. 217/1998, when there are serious inaccuracies, omissions or untruths<br />

in the notification form, the ICA sends a formal request for information to the notifying party and the 30-day period<br />

commences upon the ICA’s receipt of a correct and complete response.<br />

In its practice, the ICA has traditionally made an extensive – and at times questionable – use of such instrument. In some<br />

instances, for example: (i) the type of additional information requested went well beyond those strictly required by the<br />

notification form; and/or (ii) the declaration of serious incompleteness – and the related request for additional information<br />

– was made shortly before the expiration of the 30-day statutory limit, thereby unduly extending the short time limit of<br />

the procedure.<br />

These circumstances reveal the questionable attitude of the ICA to use this instrument as a tool to gain more time to review<br />

a notified concentration and to anticipate the in-depth substantive assessment which is typical of a Phase II investigation<br />

during Phase I. This consolidated practice, by extending the duration of Phase I, grants the ICA more flexibility in<br />

managing the merger control procedure. Absent a Phase II, third companies do not have formal procedural rights (e.g., to<br />

submit briefs, reply to a statement of objection, be heard in a formal hearing before the ICA’s full body) and the ICA is<br />

thus free to capitalise on their contributions to the extent it considers it useful for its assessment. Moreover, as mentioned,<br />

the ICA enjoys a large degree of discretion in extending the duration of the Phase I. By contrast, when a Phase II is opened,<br />

pursuant to Article 16(8) of the Antitrust Law, its 45-day duration can be extended only by an additional 30-day period, if<br />

the parties fail to supply the information and data requested by the ICA. 11<br />

In its appeal before the TAR Lazio, BBC contested, among others, the legality of the above practice. In particular, BBC<br />

argued that the review carried out during Phase I is summary in nature, since it shall be: (a) merely aimed at identifying<br />

potential competitive concerns justifying a more in-depth analysis (typical only of a Phase II procedure); and, for this<br />

reason, (b) concluded within the 30-day statutory term (save for the limited cases set forth in Article 5(3) of Decree No.<br />

217/1998, when there are serious inaccuracies, omissions or untruths in the notification justifying an interruption of the<br />

30-day term). In other words, in BBC’s views, the Phase II investigation constitutes the correct (and only) legal framework<br />

to ascertain whether the likely competitive concerns identified in Phase I are indeed justified and well grounded.<br />

In the case at hand, the artificial extension of such deadline went unacceptably beyond all limits and the ICA carried out<br />

a very detailed analysis without opening a Phase II investigation.<br />

According to BBC, the ICA’s attitude had been particularly censurable in the case at hand, since:<br />

(i) the Phase I extended went well beyond its natural duration and lasted 100 days (i.e., even more that the combined<br />

duration of a Phase I and a Phase II investigation);<br />

(ii) due to the very complex substantive issues (including those related to market definition) stemming from the notified<br />

transaction (and acknowledged by the ICA itself), the latter was an inevitable candidate for a Phase II investigation;<br />

and<br />

(iii) this particular complexity of the case was indirectly confirmed by the tight negotiation conducted by the ICA and<br />

the notifying party with regard to the content of remedies.<br />

In BBC’s view, the failure to open a Phase II investigation, far from constituting a mere procedural misconduct, lead to<br />

relevant practical consequences insofar as only during Phase II are third parties formally granted rights of defence12 and<br />

the ICA enjoys coercitive investigative powers13 .<br />

The TAR Lazio rejected BBC’s appeal, 14 maintaining that in Phase I the ICA does not merely carry out a summary<br />

assessment on the notified concentration, but must fully scrutinise the substantive effects of the notified concentration.<br />

This is so since, at the end of Phase I, the ICA has to determine whether the concentration: (a) does not significantly affect<br />

competition, and, thus, it may be cleared by providing adequate arguments supporting such conclusion; or (b) is likely to<br />

create or strengthen a dominant position, thus justifying the opening of a Phase II investigation by means of a reasoned<br />

decision. As a consequence, the Phase I assessment must be sufficiently detailed.<br />

Conversely, if the ICA were strictly bound by the 30-day period, in cases in which, at the end of such period, it had no<br />

sufficient elements to conclude that the notified concentration does not raise significant anticompetitive concerns, it would<br />

have no other options than opening a Phase II investigation. In the majority of cases this would result in an inefficient use<br />

of the ICA’s limited resources.<br />

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Finally, the TAR Lazio clarified that, in any event, the 30-day deadline is set forth in favour of the notifying party, in order<br />

to allow it to get the clearance of the transaction within a reasonable timeframe.<br />

(ii) The possibility to accept Phase I commitments. Unlike the EU merger regulation, the Antitrust Law provides that a<br />

clearance decision may be conditioned upon undertakings only following a Phase II assessment. Notwithstanding the<br />

above, a number of Phase I clearance decisions have been adopted following the presentation of undertakings by the<br />

notifying party.<br />

In such cases, the ICA artificially circumvents the legal provisions limiting the possibility to adopt commitment decisions<br />

to Phase II by qualifying the proposed remedies as “amendments to the originally notified transaction” or, put it differently,<br />

by considering the transaction net of remedies as a newly notified concentration. (Consistently with this approach, each<br />

time remedies are offered/amended, the 30-day period starts anew.)<br />

This practice may be seen in breach of fundamental principles of law which impose strict limits to the administrative<br />

activity and provide that public authorities enjoy only the specific powers and prerogatives expressly conferred upon them.<br />

Moreover, third parties’ rights of defence are inevitably constrained by this practice since, as mentioned, they are granted<br />

no procedural rights during Phase I. 15<br />

In its appeal, BBC maintained that the ICA’s clearance decision had been conditioned to structural remedies proposed<br />

during Phase I by the notifying party and, thus, it qualified as a “conditioned” decision. Since the Antitrust Law does not<br />

provide for the possibility to accept remedies during a Phase I investigation, the ICA’s decision was illegitimate.<br />

This claim was rejected by the TAR Lazio, which clarified that a clearance decision adopted in Phase I accepting and<br />

making binding the commitments offered by the notifying party does not represent a “conditioned clearance decision”.<br />

The TAR Lazio reached this conclusion arguing that remedies offered by the notifying party during Phase I represent an<br />

expression of the right to entrepreneurial freedom. Each undertaking is free to amend the originally-conceived transaction<br />

by offering measures aimed at eliminating, at an early stage (i.e., in Phase I), the risks that the transaction may create or<br />

strengthen a dominant position. As a consequence, the decision adopted by the ICA in Phase I does not qualify as a<br />

conditioned decision pursuant to Article 6(2) of the Antitrust Law.<br />

The TAR Lazio’s reasoning appears questionable. Leaving aside the issue of the correct qualification of a Phase I decision<br />

in cases where it is clear from a substantive standpoint that remedies (and not amendments) have been adopted following<br />

a proposal by the notifying party (the TAR Lazio’s arguments on this point appear very weak and unwarranted), the ICA’s<br />

practice raises relevant practical consequences.<br />

<strong>First</strong>, third parties lack procedural rights in a Phase I procedure and, thus, they have very limited margins to influence the<br />

negotiation of remedies offered at this stage.<br />

Secondly, and most importantly, the ICA lacks coercitive powers in case of non-compliance with Phase I remedies. As<br />

mentioned, the Antitrust Law does not provide for the possibility to accept remedies during the Phase I investigation, and<br />

this explains why the law does not provide for fines/sanctions in case of non-compliance with them. 16<br />

* * *<br />

Sanctions for failure to notify. The ICA does not actively monitor actual compliance with the notification duty and/or<br />

take initiatives to unveil instances of breach of such an obligation. However, when informed about a case of failure to<br />

notify (normally following a voluntary, albeit late, notification), it systematically fines the infringing company. (It is<br />

actually under an obligation to do so.) Between January 2010 and May 2011, the ICA levied fines on 8 companies for<br />

failure to notify.<br />

Pursuant to Article 19(2) of the Antitrust Law, where companies fail, intentionally or negligently, to notify a concentration<br />

within due time, the ICA may impose fines on the company responsible for the notification of up to 1% of its turnover in<br />

the preceding year. Failure to notify is presumed to be at least a negligent violation, because the companies are expected<br />

to be aware of their legal duties. 17<br />

According to the latest decision practice, the fine imposed pursuant to Section 19(2) of the Antitrust Law amounts to an<br />

average of €5,000. Such a modest amount reflects a number of mitigating circumstances normally taken into account by<br />

the ICA for the purposes of assessing the gravity of the infringement, including: (i) the good faith of the undertaking; (ii)<br />

the substantial absence of any anticompetitive effects arising from the concentration; (iii) the fact that the undertaking,<br />

subject to the obligation to notify, eventually filed, on a voluntary basis, a delayed notification of the concentration; (iv)<br />

the cooperation of the undertaking during the ICA’s proceeding; and (v) the short period of time elapsed between the<br />

aforesaid notification and the closing of the transaction.<br />

In more detail, in the reference period (January 2010-May 2011), the fines levied on the notifying parties varied from<br />

€3,000 to €10,000 for each concentration not notified. In a few cases, several transactions were notified at the same time<br />

and the ICA imposed an overall fine multiplying the modest amount of the fine for the number of concentrations notified. 18<br />

* * *<br />

Pre-notification contacts. Another interesting feature is represented by the growing use of the pre-notification contacts.<br />

The ICA has from the outset encouraged the practice of holding informal pre-notification meetings, particularly in complex<br />

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Cleary Gottlieb Steen & Hamilton LLP Italy<br />

cases, where it is advisable to share drafts of the filing with ICA staff and/or to discuss remedies at an early stage.<br />

These contacts are triggered by the submission of a briefing memorandum (outlining the basic information regarding the<br />

deal structure, the parties, and the relevant markets) 19 or, more frequently, of a draft notification form. This latter option,<br />

normally accepted by the ICA, also serves the purpose of reducing the risk of a subsequent formal declaration of<br />

incompleteness, since it allows the notifying party to amend and supplement the draft form in light of the competent<br />

officials’ requests and suggestions.<br />

The draft notification form (or the briefing memorandum) is preliminarily reviewed by a case-handler who, generally<br />

within a week, informally contacts the counsel representing the notifying company with a view to obtaining clarifications<br />

and further information on the proposed deal. Further information/clarifications may be requested before formal filing,<br />

in order to complete the form. In particularly complex cases, the pre-notification contacts can last several weeks and<br />

involve more than one meeting with the ICA staff.<br />

The ICA, like the EU Commission, normally accepts to engage in pre-notification contacts even in connection with cases<br />

which do not present substantive issues but raises doubts as to their reportability under Italian merger control rules (i.e.,<br />

as to their qualification as “concentrations” within the meaning of Article 5 of the Antitrust Law, or as to the calculation<br />

of the turnover for the purposes of assessing whether the thresholds set forth by Article 16 of the Antitrust Law are met).<br />

Based on our experience, the competent official reacts shortly, normally within 7-10 working days. Unfortunately, the<br />

ICA does not release any formal reply, and this hinders the need for legal certainty of the undertakings involved.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

In 2010/2011, the ICA still focused on the banking sector. As a general rule, the ICA acknowledges the necessity of a<br />

dimensional growth of the banks, guaranteeing at the same time the competitiveness of the relevant product markets, also<br />

by way of eliminating cross-interest in the shareholding of the main Italian banks and interlocking directorship. 20<br />

However, it is noteworthy that the recent financial turmoil which has seriously affected the market, lead the ICA to a more<br />

flexible approach towards mergers in the banking sector. (On one occasion, the ICA also agreed to review and amend the<br />

remedies previously accepted, taking into account the supervening financial difficulties, with a view to mitigating the<br />

burden imposed upon the companies.)<br />

The steady interest of the ICA for the above-mentioned sector is a consequence of the merger wave that the Italian financial<br />

sector has been experiencing starting from 2005, and which caused a significant increase of the concentration level of the<br />

Italian banking sector. 21<br />

When assessing mergers in the banking sector, the ICA has paid (and continues to pay) particular attention to the<br />

implications of the network of structural, economic, and personal links traditionally characterising the Italian financial<br />

sector. In particular, the ICA has always taken a very strict and critical attitude towards these links, since it considers that<br />

they contribute to a large extent to the lack of an adequate level of competition in the Italian market. 22 Accordingly, the<br />

ICA has leveraged on its merger control powers to dismantle these links, even by adopting a quite creative (and sometimes<br />

questionable) approach.<br />

The focus on the negative implications of the competitive structure of the market stemming from structural, economic,<br />

and personal links has inspired also the decision adopted in 2011, with respect to the acquisition by Intesa SanPaolo of<br />

Banca del Monte di Parma. 23<br />

In its review of the case, the ICA recalled the close shareholding links between Intesa SanPaolo and Gruppo Crédit Agricole,<br />

which were held for the first time in the 2006 decision Banca Intesa/SanPaolo IMI, where the ICA had imposed on Gruppo<br />

Crédit Agricole an obligation to reduce its shareholding in Intesa SanPaolo and not to appoint anymore its representatives<br />

in the corporate governance’s body of Intesa SanPaolo. (Since Intesa SanPaolo and Gruppo Crédit Agricole had not<br />

implemented the above-mentioned measures, the ICA opened a procedure for failure to comply with the binding remedies<br />

imposed in a decision. Such procedure is still pending24 .)<br />

In the assessment of the substantive impact of Intesa SanPaolo’s acquisition of Banca del Monte di Parma, the ICA found<br />

that Gruppo Crédit Agricole held a very significant position in the relevant banking markets in the two Italian provinces<br />

(Parma and Piacenza) where Banca del Monte di Parma was mainly active.<br />

In light of the fact that Gruppo Crédit Agricole could not be considered as an independent and effective competitor of<br />

Intesa SanPaolo, the transaction would have resulted in Intesa SanPaolo and Gruppo Crédit Agricole having a combined<br />

share exceeding 50% in most of the relevant markets affected by the transaction. In other words, post-transaction, Intesa<br />

SanPaolo and Gruppo Crédit Agricole would have held a collective dominant position in such markets and would have<br />

had the chance to coordinate their respective commercial strategies in the relevant market affected by the transaction.<br />

In the framework of the parallel procedure opened for failure to comply with the ICA’s decision, Intesa SanPaolo and<br />

Gruppo Crédit Agricole submitted to the ICA a number of measures aiming at guaranteeing the independency with Intesa<br />

SanPaolo. In particular, Gruppo Crédit Agricole committed to reduce its shareholding in Intesa SanPaolo through a<br />

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Cleary Gottlieb Steen & Hamilton LLP Italy<br />

divestiture trustee and not to exercise the voting rights attached to such shareholding. Although the procedure for failure<br />

to comply, in which such measures were submitted, is still pending, in the context of the assessment of the Intesa San<br />

Paolo/Banca del Monte di Parma concentration the ICA deemed such measures capable of ensuring the independency<br />

between Gruppo Crédit Agricole and Intesa SanPaolo and, hence, to remove the competitive concerns which could have<br />

been arisen in the banking markets in the provinces of Parma and Piacenza. In light of the above, the ICA cleared the<br />

acquisition by Intesa SanPaolo of Banca del Monte di Parma subject to the implementation of the above-mentioned<br />

remedies.<br />

Finally, in 2010, the ICA also re-assessed a particular issue of the 2006 merger Banca Intesa/SanPaolo IMI. 25 Once again,<br />

the presence of interlocking directorships and cross shareholdings among competing companies played an important role<br />

in the ICA’s assessment. In June 2009, Intesa SanPaolo, the legal entity resulting from the above-mentioned merger, filed<br />

a request with the ICA, with the aim of obtaining a partial review of some of the remedies imposed by the ICA in 2006,<br />

concerning the life insurance markets. In particular, Intesa SanPaolo asked the ICA to revoke the obligation to dismiss its<br />

activities relating to some life insurance markets and to allow it to distribute the life insurance products identified in the<br />

2006 conditional clearance decision.<br />

<strong>First</strong> of all, the ICA confirmed the findings laid down in the 2006 decision, stating that in such relevant markets competition<br />

was still affected by the close links between Intesa SanPaolo and Assicurazioni Generali, both in terms of interlocking<br />

directorships and shareholding, which – together with a strong presence in such markets – granted them a collective<br />

dominant position.<br />

Taking the above into account, the ICA carefully reviewed the new remedies proposed by Intesa SanPaolo. In particular,<br />

Intesa SanPaolo proposed to adopt several compliance provisions relating to its corporate governance especially with<br />

respect to the life insurance sector, with the aim of reducing the influence of Assicurazioni Generali and of avoiding that<br />

the representatives of the latter in the Intesa SanPaolo’s governance bodies could have access to confidential information<br />

and could participate in the adoption of the strategic decisions relating to the life insurance sector. Furthermore, Intesa<br />

SanPaolo committed itself to implement a vertically-integrated captive business plan in the distribution of insurance<br />

products capable of excluding any commercial relationship between Intesa SanPaolo and Assicurazioni Generali in the<br />

life insurance sector.<br />

The ICA deemed such measures capable of removing the anticompetitive effects in the life insurance markets stemming<br />

from the close links between Intesa SanPaolo and Assicurazioni Generali and upheld Intesa SanPaolo’s request, therefore<br />

amending the 2006 clearance decision.<br />

Key economic appraisal techniques applied<br />

The substantive test under Article 6(1) of the Antitrust Law measures “whether a concentration creates or reinforces a<br />

dominant position on the Italian market capable of eliminating or restricting competition appreciably and on a lasting<br />

basis”.<br />

The ICA’s substantive appraisal takes into account a number of factors including: (i) the position in the market of the<br />

undertakings concerned; (ii) the structure of the relevant markets; (iii) the existence of barriers to entry; (iv) the competitive<br />

position of the domestic industry; (v) the conditions of access to supplies or outlets; (vi) the alternatives available to<br />

suppliers and users; and (vii) the supply and demand trends for relevant goods and services. In assessing the competitive<br />

effects of a merger, the ICA employs a market-based approach that attempts to determine the existing parameters and<br />

dynamics of competition on the affected market and predicts the effect of a given transaction on that market. The ICA<br />

compares the competitive conditions that would follow the merger with those that would prevail in its absence, and<br />

endeavours to determine whether the merging firms will face sufficient residual competition to make it unprofitable to<br />

increase prices or decrease output.<br />

The starting point in the ICA’s assessment is represented by the merging parties’ post-transaction market shares. However,<br />

the ICA also takes into account other important factors including market concentration, the number and strength of<br />

competitors, barriers to entry, characteristics of demand and the degree of vertical integration.<br />

In the reference period (January 2010/May 2011), no significant developments occurred, as all the mergers were cleared<br />

in Phase I, with the only exception of (i) the above-described acquisition by Intesa SanPaolo of Banca del Monte di Parma,<br />

and (ii) Edenred Italia’s acquisition of Ristochef. 26<br />

This latter case is quite instructive since it provides a good example of the standard merger control assessment carried out<br />

by the ICA in connection with a horizontal merger.<br />

The case mainly concerned the market for the supply of the so-called “ticket restaurant”, i.e., prepaid meal vouchers given<br />

by organisations/companies to their employees to have a meal at their convenience.<br />

After defining the relevant market (identified as the Italian market for ticket restaurants), the ICA took into account the<br />

shares of the parties and their main competitors. Then it assessed the structure of the market and its current trend in order<br />

to ascertain the existence of lively competition.<br />

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The ICA acknowledged that the market is driven by competitive dynamics, having taken into account the following<br />

circumstances. <strong>First</strong>ly, the total turnover and the overall number of final customers showed a market-growth trend.<br />

According to the ICA, market dynamism also emerged from the frequent bids characterising the market and significantly<br />

affecting the shares of the players, which thus face relevant fluctuations. This is confirmed by the outcome of the latest<br />

bid called by Consip S.p.A., the main publicly-owned client, whose total value, equal to €820 million, was approximately<br />

equivalent to one third of the total market value. In such occasion, none of the parties to the concentration was awarded<br />

any contract and, as a consequence, both Edenred and Ristochef’s market shares significantly decreased, while certain<br />

competitors’ shares experienced a material increase.<br />

In addition to the above, the ICA considered that the introduction of electronic vouchers by Edenred as an alternative to<br />

paper vouchers did not represent a suitable instrument of customer loyalty nor caused management costs increases. On<br />

the contrary, according to the ICA customers enjoy a strong market power, since from the demand side the market is highly<br />

aggregated, due to the fact that bids called by Consip gather several public administrative bodies.<br />

Finally, the ICA noted that barriers to entry did not play a significant role in the market. On the one hand, since the supply<br />

of ‘ticket restaurant’ does not require specific administrative authorisations, any person is allowed to enter the business.<br />

On the other hand, the creation of a network of shops/restaurants in partnership with the ticket supplier does not entail<br />

high business risk nor investment costs insofar as those shops/restaurants are not bound to exclusive obligations vis à vis<br />

a single supplier.<br />

Considering also that during the market test, conducted by means of requests for information to competitors and public as<br />

well as private clients, no significant objections were raised vis-à-vis the proposed transaction, the ICA cleared it without<br />

imposing any remedies.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

No significant developments occurred in the reference period (January 2010/May2011). In no instance were remedies<br />

offered in Phase I, with a view to secure clearance and only two decisions were adopted following a Phase II investigation.<br />

In one case, 27 no remedies were imposed. Conversely, in the Intesa SanPaolo/Banca del Monte di Parma case, 28 the ICA<br />

accepted the commitments offered by Intesa SanPaolo and Gruppo Crédit Agricole (in a different, parallel, merger<br />

procedure) aiming to eliminate the close links between them. (For a more comprehensive description of the case, see<br />

above under “Key industry sectors reviewed”.)<br />

In general, the ICA has traditionally showed a particular favour for a “negotiated” approach with the parties. This is true<br />

also with respect to procedures concerning abuses of dominance and cartels, where the ICA makes large use of<br />

“commitments” under Article 14-ter of the Antitrust Law.<br />

The favour for a negotiated approach may be justified also in light of the importance that the ICA gives to the exposure<br />

of its activity to the media. In recent years, the ICA has made significant efforts to promote its achievements, especially<br />

among consumers, and the publicity normally given to remedies (and to their envisaged pro-competitive effects) serves<br />

this purpose.<br />

Key policy developments<br />

There have been no key policy developments in Italy over the past year.<br />

Reform proposals<br />

There have been no reform proposals in Italy over the past year.<br />

* * *<br />

Endnotes<br />

1 According to the Italian Competition Authority, concentrations involving foreign companies which did not achieve<br />

any turnover in Italy in the last three financial years (including the year in which the concentration takes place), are<br />

not reportable. However, this exemption from the duty to notify does not apply “when it is likely that, posttransaction,<br />

the target company will start achieving turnover in Italy” (Notification Form, Supplement to the Bull.<br />

19/1996, as amended, §3). This latter provision severely restricts the scope of the above-mentioned exemption,<br />

since in many cases it is hardly possible to rule out in advance the possibility that, post-merger, the target company<br />

will still not realise turnover in Italy.<br />

2 Source: ICA’s official website (www.agcm.it). Please note that official figures are not yet available, as they will be<br />

included in the ICA’s 2011 Annual Report, which will be published approximately in June 2011.<br />

3 Decision No. 22013, Case C10773, Edenred Italia/Ristochef, Bull. 2/2011.<br />

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4 Decision No. 21966, Case C8027C, Banca Intesa/SanPaolo IMI, Bull. 50/2010.<br />

5 See again Decision No. 22013, Case C10773, Edenred Italia/Ristochef, Bull. 2/2011.<br />

6 Decision No. 22283, Case C10883, Bridgepoint Capital/Histoire D’Or Europe, Bull. 14/2011.<br />

7 Judgment No. 31278/2010 of August 24, 2010, Brico Business Corporation S.r.l. v. Autorità Garante della<br />

Concorrenza e del Mercato.<br />

8 Reference is made, in particular to the: Council Regulation (EC) No. 139/2004 on the control of concentrations<br />

between undertakings (2004 O.J. (L 24) 1); Commission Regulation (EC) No. 802/2004 implementing Council<br />

Regulation (EC) No. 139/2004 (2004 O.J. L 133); Consolidated Jurisdictional Notice under Council Regulation<br />

(EC) No. 134/2004 on the control of concentrations between undertakings (2008/C 95/01); and Notice on remedies<br />

acceptable under Council Regulation (EC) No. 139/2004 and under Commission Regulation (EC) No. 802/2004<br />

(2008 OJ C 267/1).<br />

9 In 2004, with its landmark judgment, Motorola v. Autorità Garante della Concorrenza e del Mercato (judgment No.<br />

3685 of June 14, 2004), the Supreme Administrative Court overturned the traditional position of the Administrative<br />

Courts, under which only the addressees of the ICA’s decisions had locus standi to seek the decisions’ annulment.<br />

In Motorola, the Court clearly stated that a rule precluding persons other than those to whom a decision is addressed<br />

from appealing would infringe the fundamental constitutional principle of the effectiveness of judicial protection.<br />

Therefore, persons other than addressees may be entitled to appeal a decision, provided that such persons are<br />

directly and individually prejudiced by it. In Fondiaria Industriale Romagnola (judgment No. 1113 of March 21,<br />

2005), the Supreme Administrative Court explicitly extended the scope of the Motorola judgment (which concerned<br />

a decision exempting a restrictive agreement under Section 4 of the Antitrust Law, reaching the same conclusions<br />

in the area of merger control and holding that third parties can challenge merger clearance decisions. Based on the<br />

then-settled case law, the TAR Lazio had initially rejected as inadmissible Fondiaria Industriale Romagnola’s (FIR)<br />

appeal against a decision authorising, subject to certain conditions, the acquisition and the subsequent division in<br />

two separate corporate entities of Eridania, the largest sugar producer in Italy, by Seci-Sadam, Co.prob and<br />

Finbieticola. The Supreme Administrative Court reversed this judgment, holding that third parties (such as<br />

competitors or consumer associations) have standing to appeal such decisions if they can demonstrate that their<br />

interests can be directly and immediately harmed by the Authority’s decision. The Court noted that its ruling was<br />

in line with the EC courts’ case law on direct actions under Article 230 of the EC Treaty (now Article 263 TFEU),<br />

and was also consistent with the rationale behind the Supreme Civil Court’s (Corte di Cassazione) landmark<br />

judgment on consumers’ standing to claim damages from undertakings violating Italian competition law (Judgment<br />

of the Italian Supreme Civil Court, Unipol v. Ricciardelli, 4 February 2005, No. 2207). As it was clear that the<br />

appellant was the main competitor of the companies involved in the transaction authorised by the Authority, the<br />

Supreme Administrative Court found that FIR had a direct interest in the outcome of the merger control<br />

proceedings.<br />

10 In case of public offers, this time limit is reduced to 15 calendar days (see Article 16(6) of the Antitrust Law).<br />

Although, pursuant to Article 16(4) of the Antitrust Law, the clearance letter must be communicated to the notifying<br />

parties within 30 days of a complete notification; in practice, it may happen that the notifying parties receive such<br />

formal letter a few days after this time limit.<br />

11 Notwithstanding this narrow scope for an extension of the 45-day period, the ICA relies on such provision as a legal<br />

basis to extend the duration of the investigation also when the notifying parties offer undertakings or propose to<br />

amend the notified agreements (see, for example, Case C3037, Schemaventuno-Promodès/Gruppo GS, May 20,<br />

1998, Bulletin No. 21/1998, where the parties agreed to modify the structure of the proposed concentration and the<br />

ICA postponed its decision by 30 days in order to evaluate their new proposal; and Case C2227, Fiatimpresit-<br />

Mannesmann-Techint/Italimpianti, January 26, 1996, Bulletin No. 4/1996, where the ICA deemed it appropriate to<br />

postpone its decision for 30 days to allow the parties to finalise their undertakings).<br />

12 These third-party procedural rights include: (i) the right to participate in the proceedings; (ii) the right to be notified<br />

of the ICA’s decision to open an investigation; and (iii) the right to participate in the final hearing before the ICA’s<br />

Board. See Presidential Decree No. 217/1998, §§ 6(4), 7 and 14(5).<br />

13 When opening a Phase II investigation, the ICA has the power to order the undertakings concerned not to proceed<br />

with the concentration until the investigation is concluded and to issue a prohibition decision.<br />

14 BBC appealed the TAR Lazio judgment. The appeal is still pending before the Supreme Administrative Court<br />

(Consiglio di Stato).<br />

15 Before the ICA’s 2006 adoption of a notice according to which at least in certain cases a public communication of<br />

a new filing is given on the ICA’s website (see Comunicazione concernente alcuni aspetti procedurali relativi alle<br />

operazioni di concentrazione di cui alla Legge 10 ottobre 1990, No. 287, May 1, 2006, Bull. 22/2005, amended by<br />

the ICA’s resolution of September 26, 2006, Bull. 35-36/2006), interested third parties did not even have the right<br />

to be informed about the notification of a concentration. Indeed, until then the ICA never provided public<br />

information regarding the receipt of the notification of a concentration. If they happened to be informed about the<br />

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notified transaction through other means, interested third parties could spontaneously file written observations with<br />

the ICA expressing their position on the notified concentration that the ICA was free to take into account for<br />

purposes of its evaluation.<br />

16 In this respect, it is noteworthy that the ICA did not raise any concern with regard to the fact that, ultimately, one<br />

of the four outlets which had to be divested by Adeo (after the adoption of the clearance decision of January 29,<br />

2009) in order to duly implement the ‘amendments’ to the transaction originally conceived, was not sold insofar as<br />

no acquirers were found on the market. As a result, the outlet at stake has remained under the full control of Adeo.<br />

In its decision dated November 24, 2010, the ICA held that such circumstance did not have any material effect on<br />

the competitive assessment of the transaction and, therefore, the clearance decision of January 29, 2009 could be<br />

confirmed (decision No. 21829, Case C9738, Groupe Adeo/Castorama Italia, Bull. 46/2010).<br />

17 Currently, the ICA contends that the principles of merger control should be familiar to undertakings and is not<br />

inclined to accept justifications based on wrong understanding of these principles. The ICA did not impose fines<br />

only in very limited cases, when there were strong faith grounds for ignoring or questioning the obligation to notify<br />

(e.g., due to the complexity of facts or new questions of law).<br />

18 Decision No. 20992, Case C10363, Esselunga/21 Punti vendita (59 rami di azienda), Bull. 14/2010, where the ICA<br />

imposed an overall fine of €105,000 (for failure to notify 35 concentrations); decision No. 21724, Case C10653,<br />

Eurospin Lazio/15 rami d’azienda, Bull. 28/2010, where the ICA imposed an overall fine of €50,000 (for failure to<br />

notify 10 concentrations); and decision No. 20963, Case C10380, Billa/6 punti vendita di Esselunga, Bull. 13/2010,<br />

where the ICA imposed an overall fine of €30,000 (for failure to notify 6 concentrations).<br />

19 Comunicazione concernente alcuni aspetti procedurali relativi alle operazioni di concentrazione di cui alla legge<br />

10 ottobre 1990, No. 287, Bull. 22/2005. An English translation of the Notice is available online at the ICA’s<br />

website http://www.agcm.it/en/competition--mergers-and-acquisitions/notice-june-2005.html.<br />

20 See ICA’s 2010 Annual Report, page 12.<br />

21 In particular, the two most important transactions concluded in the last years (namely, the Intesa/Sanpaolo and<br />

Capitalia/Unicredito mergers – respectively, decision No. 16249, Case C8027, Banca Intesa/San Paolo IMI, Bull.<br />

49/2006; and decision No. 17283, Case C8660, Unicredito Italiano/Capitalia, Bull. 33/2007) led to the<br />

consolidation of four independent Italian banking groups into two new entities. These two main transactions were<br />

accompanied by other important mergers (decision No. 16673, Case C8277, Banche Popolari Unite-Banca<br />

Lombarda e Piemontese, Bull. 13/2007; decision No. 17859, Case C8939, Intesa SanPaolo/Cassa di Risparmio di<br />

Firenze, Bull. 2/2008; and decision No. 18327, Case C9182, Banca Monte dei Paschi di Siena/Banca Antonveneta,<br />

Bull. 18/2008).<br />

22 The ICA’s negative and strict attitude towards these links has been formally confirmed in its 2006 Annual Report,<br />

available at http://www.agcm.it/legal index.htm. During the presentation of the 2006 Annual Report, the Chairman<br />

of the ICA emphasised the existence of “a strong network of structural links, participations and financing<br />

relationships among banks, as well as among banks and insurance companies” and affirmed that “this market<br />

equilibrium may lead to conflicts of interests and, in some cases, may represent a serious pathology. The<br />

convergence of interests between competing undertakings lessens competition”. Accordingly, the Chairman<br />

communicated the ICA’s intention to initiate a sector investigation aimed at analysing in more detail the drawbacks<br />

of these links. See IC 36, La corporate governance di banche e assicurazioni, 23 Dec. 2008, Bull. 49/2008.<br />

23 Decision No. 22240, Case C10910, Intesa SanPaolo/Banca del Monte di Parma, Bull. 12/2011.<br />

24 Decision No. 19874, Case C8027B, Banca Intesa/SanPaolo IMI, Bull. 19/2009, by which the ICA initiated<br />

proceedings against Intesa SanPaolo for failure to comply with the undertakings imposed in the 2006 conditional<br />

clearance decision.<br />

25 Decision No. 21966, Case C8027C, Banca Intesa/SanPaolo IMI, Bull. 50/2010.<br />

26 Decision No. 22013, Case C10773, Edenred Italia/Ristochef, Bull. 2/2011.<br />

27 Decision No. 22013, Case C10773, Edenred Italia/Ristochef, Bull. 2/2011.<br />

28 Decision No. 22240, Case C10910, Intesa SanPaolo/Banca del Monte di Parma, Bull. 12/2011.<br />

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Mario Siragusa<br />

Tel: +39 06 6952 21 / Email: msiragusa@cgsh.com<br />

Mario Siragusa is a partner of Cleary Gottlieb Steen & Hamilton LLP, based in the Rome office. His<br />

practice focuses on corporate and commercial matters and he specialises in EU and Italian competition<br />

law and complex commercial litigation. He lectures regularly at conferences throughout the United<br />

States and Europe and has published numerous articles in U.S. and European legal journals. He is a<br />

professor at the College of Europe in Bruges and lectures at the Catholic University in Milan. He<br />

graduated with honours from the Law School of Rome University in 1970 and received a Diploma of<br />

High European Studies from the College of Europe in Belgium in 1971. He received an LL.M. degree<br />

from Harvard in 1972. Mr. Siragusa is a member of the Commission on Law and Practices Relating to<br />

Competition of the International Chamber of Commerce in Paris. He is also a member of the Rome Bar.<br />

Matteo Beretta<br />

Tel: +39 02 7260 8242 / Email: mberetta@cgsh.com<br />

Matteo Beretta is a counsel of Cleary Gottlieb Steen & Hamilton LLP, based in the Milan office. His<br />

practice primarily focuses on EU and Italian competition law, a practice area in which he advises<br />

numerous major international companies in regards to merger control procedures, and cartel and abuse<br />

of dominant position matters. He regularly lectures at the Catholic University in Milan and has published<br />

numerous articles in U.S. and European legal journals. He is distinguished as a leading<br />

Competition/European Law (Italy) professional by Chambers Europe. He graduated from the University<br />

of Milan in 1991; obtained an LL.M. degree from the Institut d’Etudes Européennes de l’Université<br />

Libre de Bruxelles in 1992 and an LL.M. from the New York University School of Law in 1999. He is<br />

a member of the Bergamo Bar.<br />

Cleary Gottlieb Steen & Hamilton LLP<br />

Piazza di Spagna, 15, Rome 00187, Italy<br />

Tel: +39 06 6952 21 / Fax: +39 06 6920 0665 / URL: http://www.clearygottlieb.com<br />

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Japan<br />

Koya Uemura<br />

Anderson, Mōri & Tomotsune<br />

Overview of merger control activity during the last 12 months<br />

Over the last 12 months, the Japan Fair Trade Commission (the “JFTC”) has gathered a lot of public attention in the area<br />

of merger control. Here are merger review cases worth noting.<br />

The most prominent case (still pending at the JFTC at the time of writing) concerns a merger between Nippon Steel<br />

Corporation, the largest steel company in Japan, and Sumitomo Metal Industries, Ltd., the third largest steel company in<br />

Japan. The combined new company will be by far the largest steel company in Japan, and will have a substantially high<br />

market share (more than 50%) in some of the overlapping product markets. Due to the seemingly high market share,<br />

whether and when the JFTC will, either unconditionally or conditionally, clear this merger is an issue. With sour memories<br />

of the breakdown of the highly-acclaimed merger negotiation between two major Japanese beverage companies, Kirin<br />

and Suntory, in February 2010, Japanese industries, media and even politicians have been welcoming of the merger of<br />

Nippon Steel and Sumitomo and are hoping it will be cleared by the JFTC sooner, rather than later.<br />

The second case that attracted wide public attention was a proposed joint venture between BHP Billiton and Rio Tinto,<br />

two major British-Australian natural resource companies, to integrate their iron ore operations in Western Australia.<br />

Although the request for the JFTC’s review was withdrawn for unknown reasons by the parties before the JFTC’s final<br />

decision, the JFTC recently publicised a statement of its interim analysis (not an official decision) on its Japanese website.<br />

The third case is, although technically not a merger control case under the Japanese Antimonopoly Act, a case of a business<br />

alliance between Google Inc. and Yahoo K.K. under which Google provides Yahoo with a search engine service and search<br />

advertising system. Although the JFTC unconditionally cleared the business alliance after it reviewed the alliance based<br />

on the parties’ voluntary consultation, spurred by public outcry that the JFTC was too quick to clear the case without<br />

sufficient investigations, the JFTC took the bold step of seeking opinions from third parties by posting a special email<br />

address on its website. Newspapers reported that Microsoft and other internet companies submitted objections to the<br />

JFTC. This is the first case in history where the JFTC attempted to gather the public’s opinion on a case it had already<br />

approved.<br />

On the policy side of merger control, on July 1, 2011, the JFTC’s revised Guidelines to the Application of the Antimonopoly<br />

Act Concerning Review of Business Combination (the “Revised <strong>Merger</strong> Guidelines”) and the JFTC’s new Policies<br />

Concerning Procedures of Review of Business Combination (the “New Procedures Policies”) came into force, as further<br />

explained below.<br />

New developments in jurisdictional assessment or procedure<br />

The Revised <strong>Merger</strong> Guidelines, like their predecessor, describe how the JFTC analyses the substantive competitive impact<br />

of mergers (in the statutory wording, “substantially restrain competition”). These Guidelines include several important<br />

revisions, which are, among others: (i) explicit reference to the definition of geographic markets across the border; (ii)<br />

explicit reference to competitive constraint from not only actual but also potential imports; and (iii) a more lenient failing<br />

company defence.<br />

(1) Defining Geographic Markets across the Border<br />

In the last couple of years, the JFTC has been under extreme pressure from Japanese industries and other governmental<br />

agencies of Japan. The typical criticism has been that the JFTC is neglecting the reality of international competition<br />

surrounding Japanese companies in that after the burst of the bubble economy in the 1990s, the Japanese economy has not<br />

been growing substantially for the last twenty years and is expected to shrink in the longer term mainly due to the falling<br />

birth rate and the aging population. Further, in spite of a shrinking domestic market, there are too many Japanese companies<br />

competing in the Japanese market, but they are too small to compete with larger rivals in the international market: the<br />

logical solution to this issue is for Japanese companies to merge with each other.<br />

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Anderson, Mōri & Tomotsune Japan<br />

On June 18, 2010, the Cabinet adopted a comprehensive economic report named “the New Growth Strategies 2010”, and<br />

pointed out the necessity for the JFTC to take into account competition in global markets in its merger review.<br />

Against this background, the Revised <strong>Merger</strong> Guidelines explicitly refer to an example of a geographic market definition<br />

in East Asia: “if a major domestic and overseas supplier is selling at a materially equivalent price in the sales areas<br />

worldwide (or in East Asia), and if the user is selecting their major supply source from suppliers around the world (or in<br />

East Asia), then a world (or East Asia) market will be determined.”<br />

The JFTC might comment that the reference to geographic markets across the border simply confirms its current practice<br />

and is not intended to change it. However, it appears that this specific reference to the East Asia market is intended to<br />

address the public criticism mentioned above. It is therefore expected that the JFTC will define geographic markets across<br />

the border in more merger cases.<br />

(2) Potential Imports<br />

The Revised <strong>Merger</strong> Guidelines explicitly stipulate that, “regardless of whether imports are currently being conducted<br />

or not”, the competitive pressure by imports may be considered sufficient to constrain the exercise of market power by<br />

the merged company. In other words, potential imports can be considered as sufficient competitive restraint, just as<br />

actual imports are. The interesting point about the Revised <strong>Merger</strong> Guidelines regarding potential imports is that they<br />

do not make any distinction between actual imports and potential imports and treat both under the same criteria in<br />

determining, in response to the price increase after the merger, whether or not imports of the relevant products would<br />

increase within a certain period (generally two years) and thus function as a competitive constraint on the market power<br />

that may be exercised by the merged entity.<br />

Some may argue that, even if the same criteria is applied to both actual and potential imports, in reality, potential imports<br />

will be far less likely to be an effective constraint than actual imports. They may be right, but since the JFTC generally<br />

has a tendency to apply its guidelines relatively strictly, the potential consequence of the explicit recognition of potential<br />

imports as a competitive constraint should not be undervalued in practice. Also, this revision is probably intended by the<br />

JFTC to address the public criticism that the JFTC has not paid as much attention to the reality of international competition<br />

as it should have.<br />

(3) Failing Company Defence<br />

The old <strong>Merger</strong> Guidelines recognised the failing company defence only in very limited cases, such as when a target<br />

(either the entire target company or a targeted business to be acquired) was in net capital deficiency. The Revised <strong>Merger</strong><br />

Guidelines have slightly extended the defence to cover cases where the target has been “continuously” suffering<br />

“significant” operating losses. According to the JFTC’s response to the public comments on the draft Revised <strong>Merger</strong><br />

Guidelines, when the target is considered to have been “continuously” suffering “significant” operating losses shall be<br />

determined from the viewpoint of whether the target is highly likely to exit the market.<br />

This revision is mainly intended to address criticism from Japanese industries of the old Guidelines that, if an acquirer had to<br />

wait until the target became in net capital deficiency, it was often too late to rescue the ailing target. In reality, however, the<br />

JFTC has been recognising the failing company defence relatively loosely in the last couple of years than the old Guidelines<br />

seemingly indicated (please refer to Xing’s acquisition of BMB in 2009). The Revised <strong>Merger</strong> Guidelines may strengthen the<br />

tendency for the JFTC to relatively loosely recognise the failing company defence even further.<br />

(4) Shrinking Demand<br />

The Revised <strong>Merger</strong> Guidelines stipulate that, if demand of a product has been “continuously and structurally” falling<br />

well under the supply of the product as a result of a decrease in demand for the product, the JFTC may recognise that fact<br />

as a competitive constraint on the exercise of market power by the merged company. Because many areas of Japanese<br />

industries have been shrinking, there have been a lot of merger cases in which the combined market share was substantially<br />

high but the mergers were still cleared by the JFTC because the exercise of market power by the combined company was<br />

highly unlikely. This revision of “shrinking demand” was not included in the original public draft of the Revised <strong>Merger</strong><br />

Guidelines, and was added in response to public comment. Such incorporation into the JFTC’s Guidelines of public<br />

comment was not common in the past, but is in line with the JFTC’s tendency in the last couple of years to listen to the<br />

public voice more carefully than before.<br />

What “continuously and structurally” exactly means is not explained under the Guidelines, but in light of the JFTC’s past<br />

practice, this would typically be intended to be applied to cases of product markets where demand has been declining over<br />

the years due to a change in market structure but production capacities have not been easily curtailed because large upfront<br />

capital investments were required and a large part of the investment costs were sunk (for example, in the case of certain<br />

chemical products). It is theoretically sound and consistent with the JFTC’s past precedents to recognise shrinking demand<br />

and accompanying excess capacity as a factor to constraint on market power.<br />

(5) Neighbouring Markets<br />

The Revised <strong>Merger</strong> Guidelines added another example of competitive constraint from neighbouring markets. They state<br />

that, if competing products in neighbouring product markets (i.e., products that are not, in a strict sense, within the properly<br />

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defined product market under scrutiny but are still considered to be competing with the relevant product) are highly likely<br />

to replace demand for the relevant product in the near future, then such a fact may be considered as a factor stimulating<br />

competition in the relevant market. This additional example is probably intended to be applied to cases where innovation<br />

is very active and currently dominant products are likely to lose the market share. Please refer to the JFTC’s decision on<br />

the Panasonic/Sanyo merger in 2009, holding that the combined market share of the parties in nickel hydride batteries<br />

(almost 100%) was not a problem because lithium-ion batteries would replace nickel hydride batteries in the near future.<br />

New developments in merger review procedure<br />

The New Procedures Policies replaced the JFTC’s Policies Dealing with Prior Consultation Regarding Business<br />

Combination Plans (the “Old Policies”). Under the Old Policies, it was general practice in Japan, if the parties to a merger<br />

thought the JFTC might not clear the merger, to voluntarily consult with the JFTC for its view on the merger well before<br />

filing the notification required under the Antimonopoly Act. This was called “prior consultation”. Of course, as prior<br />

consultation was totally a voluntary procedure, companies were allowed to file a merger notification without it. However,<br />

almost all Japanese companies chose to go through prior consultation.<br />

One advantage of the voluntary prior consultation procedure was that, because of its voluntary nature, companies could<br />

enjoy procedural flexibilities in various aspects.<br />

On the other hand, prior consultation was infamous for taking too long. Under the Old Policies, the initial 30-day review<br />

period (so-called “Phase I”) only started, not from the date of the filing of the prior consultation, but from the date when<br />

the JFTC admitted that it had received all information it believed was necessary for its merger review. Similarly, the JFTC<br />

was supposed to issue a list of questions to the parties within 20 days of the filing of a prior consultation, but since the Old<br />

Policies were not legally binding, in reality, the JFTC sometimes issued multiple rounds of questions even after the initial<br />

20 days. On occasion, the JFTC sometimes asked thousands of detailed (and seemingly barely relevant) questions to the<br />

parties who became inundated by so many that, combined with the JFTC’s very restrictive position in admitting it had<br />

received all necessary information, Phase I did not even start after more than one year. This prolonged Q&A period before<br />

Phase I became dubbed by some practitioners as “Phase Zero”.<br />

Many business people rightfully criticised this practice as unpredictable in terms of the schedule, not transparent enough,<br />

and unfair. Some governmental agencies pressured the JFTC to correct it. More fundamentally, the prior consultation<br />

was viewed to be a “belt-and-suspender” approach because after the clearance of the JFTC at the prior consultation, the<br />

parties were still required to file a statutory notification under the Antimonopoly Act (although it was certain that the<br />

mergers cleared in the prior consultation would be cleared in the statutory review procedure as well).<br />

The New Procedure Policies have completely changed the procedure of the JFTC’s merger review. Under the New<br />

Procedure Policies, the notorious prior consultation was abolished. The JFTC only accepts consultation on how to fill in<br />

statutory notification forms, and will not review substantive competitive issues, which will now be reviewed under the<br />

statutory review procedure.<br />

The biggest advantage of this practice is that the time necessary to obtain the JFTC’s clearance is expected to be<br />

substantially shorter than under the Old Policies. Now, under the statutory review procedure, the JFTC’s review must be<br />

done strictly in accordance with the schedule stipulated under the Antimonopoly Act. More specifically, the initial 30day<br />

Phase I review starts from the date of acceptance of the notification by the JFTC and the JFTC is required to accept<br />

the notification as long as the notification form satisfies the formalistic requirements (such as providing information on<br />

the domestic turnover of parties’ group and market share data in the relevant product and geographic market).<br />

On the other hand, there may be some disadvantages. Since the timeline of the statutory merger review is strictly laid<br />

down by the Antimonopoly Act (Phase I review must be completed within 30-days, and Phase II review must be completed<br />

within the later of either 90 days from the date of the start of Phase II or 120 days from the date of the filing of the<br />

notification), there is little flexibility in terms of the schedule. Perhaps the most troublesome issue is that under the<br />

Antimonopoly Act, the JFTC can issue a cease-and-desist order only before the expiration of, naturally, the Phase II period.<br />

This is so, even when the parties agree on an extension of the review period. In mergers that may raise anticompetitive<br />

concerns, parties propose (sometimes in accordance with a suggestion by the JFTC) certain remedies and try to obtain at<br />

least conditional clearance. However, due to the strict statutory deadline to issue a cease-and-desist order, the JFTC may<br />

not have time to analyse whether the proposed remedies are acceptable, and may flatly block the merger, rather than<br />

conditionally approve it.<br />

In order to avoid such a dilemma, parties may have to withhold some answers from the JFTC in order to avoid the 90-day<br />

period commencing. Particularly in cases of mergers subject to multi-jurisdictional notifications, it could be extremely<br />

difficult to coordinate the schedule of reviews between different competition authorities.<br />

Under the Revised <strong>Merger</strong> Guidelines, the JFTC will shorten the 30-day waiting period more flexibly than before. Before<br />

the revision of the <strong>Merger</strong> Guidelines, the waiting period was shortened only if: (i) it was clear that there would be no<br />

substantial restraint of competition; and (ii) there are reasonable grounds to shorten the waiting period, for example, the<br />

target is financially distressed and needs immediate financial assistance and where, in cases of TOB, the payments of the<br />

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purchase price of tendered shares are scheduled to occur before the expiration of the 30 days. Under the Revised <strong>Merger</strong><br />

Guidelines, with respect to mergers that clearly will not cause substantial restraint of competition, the 30-day waiting<br />

period will be shortened whenever the parties request so in writing. This would be good news for companies wanting to<br />

close mergers as soon as possible.<br />

Key economic appraisal techniques applied<br />

Unfortunately, economic analysis is not commonly used in the JFTC’s merger review. Of course, the Revised <strong>Merger</strong><br />

Guidelines, like their predecessors, refer to the SSNIP (small but significant and non-transitory increase in price) test (or<br />

hypothetical monopoly test) to define a relevant market. In reality, however, the JFTC seems to mainly rely on more<br />

traditional evidence such as opinions of customers when it defines relevant markets and assesses possible anticompetitive<br />

impacts, rather than sophisticated econometric analysis. In the past, although less so in recent years, in defining the market,<br />

the JFTC has sometimes even blindly followed classifications for certain regulatory purposes (which are often completely<br />

irrelevant from the viewpoint of competitive analysis). Such practice may lead to market definitions which are easier for<br />

laypersons to understand, but tends to lead to rather arbitrary market definitions for the purpose of objective antitrust<br />

analysis.<br />

When I represented a party to a merger in a prior consultation before the JFTC, I received a question from the JFTC,<br />

essentially asking, “If the price of product XXX increases by a small percentage (for example, from 5% to 10%), will<br />

your company switch production from product XXX to product YYY within two years?” Putting aside the fundamental<br />

error in this question that if the price of product XXX increases, the company should switch production to product XXX<br />

from other products, not the other way around, the question suggests that the JFTC may have been asking a similar simple<br />

question to customers (for example, “If the price of XXX increases from 5% to 10% for two years, will you switch from<br />

XXX to other products?”) and may have been using the answers to such questions for the “SSNIP test”. However, how<br />

customers will react to a future price increase is, by definition, based on their own forecast and will inevitably depend on<br />

various assumptions. Therefore, there could be a serious risk of error in using customers’ naked answers to such a simple<br />

and straightforward question to define relevant markets, and therefore, questions asking customers’ reactions to future<br />

price increases must be crafted very carefully.<br />

Furthermore, in 2009 the JFTC flatly rejected a SSNIP-based market definition, replying, “As for the result of economic<br />

analysis submitted by the parties, it is suspected that the data on screw-joint reinforcing bars [a product which the parties<br />

asserted constituted a relevant product market] used for that analysis is significantly deviated from common assumptions<br />

of the SSNIP test”, without explaining what “common assumptions of the SSNIP test” meant and in what sense the data<br />

submitted by the parties deviated from them (Kyoei Steel and Tokyo Tekko). This economic analysis was submitted by a<br />

reputable international economic consulting firm, which is the only one of this kind with active operation in Japan.<br />

Considering the JFTC’s simple and straightforward question and its rejection of economic data submitted by the parties<br />

for the SSNIP test, it is very unlikely that the JFTC defines a relevant market by strictly applying the SSNIP test, and even<br />

less likely that the JFTC uses econometric data in competition analysis in general. Therefore, few antitrust practitioners<br />

take the SSNIP test very seriously in Japan.<br />

On the other hand, when clearing mergers in Phase I, the JFTC tends to heavily rely on the Herfindahl Hirschman Index<br />

(“HHI”) as a safe harbour. For example, in the case of the merger between Nippon Oil and Nippon Mining Holdings in<br />

2009, the JFTC defined the “Asia market” as a geographic market for paraxylene and found no anticompetitive concern<br />

with respect to paraxylene because the post-merger HHI, calculated based on the assumption that the relevant geographic<br />

market was Asia, was well below the safe harbour threshold. The JFTC stressed that it quickly cleared the merger in Phase<br />

I based on such a broad geographic market and resulting low post-merger HHI, and if the relevant geographic market was<br />

defined in Japan, the case would have proceeded to Phase II.<br />

In this sense, how a relevant market is defined is extremely important in Japan because the JFTC heavily relies on the<br />

HHI. This is in clear contrast with U.S. competition authorities, who recently adopted new Horizontal <strong>Merger</strong> Guidelines<br />

which place less importance on market definition.<br />

Key policy developments<br />

As explained so far, Japan’s merger control was revised in various important respects both in substantive competitive<br />

analysis and procedure. However, there is a further need to reform the merger filing practice.<br />

<strong>First</strong> of all, the filing requirements should be streamlined. Under the Antimonopoly Act, whether a certain merger must be<br />

notified depends on the types of legal structure of the merger, and the filing requirements are similar but different from one<br />

structure to another. There are five types of merger structures stipulated under the Antimonopoly Act: (i) share acquisitions<br />

(Article 10); (ii) statutory mergers (or amalgamations, Article 15); (iii) company splits (Article 15-2); (iv) statutory joint<br />

share transfers (or kyodo kabushiki iten, a popular merger structure in which parties jointly establish a new holding company<br />

and become a subsidiary of it. Article 15-3); and (v) business transfers (Article 16). These legal structures were originally<br />

set forth in the Japanese Companies Act, and therefore, these may not cover all merger structures in foreign jurisdictions.<br />

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For example, since there is no single provision about reverse triangular mergers in Japan, whether such a structure is required<br />

to be filed in Japan must be analysed and dissected in accordance with the five categories above. However, such an approach<br />

could be too cumbersome for foreign companies and trying to make merger structures in foreign jurisdictions fit into Japanese<br />

ones may not properly reflect the economic reality underlying the mergers. It is therefore proposed that the Antimonopoly<br />

Act should abandon such a structure-based approach and adopt the EU-style which is a more simple and flexible approach<br />

that focuses on the transfer of control.<br />

Second of all, the notification forms need to be substantially revised and updated. The current notification forms are<br />

slightly different from one structure to another but require similar types of information. They include, among others: (i)<br />

descriptions of the parties (such as their name, location of headquarters and main business); (ii) descriptions of parties’<br />

group companies (such as their domestic turnover and amount of gross assets); and (iii) market shares of the parties and<br />

competitors in relevant markets. However, the notification forms do not require detailed information on competition in a<br />

market at all.<br />

Theoretically speaking, the main purpose of a Phase I review should be for the JFTC to decide whether it is necessary to<br />

proceed to more detailed review (i.e., Phase II review). However, the current notification forms are so simple and<br />

formalistic that it seems almost unthinkable that the JFTC could decide whether a Phase II review is necessary solely<br />

based the notification forms. For example, the notifications do not have to include: (i) the reason why the relevant markets<br />

are so defined; (ii) the structure of the relevant market (such as distribution channels and supply chains); and (iii) how<br />

easy or hard it is to enter into the market (the cost of entry). On the other hand, the current forms require relatively detailed<br />

(and seemingly irrelevant) information on affiliated companies. For example, the notification forms require the name,<br />

main business and main business location of companies more than 20% of whose shares are owned by the parties or parties’<br />

group companies, as long as those companies have a turnover in Japan of more than 3 billion yen (before the revision of<br />

the notification forms on July 1, 2011, things were even worse; the parties were required to report companies (with more<br />

than 3 billion yen domestic turnover) more than 10% of whose shares were owned by the parties or parties’ group<br />

companies!). However, information about companies in which the parties hold such a minority shareholding does not<br />

seem to be relevant for antitrust analysis. Thus, when parties have minority shareholding in many companies, merger<br />

filing in Japan could be unnecessarily cumbersome and time-consuming.<br />

Third of all, under the Antimonopoly Act, who is required to notify the JFTC differs from one structure to another. That<br />

is, in cases of share acquisitions, only the acquirer of shares should notify (neither the target nor the seller of the shares<br />

need to); in cases of statutory mergers, both parties should notify; in cases of company splits, under the law, the company<br />

acquiring the part of business of the other company should notify but the JFTC’s practice, interestingly, requires both<br />

parties to report; in cases of statutory joint share transfers, again, both parties shall notify; and in cases of business transfers,<br />

only the transferee should notify (not the transferor). However, such distinctions between legal structures do not seem to<br />

have strong theoretical basis.<br />

Such distinctions may be problematic, not only theoretically but also practically, because under the Antimonopoly Act,<br />

the JFTC has authority to request additional information in Phase I only from the notifying party. Therefore, for example,<br />

in cases of business transfers (in which only a transferee is a notifying party), the JFTC cannot request information from<br />

the transferor of the business. As explained earlier, before the revision of the merger filing procedure on July 1, 2011,<br />

almost all merger reviews were made through a voluntary prior consultation, and since the procedure was of a voluntary<br />

nature, the parties voluntarily submitted information requested by the JFTC. However, after the prior consultation was<br />

abolished on July 1, 2011, all mergers are reviewed under the statutory review procedure. Therefore, the JFTC being<br />

unable to request information from non-notifying parties may cause serious problems. It should be proposed that all parties<br />

to any mergers, regardless of their legal structures, should notify the JFTC and the JFTC should be able to request additional<br />

information from all of them.<br />

Fourth of all, it is not very clear when and how the parties can or should agree with the JFTC on the issue of remedies.<br />

The language of the Antimonopoly Act does not appear to limit the timing for the parties to propose remedies. In reality,<br />

the current notification forms require that the notifying parties propose specific contents of remedies to the JFTC in the<br />

notification forms. No company, however, would dare to propose remedies at the time of the notification!<br />

Before the revision on July 1, 2011, this practice was workable because the parties had generally agreed with the JFTC on<br />

remedies in a prior consultation (that is, well before the notification). As prior consultation was abolished, making the<br />

parties propose remedies in the notification forms does not seem workable.<br />

The New Procedures Policies state that the parties can offer remedies to the JFTC “anytime during the reviewing period”, but<br />

this is immediately followed by the proviso: “provided, however, that the contents of [the remedies] may not be sufficiently<br />

reflected in the contents, etc. of the prior notice [of a cease-and-desist order] depending on the time of its submission”. Therefore,<br />

the parties are likely to be effectively forced to propose remedies in quite early stages of Phase II in order to give the JFTC<br />

sufficient time to consider the proposal, but on the other hand, under the Antimonopoly Act, the period of Phase II is strictly<br />

limited to be within 90 days from the date when the submission of all necessary information is completed, and the parties and<br />

the JFTC cannot agree on the extension of the 90 days at all. Such an inflexible schedule may not work very well, and it should<br />

be proposed that the parties and the JFTC agree on the extension of the review period.<br />

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Ending remarks<br />

Some people may wonder if there will be any change to the JFTC’s policy of merger review after the earthquake and<br />

tsunami on March 11, 2011. Naturally, if production capacities of competitors were destroyed by the earthquake, it may<br />

become more difficult to obtain the JFTC’s clearance of a merger in the same industries because less excess capacities<br />

generally mean less competitive constraints on the merged entity. This general rule may be applicable to the paper industry<br />

in Japan, for example. However, setting aside such a general observation, it is highly unlikely that the JFTC will take a<br />

protectionist approach (favouring Japanese companies over foreign companies) or will confuse competition policy with<br />

industrial policy by giving priority to Japanese companies’ competitiveness in the global market in exchange for Japanese<br />

consumers’ welfare. What the JFTC should do after the earthquake is to further refine its techniques in merger review<br />

and keep the review procedure fair, open and predictable, just as before the earthquake.<br />

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Koya Uemura<br />

Tel: +81 3 6888 1141 / Email: koya.uemura@amt-law.com<br />

Mr. Koya Uemura is a partner working primarily in the field of competition law. His practice includes<br />

advising on various areas of Japanese and international competition law, including abuse of dominant<br />

position, mergers control, and cartel. He has extensive experiences of representing his clients (including<br />

foreign and domestic electronic manufacturers, natural resource companies, high-tech chemical material<br />

companies, medical device manufacturers, and freight forwarders) in investigation of the Japan Fair<br />

Trade Commission (JFTC). He also has extensive experiences in merger control and has represented<br />

clients before the JFTC and obtained its clearance in many cases. He is a member of the Section of<br />

Antitrust of the American Bar Association, and an officer of the Antitrust Committee of the International<br />

Bar Association. He was selected as one of the “Leaders in their Field (Leading Individuals)” in<br />

Chambers Asia 2011 in competition law area.<br />

Anderson, Mōri & Tomotsune<br />

Izumi Garden Tower, 6-1, Roppongi 1-chome, Minato-ku, Tokyo, Japan<br />

Tel: +81 3 6888 1141 / Fax: +81 3 6888 3141 / URL: http://www.amt-law.com<br />

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Korea<br />

Sang­Mo Koo, Jeong­Ran Lee & Mi­Jung Kim<br />

Barun Law<br />

Overview of merger control activity during the last 12 months<br />

The number and monetary value of mergers increased significantly in 2010 compared to 2009. As a result, the Korea Fair<br />

Trade Commission (the “KFTC”) was active in carrying out pre- and post-merger control activities.<br />

A total of 499 merger deals, of which the monetary value amounted up to a total of 215 trillion won, were reviewed in<br />

2010. Compared to 2009, the number of reviewed deals as well as the monetary value of mergers1 carried out in 2010<br />

increased by 21% (from 413 cases) and 43% (from 150 trillion won), respectively.<br />

The number and monetary value of mergers are deemed to have risen as many corporations are seeking to grow by<br />

conducting M&As, following economic recovery and growth that have gained momentum in 2010 ever since the recovery<br />

began in 2009.<br />

The characteristics of mergers conducted in 2010 are as follows:<br />

<strong>First</strong>, the number and monetary value of M&A transactions conducted between foreign companies increased significantly<br />

compared to the transactions conducted between domestic companies.<br />

In particular, the total monetary value of mergers carried out between foreign companies recorded a 51% increase from<br />

2009 (121 trillion won), whereas the monetary value of mergers conducted between domestic companies recorded a mere<br />

7% increase from the previous year (29 trillion won).<br />

Considering that the same number of transactions occurred among foreign companies and domestic companies, the<br />

monetary value of transactions conducted between domestic companies are much smaller then the monetary value of<br />

transactions conducted between foreign companies because the scale of mergers among domestic companies is relatively<br />

smaller than that among foreign companies.<br />

In fact, the monetary value of the top 10 M&A transactions of foreign companies is 16.6 trillion won whereas the monetary<br />

value of the top 10 M&A transactions of domestic companies is 1.6 trillion won.<br />

Number of cases and monetary value of mergers among domestic companies and foreign companies in 2010<br />

(D: Domestic / F: Foreign)<br />

Type<br />

Number of<br />

Transactions<br />

Monetary value<br />

(trillion won)<br />

Transactions among domestic companies Transactions among foreign companies<br />

D-D D-F F-D F-F<br />

*Source: 2010 KFTC Press Release on <strong>Merger</strong>s (number in parenthesis is from 2009)<br />

Second, looking at the transactions by business category, 288 transactions were made in the service sector, including<br />

finance and communications, and 211 transactions were made in the manufacturing sector, making up 58% and 42% of<br />

all 499 transactions, respectively.<br />

Transactions in the service sector increased by 10.8% from 2009 (260 transactions), whereas transactions in the<br />

manufacturing sector rose by approximately 37.9% from 2009 (153 transactions), which shows how active the transactions<br />

were in the manufacturing sector.<br />

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Total<br />

404 (351) 17 (9) 25 (23) 53 (30) 499 (413)<br />

26.2 (24.4) 1.9 (0.3) 2.9 (4.0) 184.4 (121.6) 215.4 (150.3)<br />

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Third, in the case of types of mergers, mixed mergers make up 49% of all transactions (245), horizontal mergers make up<br />

34.5% (172) and vertical mergers make up 16.5% (82); the order is the same from 2009.<br />

What should be noted is the increase in vertical mergers when there has been almost no change regarding horizontal<br />

mergers. What this means is that rather than expanding the range of businesses, companies are now becoming more<br />

focused on improving their core business competitiveness, such as obtaining a stable fuel source, or a sales and distribution<br />

network. 2<br />

Meanwhile, in 2010, 20 corrective orders were issued in relation to mergers whereas 21 corrective orders were issued in<br />

2009. 3<br />

New developments in jurisdictional assessment or procedure<br />

No significant developments occurred in the period of 2010/2011.<br />

Under the Monopoly Regulation and Fair Trade Act (“Fair Trade Act”) of Korea, filing is required for mergers involving<br />

companies of a certain size or larger. 4<br />

The thresholds for the filing requirements are the “asset or turnover” of the “notifying company” of 200 billion won or<br />

more, and the “asset or turnover” of the “other company” of 20 billion won or more.<br />

Taking into account the burden companies face when making filings, mergers trigger a post-closing filing. The acquiring<br />

company is only required to submit the filing within 30 days from the date of the merger. 5<br />

However, in case the merger causes significant problems in the market, of which restitution is not possible, pre-closing<br />

filing is triggered.<br />

In such case, the acquiring company cannot carry out the merger, such as making the registration thereof, until 30 days<br />

have passed from the filing date.<br />

However, the Fair Trade Act does not provide for any legal implications that may arise if the KTFC does not make any<br />

decision within the above given period. 6<br />

Therefore, if the review is not finalised within the above given period, the KFTC may order a correction period, citing<br />

that the required documents were found to be insufficient. In such case, the 30-day correction period is not included in<br />

the above given period.<br />

Filing is also required for cross-border M&As. That is, in case the acquiring company and the target company are both<br />

non-Korean (foreign) companies and both fulfil the above requirements of a domestic asset or turnover of 20 billion won<br />

or more, filing is required for both companies.<br />

Other then the above, the party seeking a merger may arbitrarily request a review to the KFTC to know whether the<br />

proposed merger impedes competition, and the KFTC is required to notify the review result within 30 days, but may extend<br />

it to 90 days if necessary (arbitrary pre-closing filing). 7<br />

The KFTC also has disciplinary measures that are imposed on companies that violate the filing requirements.<br />

That is, if a company fails to make the filing or makes a false filing, the entrepreneur shall be fined 100 million won or<br />

less, and employees of the entrepreneur’s organisation shall be fined 10 million won or less, according to Sub-clause 2 of<br />

Clause 1 of Article 69-2 of the Fair Trade Act.<br />

A total of 105 million won was fined to 19 companies that violated filing requirements in 2010.<br />

Since the Fair Trade Act applies to transactions even between foreign companies (i.e. foreign-to-foreign transaction), there<br />

are cases in which foreign companies were fined by the KFTC for failing to make the filings.<br />

In 2009, foreign companies were fined a total of 78 million won among five merger cases, and in 2010, foreign companies<br />

were fined 30 million won among three merger cases (1 U.S., 1 Japan, and 1 Hong Kong companies). 8<br />

Therefore, foreign companies are advised to seek help from Korean legal professionals when planning for M&As with<br />

Korean companies to fulfil the filing requirements.<br />

Even transactions between foreign companies should keep in mind that the Fair Trade Act of Korea is applied<br />

extraterritorially in case such transaction has a turnover in Korea.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The KFTC does not focus on one specific industry when conducting reviews on mergers. In principle, the KFTC analyses<br />

how the mergers affect the market to determine whether the transactions impede competition or not.<br />

On the other hand, there are some types of mergers that do not cause much alarm but trigger a more in-depth review. Such<br />

mergers include “large conglomerates”.<br />

That is, in case a large conglomerate takes part in the transaction, the KFTC, known to use merger control as a means to<br />

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prevent monopolisation by large conglomerates, conducts additional reviews to check whether the conglomerate leverages<br />

on its competitiveness to expand its dominance into other industries.<br />

Instances as explained above are easily found in Korea because the Korean economy depends heavily on large<br />

conglomerates, and because large discrepancies exist between the competitiveness of large conglomerates and that of<br />

small and medium sized enterprises (“SMEs”). That is why reckless business expansion by large companies needs to be<br />

controlled.<br />

Meanwhile, if the KFTC determines that the transaction in question is related to the international market as well as the<br />

domestic, than the KFTC conducts a review, after determining the major industry in which the transaction is taking place,<br />

to assess how the transaction impedes international competition.<br />

For instance, a merger deal broke down in 2010 due to the above reasons.<br />

BHP BILLITON and Rio Tinto executed a joint venture agreement for production on December 5, 2009 and reported the<br />

merger to KFTC on December 28, 2009, but the parties withdrew their filings due to complexities found in the filing<br />

procedure and the merger deal eventually failed.<br />

In the above case, the two companies were planning to establish a joint venture company to jointly use production facilities,<br />

such as iron ore mines, railroads and ports, located in western Pilbara, Spain. Each company had a 50% stake in the joint<br />

venture. The KFTC determined that sea freight fine ore, lump ore and pellet markets as markets related to the joint venture.<br />

Taking into account that such markets are international markets, the KFTC examined whether or not to approve the merger<br />

of the world’s second and third largest mining companies.<br />

The two companies were planning to establish a joint venture company for the use of production facilities, thinking that<br />

a merger through the acquisition of shares had a higher possibility of restricting competition. However, considering the<br />

characteristics of iron ores, the establishment of a production joint venture would instantly create the effect of a merger as<br />

well as dramatically expanding market share, leading the two companies to occupy by far the world’s largest market share<br />

(become the dominant company) through the deal, with the world’s second largest company trailing far behind, the KFTC<br />

therefore determined that such deal was likely to impede competition.<br />

Due to such assessment from the KFTC and realising that approval of the deal would be unlikely, BHP BILLITON and<br />

Rio Tinto withdrew their filing.<br />

As such, according to the characteristics of a transaction, not only the mergers among domestic companies but also those<br />

among foreign companies become subjected to KFTC reviews.<br />

Meanwhile, in the case a certain transaction involving companies that have strong market dominance in the international<br />

market is not approved, this can lead to retaliatory action, such as the refusal to supply goods to the country that did not<br />

approve the merger. Therefore, international cooperation is crucial in merger control. In reviewing the above transaction,<br />

the KFTC cooperated with its counterpart agencies in Japan, China and the EU in determining whether to approve the<br />

deal, and when to make such decision.<br />

Key economic appraisal techniques applied<br />

Article 7(1) of the Fair Trade Act provides that, “No one shall practically suppress competition in a particular business<br />

area”.<br />

According to the above provision, the KFTC conducts a review on “substantial lessening of competition”, when conducting<br />

a practical review of a merger, in which economic analysis comes to play an important role.<br />

Various types of economic analysis techniques can be used to verify the effects of mergers in the market, and the best<br />

techniques tend to differ by the characteristics of the merger in question and the market, and types of the available<br />

information.<br />

In reviewing mergers, the KFTC follows the traditional method of identifying relevant markets and the competitors within<br />

such market, which is then followed by identifying the competitors’ market shares. However, the KFTC also uses new<br />

analytic models according to the types of merger and market.<br />

In analysing the effects of a horizontal merger in restricting competition, the concentration ratio of the top three firms<br />

(CR3) was used. However, a problem was found with the above CR3 analysis method. Other than the top three firms,<br />

the CR3 did not include other firms. Therefore, the KFTC deleted the CR3 from its review criteria. 9<br />

Instead, the KFTC introduced the Herfindahl-Hirschman Index (HHI) and uses it to determine the factors of a safe<br />

harbour. 10<br />

In reviewing the merger deal in relation to Hana Financial Group’s acquisition of Korea Exchange Bank (“KEB”) shares<br />

in the first half of 2011, the KFTC determined that the deal was a “horizontal merger between banks” and analysed how<br />

the merger affected 13 related markets. 11<br />

As a result, among the 13 markets, seven of them were found to be safe harbours according to the merger analysis based<br />

on HHI, and thereby the merger was determined not to restrict competition.<br />

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Moreover, in determining the degree of impediment to competition by mergers, various factors, such as the following, are<br />

considered in addition to market shares: a) the degree of demand substitutability among products supplied by the merged<br />

company (“merged company products”); b) the possibility for purchasers to switch merged company products with products<br />

supplied by other competitors; c) the presence of overseas competition and international economic trends; d) the possibility<br />

of new market entry; e) the possibility of cooperative action among competitive businesses; and f) whether similar products<br />

and adjacent markets exist.<br />

In determining the “unilateral effect” of the Hana Financial Group-KEB merger, the KFTC stated that no unilateral effect<br />

has been found, “since competing banks are able to compete equally with KEB as they are strengthening their overseas<br />

sales network and foreign exchange related personnel”, and because “switching to other banks in case of price hikes will<br />

be easy”.<br />

In the above merger analysis, the competition structure and transferability have been taken into consideration.<br />

Today, the <strong>Merger</strong> Simulation Model and Upward Pricing Pressure Index are also widely used in the quantitative analysis<br />

of the effects of price hikes caused by unilateral effect of horizontal mergers. 12<br />

Lastly, the KFTC approved the “Guideline on the Submission of Economic Analysis Evidence” on July 21, 2010, which<br />

sets forth basic principles and specific examples of economic analysis evidence, and seeks for a reasonable enforcement<br />

of the law.<br />

Economic analysis evidence should be relevant to the related case, and its economic and legal issues, present a complete<br />

set of evidential materials, disclose a transparent hypothesis, and provide a consistent result even when conducting multiple<br />

economic analyses.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

<strong>Merger</strong> reviews in Korea are not divided into “first stage investigation,” and “second stage investigation” as in Europe.<br />

In case a merger is deemed to create excessive market dominance, such merger becomes subject to behavioural remedies<br />

(“corrective order”) to prevent such market dominance.<br />

In other words, corrective orders are not given in advance in order to avoid second stage investigation, since second stage<br />

investigation does not exist in Korea.<br />

Key policy developments<br />

There have been no key policy developments in Korea over the past year.<br />

However, the KFTC’s newly established “Criteria on Imposing Corrective Measures against <strong>Merger</strong>s”, which provides<br />

the criteria for making decisions and issues to consider when imposing corrective measures against merger transactions<br />

that impede competition. 13<br />

The above criteria was approved to reinforce the effects of corrective measures imposed against mergers that restrict<br />

competition pursuant to international standards, and to impose clear and predictable corrective measures to companies.<br />

The newly established “Criteria on Imposing Corrective Measures against <strong>Merger</strong>s” are as follows:<br />

A. Primary consideration of structural remedies14 Corrective measures imposed by the KFTC are categorised into the following two types: behavioural remedies; and<br />

structural remedies.<br />

Behavioural remedies mean measures that temporarily limit the method of sale or range, such as price hikes, supply of<br />

products, of a merged company. Structural remedies mean imposing certain changes to the ownership structure of a merged<br />

company, such as imposing a ban or disposing some parts of the company’s asset.<br />

The KFTC announced in June, 2011 that structural remedies, rather than behavioural remedies, should be given a primary<br />

consideration when imposing corrective measures against merged companies, in order to maintain competition in the<br />

market.<br />

Structural remedies make little intervention in the market as they do not directly control prices or quantities and thus, such<br />

remedies are considered to be effective in correcting impediments to competition.<br />

Therefore, once the principle of primarily considering structural remedies becomes firmly rooted, consumers can receive<br />

protection against harm that may arise from mergers that restrict competition.<br />

B. Introduction of “Measure regarding Intellectual Property Rights”<br />

A new measure that allows the disposal or exercise of Intellectual Property Rights (“IPRs”) that are overlapping or<br />

concentrated in case such IPRs are deemed to impede competition has been established.<br />

Such IPR measure is provided separately to effectively prevent a merged company from dominating the market with an<br />

overlap or concentration of IPRs.<br />

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The newly introduced principles and corrective measures as explained above are currently adopted by competition<br />

authorities in many countries and regions, including the U.S., U.K. and the E.U.<br />

Through the “Criteria on Imposing Corrective Measures against <strong>Merger</strong>s”, the KFTC plans to set specific criteria for<br />

corrective measures that reflect such global standards.<br />

As a result, companies can easily anticipate the types of corrective measures and criteria for the imposition of such measures<br />

when planning to carry out M&A deals in Korea.<br />

Reform proposals.<br />

There have been no reform proposals in Korea over the past year.<br />

* * *<br />

Endnotes<br />

1 Monetary value of a merger means the added amount of the following: 1) amount paid in return for the acquisition<br />

of shares; 2) amount paid and debt acquired in return for the acquisition of business; and 3) total issuing price of<br />

shares issued to the target company and its shareholders according to the ratio of the merger, plus amount paid for<br />

the merger.<br />

2 Refer to 2010 <strong>Merger</strong> Trends, Korea Free Trade Commission, January 16, 2011.<br />

3 Refer to 2010 Yearly Statistics, Korea Free Trade Commission.<br />

4 Article 12(1) of the Fair Trade Act and Article 18(1) of the Enforcement Decree thereof, it provides as follows: In<br />

cases where any company whose total amount of assets or total amount of sales is 200 million won or more or the<br />

specially related person owns 20% or more of the total shares issued by, becomes largest investor of, or conducts<br />

corporate combination with another company whose total amount of assets or total amount of sales is 20 million<br />

won or more, he/she/it shall report to the Fair Trade Commission.<br />

5 The calculation of the filing period differs by merger type.<br />

6 Refer to Articles 12(6) and 12(7) of the Fair Trade Act.<br />

7 Refer to Articles 12(8) and 12(9) of the Free Trade Act.<br />

8 Refer to KFTC Press Release, “2009 <strong>Merger</strong> Trend Analysis”, Korea Free Trade Commission, January 21, 2010;<br />

KFTC Press Release, “2010 <strong>Merger</strong> Trend Analysis”, Korea Free Trade Commission, January 27, 2011.<br />

9 “Review of the Revised Criteria of <strong>Merger</strong> Review” (criteria used in determining substantial lessening of<br />

competition), Legal Profession, Vol. 622, p. 148-204, Dae Sik Hong.<br />

10 Safe harbour requirements:<br />

1) HHI less than 1,200 after merger.<br />

2) HHI of 1,200 or more and less than 2,500, and increase level is less than 250.<br />

3) HHI of 2,500 or more, and increase level is less than 150.<br />

11 Case explanation: Hana Financial Group executed an agreement with LSF-KEB Holdings SCA on November 25,<br />

2010 to acquire 329,042,672 shares (51.02%), and requested for approval to Financial Services Commission<br />

(“FSC”) regarding the inclusion of subsidiary. Subsequently, the FSC asked KFTC to review whether there is any<br />

substantial lessening of competition pursuant to Article 17 of the Financial Holding Company Act. Ultimately the<br />

KFTC analysed the effects of merger in 13 related markets focusing on major products, but determined that there<br />

was no lessening of competition in the related markets. This case was one of the most controversial cases in Korea<br />

(refer to KFTC Press Release, July 6, 2011).<br />

12 “A <strong>Merger</strong> Simulation Model in a Two-sided Market: Evaluation of <strong>Merger</strong> Effects between Internet Shopping<br />

Malls”, Nam Jae, Jeon Seonghoon, 2010, Journal of Applied Economics, Book 12, 1, p. 205-286.<br />

13 Established on June 22, 2011, KFTC Disclosure No. 2011-3.<br />

14 [Criteria for imposition of corrective measures against mergers (established on June 22, 2011, KFTC Disclosure No.<br />

2011-3).]<br />

IV. 1. A. In case of imposing corrective measures, structural measures are imposed primarily in principle, and<br />

behavioural measures shall be imposed simultaneously with the structural measure to supplement the effective<br />

performance thereof. However, in case structural measures are impossible to be imposed or deemed ineffective,<br />

only behavioural measures shall be imposed.<br />

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Sang-Mo Koo<br />

Tel: +82 2 3479 7854 / Email: ksm3p@barunlaw.com<br />

Sang Mo, Ku is a partner of the Fair Trade Team at Barun Law, based in the Seoul office. He is a lawyer<br />

who first started his legal career at the Korea Fair Trade Commission (KFTC). After graduating the<br />

Judicial Research and Training Institute in 1998, he joined the KFTC through a special employment<br />

programme. For nine years he was responsible for legislating statutes and regulations and enforcing<br />

them while he was working at the KFTC. He has been advising and representing a number of Korea’s<br />

most reputable companies. He regularly lectures at the Korea University in Seoul and he published<br />

numerous articles in Korea legal journals. He graduated from the Hanyang University in 1988 and he<br />

has a master’s degree in law from Hanyang University in 2001.<br />

Jeong-Ran Lee<br />

Tel: +82 2 3479 2384 / Email: leejr@barunlaw.com<br />

Ms Lee is an attorney specialising in fair trade disputes at Barun Law. Her major areas of practice<br />

include fair trade related laws, such as Monopoly Regulation and Fair Trade Act, Fair Transactions in<br />

Subcontracting Act, and Act on Fair Labelling and Advertising, as well as lawsuits in relation to abuse<br />

of market dominance, unfair trade practices and unfair cooperative acts. Ms Lee, a graduate<br />

Sungkyunkwan University College of Law, has been an attorney at Barun Law since she joined the firm<br />

in 2008 following completion of Judicial Research and Training Institute.<br />

Mi-Jung Kim<br />

Tel: +82 2 3479 2351 / Email: mijung.kim@barunlaw.com<br />

Ms Kim is an attorney specialising in fair trade disputes at Barun Law. Her major areas of practice<br />

include fair trade related laws, such as Monopoly Regulation and Fair Trade Act, Fair Transactions in<br />

Subcontracting Act, and Act on Fair Labelling and Advertising, as well as lawsuits in relation to abuse<br />

of market dominance, unfair trade practices and unfair cooperative acts. Ms Kim, a graduate Korea<br />

University College of Law, studied in University of Washington law school in 2008, and has been an<br />

attorney at Barun Law since she joined the firm in 2011 following completion of Judicial Research and<br />

Training Institute.<br />

Barun Law<br />

Barun Bldg, 945-27 Daechi-dong, Gangnam-gu, Seoul 135-846, Korea<br />

Tel: +82 2 3476 7854 / Fax: +82 2 3476 5995 / URL: http://www.barunlaw.com<br />

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Netherlands<br />

Kees Schillemans & Emma Besselink<br />

Allen & Overy LLP<br />

Overview of merger control activity during the last 12 months<br />

In 2010, 83 concentrations were notified to the Dutch Competition Authority (Nederlandse Mededingingsautoriteit, the<br />

‘DCA’), slightly less than in 2009 (90). In seven cases, the DCA came to the conclusion that further investigation of the<br />

concentration would be necessary and therefore clearance was not given in the notification phase (first phase). This is a<br />

significant increase compared to 2009, when the DCA reached this conclusion in only one instance.<br />

A second phase procedure in the Netherlands requires that a new filing is made in which parties apply for a license to<br />

implement the concentration and provide further, more detailed, information. In 2010, four such second phase filings<br />

were made. The DCA issued a second phase clearance decision in three cases and one second phase filing was withdrawn<br />

by the notifying parties.<br />

In 2011, as of 24 August, the DCA has issued approx. 40 first phase clearance decisions and one second phase clearance<br />

decision. In three cases it has come to the conclusion that a second phase investigation is required.<br />

During the reference period, the DCA also imposed fines of between €15,000 and €1,730,000 in four cases for failure to<br />

notify a concentration and has in one case fined five individuals and a company for an amount of €20 million in total for<br />

failing to comply with remedies that were imposed in a clearance decision in 2000.<br />

Finally, the DCA has, in the last twelve months, published twelve informal opinions relating to merger control.<br />

New developments in jurisdictional assessment or procedure<br />

Although there have been no recent decisions relating to warehousing structures, the DCA does not appear to have any<br />

fundamental objections against the use of warehousing structures to avoid or delay merger control filings. Particularly in<br />

view of the EU judgment in the Lagardère case, 1 there seems no ground to have such fundamental objections.<br />

The pragmatic approach of the DCA towards mergers which do not raise competition concerns is shown by the fact that<br />

almost two thirds of the decisions issued in the past twelve months have been short form decisions. Some of these decisions<br />

have been adopted within two weeks after notification.<br />

In 2010, the DCA imposed fines for failing to notify a merger in four cases. In two of these cases, 2 the DCA had, after<br />

having become aware of the transaction through the media, requested information from the parties involved in order to<br />

establish whether a filing should have taken place. In the other two cases, 3 the relevant parties approached the DCA after<br />

they had established themselves that the transactions should have been notified to the DCA.<br />

In each of the abovementioned cases, the DCA fined not only the buyer but also the seller. In doing so, the DCA confirmed<br />

its existing point of view that the Dutch legislator intended to make the notification requirement applicable to all parties<br />

to the transaction and that therefore all parties are liable to be fined if this requirement is not complied with.<br />

The district court of Rotterdam has in a recent decision4 declared that, contrary to the view of the DCA, the notification<br />

requirement contained in the Dutch Competition Act does not, in fact, apply to sellers in a concentration. According to<br />

the court, this follows from a reasonable, systematic and historical interpretation of the law, also taking into account<br />

European competition rules, which do not impose a notification requirement on the seller. The decision of the court has,<br />

however, been appealed.<br />

A further case of interest regarding procedural matters is the Refresco case. The district court of Rotterdam has recently<br />

confirmed the decision of the DCA, 5 in which it imposed a fine for providing incorrect information in the merger<br />

notification. The notifying parties had, in the filing and in their answers to informal questions of the DCA, failed to<br />

mention that two subsidiaries of Refresco, the acquiring party, were active on the same market as the target company.<br />

Although the parties had mentioned this in respect of one of Refresco’s subsidiaries, it was not until after the DCA had<br />

posed a second set of questions that the parties confirmed that two other subsidiaries were also active in this market.<br />

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Despite the fact that this information had no substantive effect on the competitive analysis and was provided before the<br />

DCA had reached its decision with regard to the merger, the DCA imposed a fine on Refresco of €468,000.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

Every two years, the DCA publishes an agenda, in which it sets out its areas of focus for the coming years. The most<br />

recent agenda published by the DCA relates to 2010/2011 and mentions the health care sector, the financial and commercial<br />

services sector and processing industries as the sectors on which it will be focusing.<br />

The DCA has, during the reference period (2010/2011), adopted various decisions relating to concentrations in the<br />

healthcare sector. The DCA has proven to take a strict approach in assessing such concentrations, and has on a number of<br />

occasions concluded that a second phase investigation would be necessary.<br />

A recent example concerned the acquisition of control over the Vlietland hospital by several regional health care providers<br />

as well as a healthcare insurer. 6 The decision of the DCA, in which it concluded that clearance could not be given in the<br />

first phase, centred on the vertical aspects of the transaction. With regard to the vertical relationship between the hospital<br />

and health care insurer DSW, the DCA concluded that parties would not have an incentive to foreclose competitors by<br />

way of exclusive or selective contracts. The DCA reasoned that, on the one hand, it is easy for consumers to switch<br />

between insurers and therefore insurers are hesitant to limit the choice of healthcare providers for their customers. On the<br />

other hand, the number of customers of DSW would not be sufficient to make use of the entire capacity of the hospital, so<br />

that an exclusive contract would not be beneficial to either party. The DCA did, however, find competition concerns in<br />

the fact that the local health care providers, who would be party to the concentration, would likely have a financial incentive<br />

to refer their patients to the Vlietland hospital, to the detriment of competing health care providers. A second phase<br />

procedure would, according to the DCA, be necessary to further examine the effect hereof.<br />

In the GGZ Delfland – Stichting PerspeKtief case, 7 the DCA also concluded that clearance could not be granted in the first<br />

phase. The DCA primarily considered that asymmetrical constraints existed between GGZ Delfland, a provider of clinical<br />

and non-clinical mental healthcare, and Stichting PerspeKtief, a provider of supervised housing. According to the DCA,<br />

GGZ Delfland did competitively constrain Stichting PerspeKtief, but not vice versa. The DCA found that it was not likely<br />

that providers of supervised housing would be able to enter the market for clinical and non-clinical mental healthcare<br />

without incurring large costs. According to the DCA there were, however, reasons to believe that providers of clinical<br />

and non-clinical mental healthcare would be able to enter the market for supervised housing relatively easily. The fact<br />

that this competitive constraint would cease to exist as a result of the transaction – in combination with the vertical<br />

relationship between the parties (whereby GGZ Delfland would refer patients to Stichting PerspeKtief), meant that a<br />

second phase investigation would be necessary.<br />

The concentration between Eureko and De Friesland involved the merger of two of Friesland’s largest health care insurers. 8<br />

After the first phase, the DCA came to the conclusion that a further second phase investigation would be necessary.<br />

According to the DCA, the concentration would lead to such a strong position in the procurement market for healthcare<br />

in Friesland that the parties would effectively be able to control which healthcare services would be provided where. The<br />

possible result of this was that certain healthcare services would no longer be offered in certain places. After carrying out<br />

its second phase investigation, however, the DCA concluded that the concentration would not lead to significant competition<br />

effects. 9 <strong>First</strong>ly, the DCA concluded that parties would not be able to increase their prices as they would be disciplined<br />

by other, nationally-active, health care providers. Furthermore, their strong position vis-à-vis healthcare providers in<br />

Friesland would not be able to negatively affect the pricing of their competitors who are nationally active, since Friesland<br />

constitutes only a very small part of the customer base of nationally active insurers. In the DCA’s view, significant negative<br />

effects on the quality of services would not be likely either. It is interesting to note that, in coming to this conclusion, the<br />

DCA stressed the importance of reputation in the health insurance sector and considered that a deterioration of the quality<br />

could have negative consequences for the reputation of the merging parties.<br />

An interesting case to mention in the processing industries sector is the Van Drie – Alpuro clearance decision. 10 This case<br />

concerned the acquisition of Alpuro by Van Drie, who are both active in the market for veal at various levels in the<br />

distribution chain. The DCA considered both the procurement market and the sales market for veal products and considered<br />

that the high combined market share on the Dutch procurement market (between 90-100%) would not be problematic as<br />

such, since it was not likely to lead to negative effects for consumers. The reasoning for this was that, according to the<br />

DCA, the sales market for the production and sales of veal products should be considered European, and the combined<br />

market share of parties on that market would be relatively small.<br />

The clearance decision was appealed. In an interim judgment, the district court of Rotterdam11 questioned the definition<br />

of the relevant geographic market applied by the DCA. The district court observed that a significant amount of veal was<br />

exported from the Netherlands into Germany, France and Italy, but not vice versa. The district court further referred to<br />

evidence that suggested that Germany, France and Italy were so-called “deficit countries” in the sense that the domestic<br />

production of veal would not satisfy the domestic demand, which suggests that markets should be defined national. The<br />

district court against this background ordered the DCA to further substantiate that the relevant geographic market is<br />

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European. The district court did accept the DCA’s reasoning that an increase in buyer power is only problematic if it leads<br />

to a deterioration of the position of customers.<br />

Key economic appraisal techniques applied<br />

During the reference period (2010/2011) there have been no cases in which the DCA has introduced new economic<br />

methodologies for assessing the effects of a concentration, although a number of decisions are notable in light of the<br />

economic theories posed by the DCA.<br />

An example is the Sandd – Selekt Mail case, 12 in which the DCA assessed the acquisition of Selekt Mail by Sandd. Both parties<br />

are active in the Dutch postal delivery sector. The DCA cleared the decision in the first phase, despite the fact that the<br />

concentration concerned two of the three biggest parties active in the relevant market and would, in effect, mean that only two<br />

nationally active competitors remain. The DCA furthermore conceded that the concentration was likely to lead to an increase<br />

in prices for the relevant postal delivery services. However, according to the DCA, there was no causal link between the<br />

concentration and possible limitation of competition. <strong>First</strong>ly, according to the DCA, it was unavoidable that Selekt Mail would<br />

leave the market eventually. This conclusion was based upon internal documents of Selekt Mail’s shareholder, Deutsche Post,<br />

indicating that it was preparing to withdraw Selekt Mail from the market. The DCA furthermore concluded that no alternative<br />

scenarios existed that would be less damaging to competition since there were no indications that a new player would enter the<br />

market or that any party besides Sandd was willing to acquire Selekt Mail.<br />

In the Veolia/CDC Transdev case, 13 which concerned the Dutch bidding market for public transport concessions, the DCA<br />

cleared the merger of Veolia and Transdev following a second phase investigation. It is interesting to note that the French<br />

competition authorities in the same case decided that remedies were necessary. The DCA took a number of factors into<br />

account in its decision, including the fact that: (i) it concerned a bidding market, meaning that the market shares of parties<br />

at a certain moment did not necessarily give an accurate picture of their competitive position; (ii) the presence of competing<br />

bidders only has a limited impact on the decision whether or not to participate in the tender and on the content of the bid<br />

offer, because parties in practice would assume that other serious competitors are also submitting an offer anyway and<br />

because the bidding process is quite complicated; and (iii) there are no significant barriers to entry. In particular the last<br />

two arguments of the DCA are noteworthy and have been criticised. 14 The DCA came to the conclusion that competitive<br />

pressure has only a limited effect on the outcome of a tender, without carrying out any quantitative study into, for instance,<br />

the relationship between the number of bidders in a tender and the amount of the winning bid, or how often Veolia and<br />

Transdev came out at first and second place in the tender procedures in which they competed. The reasoning of the DCA<br />

that there are low barriers to entry also does not appear to be backed up by a thorough investigation. The recent market<br />

entry, to which the DCA referred, was by a company owned by the main railway company in the Netherlands. Furthermore,<br />

although market parties indicated that they, in principle, are keen to participate in all tender procedures, in practice there<br />

are a number of instances in which only few parties submitted a bid.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

In general, the DCA has recently shown a preference for a relatively short first phase without significant delay and the<br />

standard for reaching a second phase is in practice not very high. This is illustrated by the relatively high number of<br />

decisions during the reference period (2010/2011) in which the DCA concluded that a second phase investigation would<br />

be necessary, particularly compared to previous years.<br />

As a result, in order to avoid a second phase investigation, parties to a concentration, which possibly leads to competition<br />

issues, will generally have to offer remedies in the first phase which clearly remove any competition issues.<br />

A recent example of a case which was cleared in the first phase after remedies were offered by the parties, was the<br />

acquisition of the commercial TV channels of SBS by Sanoma, a publisher of several magazines and Talpa, a TV production<br />

company. 15 Pursuant to the transaction, Talpa would acquire a 33% interest in SBS. The DCA considered Sanoma and<br />

Talpa to acquire joint control over SBS in light of the fact that Talpa would have veto rights in respect of fundamental<br />

changes to the channel profile of the SBS TV channels and would be able to appoint or dismiss the programming director.<br />

Talpa is active as a producer of television products and holds a minority interest in RTL, an important competitor of SBS<br />

in the television market. Although the DCA had, in a previous case, concluded that the interest of Talpa in RTL did not<br />

result in control over RTL, the DCA held that it could not exclude that Talpa would be able to influence the commercial<br />

policy of RTL in such a manner as to exclude competing TV production companies and to exchange commercially sensitive<br />

information between SBS and RTL. In light of these concerns, parties offered remedies consisting in Talpa selling its<br />

shareholding in RTL within a period of three years.<br />

The DCA has furthermore shown a clear preference for structural remedies as opposed to behavioural remedies. During the<br />

reference period (2010/2011), it has in one case accepted behavioural remedies offered by the parties. 16 This case concerned<br />

the acquisition by Vodafone of BelCompany, the owner of offline and online retail outlets for the sales of mobile phones,<br />

laptops, tablets and accessories and active as an intermediary for telecommunications contracts (such as mobile phone and<br />

internet subscriptions). Although the DCA concluded that the horizontal and vertical effects of the concentration would not<br />

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Allen & Overy LLP Netherlands<br />

lead to a significant lessening of competition, it did conclude that there was a competition issue as a result of the coordinative<br />

effects of the transaction. According to the DCA, the concentration could lead to tacit coordination between the main mobile<br />

phone providers in the Netherlands, Vodafone, KPN and T-mobile. The DCA came to this conclusion on the basis of a (brief)<br />

analysis of the existing market conditions and the fact that the concentration would lead to the elimination of an important<br />

independent distribution channel for the sales of telecommunications services. As a result, the relevant contracts would be<br />

mainly sold through distribution channels owned by the mobile phone providers themselves, in which they would sell each<br />

other’s products. This would, according to the DCA strengthen the market conditions for tacit coordination. The DCA<br />

nevertheless cleared the transaction after the notifying parties offered behavioural remedies pursuant to which, Vodafone<br />

committed not to sell any mobile phone subscriptions of KPN and T-Mobile through its own stores, nor would it sell its own<br />

mobile phone subscriptions through any distribution channels owned by KPN or T-Mobile.<br />

At end of 2010, the district court of Rotterdam handed down an interim decision in the KPN – Reggefiber case. 17 This<br />

case involved the creation of a joint venture by KPN and Reggefiber, which will be active in the construction and<br />

exploitation of an optic fibre telecommunication network. The joint venture was approved by the DCA after the notifying<br />

parties offered sophisticated behavioural remedies, based upon existing regulation by the Dutch telecommunications<br />

authority. The remedies were designed to avoid input foreclosure which could result from the vertical relationship between<br />

the joint venture and KPN, the largest telecom operator in the Netherlands. The remedies mainly aimed to ensure access<br />

to the optic fibre network for other telecom operators and included non-discrimination obligations and a price cap. A<br />

number of telecom companies appealed the DCA’s clearance decision arguing, inter alia, that it did not sufficiently address<br />

the horizontal competition issues that would result from the joint venture due to the fact that KPN owns and exploits a<br />

copper telecommunication network. In its interim decision, the district court has ordered the DCA to provide further<br />

grounds for its conclusion that the only horizontal issue that could result from the joint venture would be a price increase,<br />

which problem has been addressed by the price cap imposed upon the joint venture.<br />

Key policy developments<br />

There have been no key policy developments in the Netherlands over the past year.<br />

Reform proposals<br />

There have been no reform proposals in the Netherlands over the past year.<br />

* * *<br />

Endnotes<br />

1 Case T-452/04, Éditions Odile Jacob SAS v. European Commission, n.y.r.<br />

2 Decision in case 6705, NPM Capital – Buitenfood, 11 February 2010; decision in case 6843, Amlin – the<br />

Netherlands, 3 May 2010.<br />

3 Decision in case 6905, Saipol, 17 December 2010; decision in case 6759, Alcotra, 18 February 2010.<br />

4 Rechtbank Rotterdam, 13 January 2011, AWB 09/3834 MEDED, LJN: BP0781.<br />

5 Rechtbank Rotterdam, 27 January 2011, AWB 09/4442 MEDED, LJN: BP2278; Decision in case 6687, Refresco,<br />

5 August 2009.<br />

6 Decision in case 6669, Coöperatie Vlietland – Vlietland Ziekenhuis, 18 February 2010.<br />

7 Decision in case 6831, GGZ Delfland – PerspeKtief, 16 March 2010.<br />

8 Decision in case 7051, Eureko – De Friesland, 28 December 2010.<br />

9 Decision in case 7051, Eureko – De Friesland, 1 June 2011.<br />

10 Decision in case 6891, Van Drie – Alpuro, 4 May 2010.<br />

11 Rechtbank Rotterdam, 24 August 2011, not yet published.<br />

12 Decision in case 7124, Sandd – Selekt Mail, 8 April 2011.<br />

13 Decision in case 6957, Veolia – CDC- Transdev, 9 December 2010.<br />

14 See for example, M. Visser and J. Algera, Veolia/CDC-Transdev – “heeft de NMa de bus gemist?”, Markt &<br />

Mededinging, June 2011, nr. 3.<br />

15 Decision in case 7185, Sanoma – SBS, 22 July 2011.<br />

16 Decision in case 7177, Vodafone-BelCompany, 14 July 2011.<br />

17 Rechtbank Rotterdam, 18 November 2010, AWB 09/345 and 09/393, LJN: BO4372.<br />

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Kees Schillemans<br />

Tel: +31 20 674 1000 / Email: kees.schillemans@allenovery.com<br />

Kees Schillemans is a partner at Allen & Overy LLP. Kees specialises in EU and competition law. He<br />

regularly represents clients in proceedings before competition and regulatory authorities and courts.<br />

Kees has extensive experience in merger control proceedings before the Dutch Competition Authority<br />

and the European Commission. He also advises and litigates on matters of EU law and private<br />

enforcement of competition law. Kees regularly publishes on competition law and regulatory matters<br />

and is a lecturer in an international LLM programme.<br />

Emma Besselink<br />

Tel: +31 20 674 1000 / Email: emma.besselink@allenovery.com<br />

Emma Besselink is an associate at Allen & Overy LLP. Emma specialises in EU and Dutch competition<br />

law and the regulatory aspects of the energy, telecom and postal markets. She both litigates for and<br />

advises clients on all competition and regulatory issues related to administrative, tendering and<br />

communication law. Emma joined Allen & Overy in 2008 after studying at the University of Leiden.<br />

Allen & Overy LLP<br />

Apollolaan 15, 1077 AB Amsterdam, The Netherlands<br />

Tel: +31 20 674 1000 / Fax: +31 20 674 1111 / URL: http://www.allenovery.com<br />

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Portugal<br />

Mário Marques Mendes & Pedro Vilarinho Pires<br />

Marques Mendes & Associados<br />

Overview of merger control activity during the last 12 months<br />

The number of merger operations notified in 2010 (62) was higher than in 2009 (52), but still far from 2007 figures, where<br />

a total of 81 merger operations were notified to the Portuguese Competition Authority (Autoridade da Concorrência, the<br />

“PCA”) 1 . The global economic and financial crisis, which has hit Portugal in a particularly strong manner, is believed to<br />

be at the origin of this significant decrease in merger control activity in recent years.<br />

The scope of the PCA’s intervention in merger control is, however, particularly extensive under Portuguese Competition<br />

Law as, under Article 9(1) of Law No. 18/2003 of 11 June 2003 (“the Competition Act”), concentrations are subject to<br />

prior notification if either: i) their implementation creates or reinforces a share greater than 30 per cent of the national<br />

market for a particular good or service or for a substantial part of it; or (ii) in the preceding financial year, the group of<br />

undertakings taking part in the concentration recorded in Portugal a turnover exceeding €150 million, net of directlyrelated<br />

taxes, provided that the individual turnover in Portugal of at least two of these undertakings exceeds €2 million.<br />

In more detail, in 2010 the PCA reviewed 59 merger control cases, with the following outcomes:<br />

• 53 cases were cleared during the so-called “Phase I” without conditions or obligations attached (i.e., the PCA issued<br />

a decision declaring that the notified transaction was not likely to create or reinforce a dominant position as a result<br />

of which effective competition would have been significantly impeded);<br />

• two cases were also cleared during the so-called “Phase I”, but with conditions and obligations attached (i.e., the<br />

PCA issued a decision declaring that, despite the competition concerns raised by the notified operation, the<br />

commitments proposed by the notifying party were deemed sufficient to guarantee effective competition in the<br />

relevant market);<br />

• one operation was prohibited (following an adverse opinion issued by the media regulator, the ERC, which is legally<br />

binding on the PCA) 2 ; and<br />

• three notifications resulted in a decision of inapplicability (two cases were found not to be subject to prior<br />

notification, one because it did not amount to a concentration within the meaning of Article 8 of the Competition<br />

Act and the other because it did not meet the notification criteria set forth in Article 9 of the Competition Act, and<br />

in one instance the proceedings were referred to the European Commission because the case had an EU dimension<br />

under Article 22(3) of Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations<br />

between undertakings – the “EC <strong>Merger</strong> Regulation”).<br />

In 2011, by 29 August only 31 merger operations had been notified to the PCA (against 40 notifications in the same period<br />

in 2010). On the other hand, by the said date the PCA had reviewed 33 merger control cases (against 38 in the same period<br />

in 2010), with the following outcomes:<br />

• 28 cases were cleared during the so-called “Phase I” without conditions or obligations attached;<br />

• two cases were also cleared during the so-called “Phase I”, but with conditions and obligations attached;<br />

• two cases were found not to be subject to prior notification, because they did not meet the notification criteria set<br />

forth in Article 9 of the Competition Act; and<br />

• in one instance only the PCA opened an in-depth investigation (so-called “Phase II”), in view of the competition<br />

concerns raised by the notified transaction, the concentration having been ultimately cleared without any conditions<br />

or obligations attached3 .<br />

New developments in jurisdictional assessment or procedure<br />

In 2010/2011, there were no significant developments in the substantive assessment of merger operations notified to the<br />

PCA. This may be mainly attributed to the fact that all concentrations but one 4 were unconditionally cleared by the PCA<br />

during Phase I.<br />

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Marques Mendes & Associados Portugal<br />

On the other hand, there is no publicly available information on any appeals lodged against the PCA’s merger control<br />

decisions, either filed with the Lisbon Court of Commerce, which remains the exclusive appellate instance of the PCA’s<br />

decisions in most of the country, or with the sections of commerce of the territorially competent courts, which are competent<br />

in the areas where the new regime on organisation and functioning of the judicial courts is already in force (for a<br />

comprehensive description of the judicial review regime of the PCA’s decisions, see below under “Approach to remedies”).<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The Competition Act is applicable to all economic activities, be they permanent or occasional, in the private, public and<br />

cooperative sectors. There are no provisions relating to specific sectors, other than the indication that, prior to the adoption<br />

of a decision within a merger control procedure in a regulated sector, the PCA shall request from the corresponding<br />

regulatory authority its position on the notified operation (Article 39(1) of the Competition Act). Such powers do not<br />

interfere with the regulatory authorities’ own legally attributed powers (Article 39(2) of the Competition Act).<br />

Therefore, provisions influencing, directly or indirectly, merger operations in specific sectors can only be found in the<br />

concerned area’s legislation. The more relevant provisions may be found as regards utilities such as water, mail, railways<br />

and seaports, natural gas and electricity, the defence industry, the media, credit institutions and financial companies, and<br />

insurance and reinsurance companies.<br />

On the other hand, PCA representatives have often highlighted5 the sectors of energy, telecoms, fuel, banking services and<br />

harbours as the main concern of the institution, having directly attributed a persisting lack of competitiveness of the<br />

Portuguese companies to the high prices in those sectors.<br />

The PCA’s particular concern with competition in the energy sector was clear in two recent procedures: the EDP<br />

Produção6 /Greenvouga7 case8 and the Bencom9 /BP fuel business in Azores10 case11 .<br />

In what concerns the first case, the anticompetitive concerns raised by the proposed acquisition by EDP Produção of the<br />

exclusive control of Greenvouga, led the notifying party to offer to the PCA certain commitments regarding the Ribeiradio-<br />

Ermida hydroelectric complex. Having considered that such commitments would suffice to guarantee that effective<br />

competition would be preserved in the market for secondary regulation band in mainland Portugal, the PCA cleared the<br />

transaction with conditions and obligations on 13 December 2010.<br />

With regards to the proposed acquisition of the exclusive control over the BP fuel business in the Azores islands by Bencom,<br />

in view of anticompetitive concerns raised by the operation in the market for the provision of white products in São Miguel<br />

island, Bencom proposed certain commitments to the PCA, which this latter deemed sufficient to guarantee the maintenance<br />

of effective competition in the relevant markets (the retail market for fuel for road transport in São Miguel island, and the<br />

market for storage of white products in São Miguel island). These commitments involve divestment of assets and notably<br />

consist of freeing storage capacity and maintaining the fees for storage of white products unchanged until the planned<br />

deactivation of the Sta. Clara Terminal (which is explored by Bencom and constitutes one of the sole establishments<br />

currently able to store white products addressed to São Miguel island) comes to pass. As a result, the PCA cleared the<br />

operation with conditions and obligations on 8 February 2011.<br />

Key economic appraisal techniques applied<br />

Concentrations falling within the scope of the Competition Act shall be forbidden if they “create or reinforce a dominant<br />

position in the national market, or in a substantial part of it, that results in significant impediments to effective competition”<br />

(Article 12(4) of the Competition Act).<br />

Besides this basic substantive test, the main criteria for the appraisal of concentrations essentially follow the approach in<br />

the former Community merger regulation (Regulation (EEC) No. 4064/89, as amended). Accordingly, pursuant to the<br />

Competition Act, notified concentrations shall be appraised to determine their effects on the competition structure, having<br />

regard to the need to preserve and develop effective competition in the Portuguese market, in the interests of users and<br />

consumers (Article 12(1) of the Competition Act). The PCA’s substantive appraisal takes into account a number of factors<br />

including: (i) the structure of the relevant markets; (ii) the position in the market of the undertakings concerned and their<br />

economic and financial power; (iii) the existence of barriers to entry; (iv) the alternatives available to suppliers and users;<br />

(v) the conditions of access of the undertakings to supply and to downstream markets; (vi) the supply and demand trends<br />

for relevant goods or services; and the (vii) contribution of the operation to the international competitiveness of the<br />

Portuguese economy (Article 12(2) of the Competition Act).<br />

In the reference period (January 2010 – August 2011), no significant developments occurred, as all merger operations<br />

were cleared in Phase I except for the Essilor12 /Shamir13 case14 .<br />

This latter case is instructive since it provides a good example of the standard merger control assessment performed by<br />

the PCA within a horizontal merger, notably when a Phase II investigation is carried out.<br />

After having defined the relevant market (identified as the Portuguese market for the finishing and wholesale distribution<br />

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Marques Mendes & Associados Portugal<br />

of ophthalmic lenses), the PCA analysed the market shares of the parties and of their main competitors, having concluded<br />

that although there was a market decrease trend over the last three years, both parties increased their market shares in the<br />

same period. Upon completion of the operation, Essilor was estimated to obtain a market share of over 60% in the<br />

Portuguese market for the finishing and wholesale distribution of ophthalmic lenses.<br />

The PCA then assessed the structure of the market, having ultimately concluded that, despite the very high market share<br />

arising from the operation, the transaction would not raise significant anticompetitive concerns, based on the existence<br />

both of an effective competitive pressure from the other competitors and of a significant countervailing buying power in<br />

the market. As a result, the PCA cleared the proposed transaction on 7 April 2011 without any conditions or obligations<br />

attached.<br />

Also worth mentioning in the reference period is the Ongoing/Vertix/Media Capital case15 , which ended in a prohibition<br />

decision following an adverse opinion issued by the media regulator, the ERC, which is binding on the PCA.<br />

The concentration was to be effected by means of the acquisition by Ongoing of shares representing up to 35% of Media<br />

Capital’s share capital and based on a shareholders’ agreement to be executed by Ongoing and Vertix.<br />

As required by law, the PCA requested both the ERC and the electronic communications regulator, the ICP-ANACOM,<br />

to issue their opinions on the notified operation. The ICP-ANACOM considered that the concentration would not entail<br />

any strengthening of Ongoing’s market share in the electronic communications markets. Nonetheless, the ERC opposed<br />

to the notified concentration as long as Ongoing held 1% or more of the share capital of Impresa, a media group competitor<br />

of Media Capital.<br />

In the face of such adverse opinion issued by the ERC, which, under the law and grounded on the public interest of the<br />

safeguard of media diversity and pluralism, is binding on the PCA, the concentration could not be cleared, regardless of<br />

its competition assessment, having been formally prohibited on 30 March 2010.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

No significant developments occurred in the reference period (January 2010 – August 2011).<br />

In the EDP Produção/Greenvouga case, the PCA accepted the commitments proposed by EDP Produção, having cleared<br />

the operation with conditions and obligations aimed at preserving effective competition in the market for the secondary<br />

regulation band in mainland Portugal. Likewise, in the Bencom/BP fuel business in Azores case the PCA also considered<br />

that the undertakings proposed by Bencom would be sufficient to guarantee the maintenance of effective competition in<br />

the retail market for fuel for road transport in São Miguel island and in the market for storage of white products in São<br />

Miguel island (for a more comprehensive description of both cases, see above under “Key industry sectors”).<br />

In general, the PCA has displayed a certain favour for a “negotiated” approach with the parties, which may also be justified<br />

in view of the importance attributed by the PCA to a positive exposure of its activity in the media.<br />

Key policy developments<br />

Following public consultation, the Authority finally issued its Guidelines on <strong>Merger</strong> Remedies on 28 July 2011, whose<br />

objective is to provide guidance regarding the selection, definition, implementation and monitoring of remedies within<br />

merger control procedures, with the purpose of both guaranteeing transparency, efficiency and swiftness to these procedures<br />

and strengthening legal certainty.<br />

According to the document, the Authority took notably into account in the drafting of its Guidelines on <strong>Merger</strong> Remedies (i)<br />

the European Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission<br />

Regulation (EC) No 802/2004 (2008/C 267/01), (ii) the UK’s Competition Commission Notice “<strong>Merger</strong> Remedies: Competition<br />

Commission Guidelines”, (iii) the <strong>Merger</strong> Control Guidelines of France’s Direction Générale de la Concurrence, de la<br />

Consommation et de la Répression des Fraudes, and (iv) the principles identified by the International Competition Network<br />

and contained in “ICN’s <strong>Merger</strong> Remedies Project – Report for the fourth ICN annual conference” of June 2005.<br />

After providing a definition of merger remedies, the Authority’s Guidelines (i) identify the requirements to be met in the<br />

selection of remedies, defining, notably, the principles applicable to the risk assessment, to the monitoring trustee and to<br />

the divestiture trustee, (ii) address the different types of remedies, structural remedies or remedies related to the future<br />

behaviour of the merged entity, as well as their requirements and objectives, (iii) deal with procedural aspects, (iv) set the<br />

guidelines for change of remedies, and (v) indicate the consequences of the failure to comply with the remedies, notably<br />

focusing on the breach of conditions or of obligations. The Guidelines also contain templates regarding (i) undertakings<br />

assumed before the Authority, (ii) divestment orders, and (iii) monitoring terms.<br />

Reform proposals<br />

Under Law No. 52/2008 of 22 August 2008, which carries out a comprehensive reform of the organisation and functioning<br />

of judicial courts and amends the provisions of the Competition Act, establishing the courts that are competent to handle<br />

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Marques Mendes & Associados Portugal<br />

appeals from decisions adopted by the PCA both in sanctioning and in administrative proceedings, such competence,<br />

previously entrusted exclusively with the Lisbon Court of Commerce, shall be granted to the section of commerce (‘juízo<br />

de comércio’) of the territorially competent court, in whose absence the section of commerce of the Court of Lisbon shall<br />

ultimately be the competent one. This new regime, which shall gradually enter into force until 1 September 2014, was<br />

already in force in the three territorial areas indicated in Law No. 52/2008. Under Decree-Law No. 74/2011 of 20 June<br />

2011, as of 1 December 2011 this new regime will also apply notably in Lisbon, the Lisbon Court of Commerce being<br />

turned into the Section of Commerce of the Court of Lisbon as a result.<br />

On the other hand, the long announced creation of a specialised court to deal with competition matters was approved with<br />

Law No. 46/2011 of 24 June 2011, whose coming into effect is now pending the actual establishment of the Court. The<br />

new Court shall also be competent to handle regulation and supervision matters and it is expected to be established in the<br />

town of Santarém (approximately 100km from Lisbon), as previously announced. Upon the establishment of the<br />

specialised Court, all the PCA’s decisions adopted in merger control proceedings and in proceedings initiated regarding<br />

infringements of merger control rules shall be appealed to the new Court.<br />

Finally, the long awaited overhaul of the national competition regime is expected to take place in the short to medium term, in<br />

view of the objectives regarding the Portuguese competition policy set in the Memorandum of Understanding on Specific<br />

Policy Conditionality, agreed upon between the Portuguese Republic and the International Monetary Fund, European Central<br />

Bank and European Commission representatives in the context of the granting of financial assistance to Portugal.<br />

Under the Memorandum, the main objectives of the overhaul of the national competition and sector regulation policies<br />

are notably: (i) to guarantee a level playing field and minimise rent-seeking behaviour, by strengthening competition and<br />

sector regulators; and (ii) to eliminate the State’s special rights in private companies (the so-called “golden shares”). In<br />

more detail, the Memorandum requires that by the end of 2011 the PCA be ensured sufficient and stable financial means<br />

to guarantee its effective and sustained operation, and that the national competition law be revised in order to make it as<br />

autonomous as possible from administrative law and criminal procedural law and more harmonised with the EU<br />

competition policy. This latter goal shall notably involve: (i) further aligning Portuguese and EU law on merger control,<br />

specifically in terms of the criteria making the ex ante notification of a concentration compulsory; and (iii) adjusting the<br />

appeal process where necessary to increase fairness and efficiency.<br />

The proposals regarding the competition and sector regulation policies contained in the programmes of political parties<br />

Partido Social Democrata (PSD) and CDS – Partido Popular (CDS-PP), which entered into a coalition Government on 21<br />

June 2011, are also in line with the Memorandum.<br />

* * *<br />

Endnotes<br />

1 Source: the <strong>Merger</strong> Database at the PCA’s official website (www.concorrencia.pt). The <strong>Merger</strong> Database contains<br />

information on all the concentration cases that have been notified and decided by the PCA since its creation in<br />

January 2003, external access to it being allowed since 30 December 2009.<br />

2 PCA’s Decision of 30 March 2010, Case No. Ccent. 41/2009, Ongoing/Vertix/Media Capital.<br />

3 PCA’s Decision of 7 April 2011, Case No. Ccent 44/2010, Essilor/Shamir.<br />

4 See endnote 3.<br />

5 This was notably the case at the 12 March 2008 Commission for Public Budget and Finance’s Hearing of Professor<br />

Abel Mateus, whose term of office as President of the PCA formally ended on 24 March 2008.<br />

6 EDP Produção is part of the EDP Group (the electricity sector incumbent in Portugal), being active in the<br />

generation, purchase, sale, import and export of energy.<br />

7 Greenvouga has been awarded the conception, construction and exploration of the Ribeiradio-Ermida hydroelectric<br />

complex, which was licensed back in 2007 and is expected to be explored from 2014.<br />

8 PCA’s Decision of 13 December 2010, Case No. Ccent 23/2010, EDP Produção/Greenvouga.<br />

9 Bencom is part of the “Grupo Bensaúde” economic group, active in the import, storage and sale of fuel products<br />

and connected activities in Azores islands.<br />

10 BP Group is one of the main fuel players in Portugal.<br />

11 PCA’s Decision of 8 February 2011, Case No. Ccent 40/2010, Bencom/Activos BP.<br />

12 Essilor Portugal is part of the Essilor International group, active in the manufacturing and sale of ophthalmic lenses<br />

and in the manufacturing and sale of optical equipment and consumables.<br />

13 Shamir Portugal is part of the Shamir Optical Industry group, active in the manufacturing, sale and distribution of<br />

ophthalmic lenses.<br />

14 See endnote 3.<br />

15 See endnote 2.<br />

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Marques Mendes & Associados Portugal<br />

Mário Marques Mendes<br />

Tel: +351 21 382 6300 / Email: mmm@marquesmendes.pt<br />

Mário Marques Mendes is a senior partner at Marques Mendes & Associados.<br />

Mário Marques Mendes is a 1976 law graduate of the University of Lisbon Law School, a 1981 law graduate<br />

of the College of Europe, Bruges, and, as a Fulbright Scholar, a 1984 LLM graduate of the University of<br />

Michigan Law School. Subsequently he became Assistant Professor of Law at the University of Lisbon<br />

Law School and Lecturer in International Trade Law at the Centre for European Studies of the Portuguese<br />

Catholic University, Lisbon, while resuming private practice. He served as vice-president of the Lisbon<br />

Council of the Portuguese Bar Association (1996-99).<br />

His main practice areas are Competition/Antitrust Law, EC Law, Corporate Law, Telecommunications<br />

Law, <strong>Merger</strong>s and Acquisitions, Agency and Distribution Law, Intellectual/Industrial Property Law,<br />

International Trade and Public Procurement Laws, Litigation and Arbitration. He was recognised as<br />

specialist lawyer in EU and Competition laws by the Portuguese Bar Association.<br />

He is a frequent speaker and has written extensively on various subjects of EU law, notably<br />

competition/antitrust, and of international trade law.<br />

He is a member of the Portuguese Bar Association, Portuguese Association of European Law, European<br />

Association of Lawyers and International Bar Association.<br />

He is a founding member, first Chairman of the Board and current Chairman of the Advisory Board and<br />

of the General Meeting of the Portuguese Association of Competition Lawyers (“Círculo dos Advogados<br />

Portugueses de Direito da Concorrência”, CAPDC).<br />

Pedro Vilarinho Pires<br />

Tel: +351 21 382 6300 / Email: pvp@marquesmendes.pt<br />

Pedro Vilarinho Pires is a partner at Marques Mendes & Associados.<br />

Pedro Vilarinho Pires was born in 1958 and is a 1981 law graduate of the University of Lisbon Law<br />

School. He was trainee Assistant-Professor of Law (“monitor”) at the University of Lisbon. In the years<br />

of 1993/1997 he was IBM Portugal in-house Counsel and Director of the Legal Services.<br />

His main practice areas are Commercial Law, Corporate Law, Competition/Antitrust Law,<br />

Banking/Finance and Insurance Laws, IT Law, Intellectual/Industrial Property Law, Telecommunications<br />

Law, Public Procurement Law, Labour Law, Agency and Distribution Law, Contract Law.<br />

He has authored and co-authored various writings on Portuguese Competition law.<br />

He is a member of the Portuguese Bar Association, and of the International Bar Association.<br />

Marques Mendes & Associados<br />

Avenida Engenheiro Duarte Pacheco, n.º 19, 12.º, Lisboa, Portugal<br />

Tel: +351 21 382 6300 / Fax: +351 21 382 6319 / URL: http://www.marquesmendes.pt<br />

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Romania<br />

Silviu Stoica & Mihaela Ion<br />

Popovici Nițu & Asociații<br />

Overview of merger control activity during the last 12 months<br />

Since the end of last year, the competition field legislation has passed through an entire reform process; the main legislation<br />

(namely the Competition Act No 21/1996, hereinafter referred to as the “Competition Act”) and the secondary legislation<br />

have both been amended.<br />

Nevertheless, even though the legal framework (including the legal provisions regulating economic concentrations) has<br />

improved, by statistical and chronological comparison, for 2011 we cannot talk about an increase in the Romanian<br />

Competition Council (the “RCC”) activity in the merger area yet.<br />

As per the RCC activity reports, in terms of percentage, almost 80% of RCC decisions concern economic concentrations.<br />

This year, due to the financial crisis, the number of economic concentrations notified to the RCC has slightly decreased<br />

compared to previous years. In fact, as of the beginning of this year until now, the RCC has issued only 14 decisions with<br />

respect to economic concentrations. i<br />

As a general remark, RCC decisions were mainly issued in Phase I of the notification procedure. For example in 2010,<br />

from a total of 46 decisions, the RCC has issued (i) 36 non-objection decisions, (i.e. although the notified economic<br />

concentration falls within the scope of the Competition Act, no serious doubts were identified about the compatibility with<br />

a normal competition environment on the relevant markets), (ii) 5 non-intervention decisions (i.e. the notified economic<br />

concentration is not subject to the Competition Act), (iii) 4 decisions on the recalculation of the authorisation fee, and (iv)<br />

1 derogation decision that allows the implementation of the transaction before its clearance. ii<br />

In 2009, 2010 and the first and second quarters of 2011, the economic concentrations notified to the RCC concerned<br />

undertakings acting on a variety of relevant markets, especially on those markets vulnerable to the effects of the financial crisis<br />

(e.g. as regards the relevant food market, the RCC reviewed 8 notified concentrations in 2010 and 11 in 2009, with respect to<br />

relevant media market, the RCC reviewed 4 economic concentrations in 2010 and 2 economic concentrations in 2011).<br />

New developments in jurisdictional assessment or procedure<br />

As mentioned under “Overview of merger control activity during the last 12 months” above, both the Competition Act<br />

and the applicable secondary legislation were subject to an intense reform process.<br />

The main amendments brought to the Competition Act incorporated elements of the European Competition Law and<br />

European Commission practice with the aim of better coordinating national legislation with the European legislation.<br />

In light of the above, we mention the following main amendments of the Competition Act with respect to the merger<br />

control regime: (a) the introduction of special procedures with respect to interdependent transactions; (b) a decrease in the<br />

level of the authorisation fees; (c) the introduction of special rules and competences for the cases where economic<br />

concentrations may involve national security risks; (d) the introduction of the possibility for the RCC to accept<br />

commitments from the undertakings involved in an economic concentration in order to clear the economic concentration;<br />

(e) the introduction of new elements regarding the RCC’s internal organisation (e.g. the establishment of an Advisory<br />

Board which, among its attributions regarding the proposal for members of the Council Plenum, has also the prerogative<br />

to issue non-binding opinions regarding the main aspects of competition policyiii ); and (f) the introduction of new procedural<br />

provisions regarding the access to the RCC investigation file, hearings procedure etc.<br />

Even by considering the new legislative developments, the Competition Act does not expressly stipulate the conditions to<br />

be met or the procedure to be fulfilled in order for the involved undertakings to withdraw a notification submitted to the<br />

RCC.<br />

The Romanian legislation has also expressly implemented several aspects detailed in the Commission Consolidated<br />

Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings.<br />

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Examples of such correlations are new provisions regarding interdependent transactions stating that parallel or serial<br />

acquisitions of control can be treated as a single concentration.<br />

In fact, according to RCC Decision no. 19/20.06.2011 – Case Fresenius Nephrocare Romania – Renamed, all 4 transactions<br />

(share sale and purchase agreements) concluded by Fresenius Nephrocare Romania with several Renamed companies<br />

(active on the dialysis services market) were qualified by the RCC as interdependent transactions and were thus further<br />

assessed as a single economic concentration operation.<br />

At the same time, similar provisions with those existing at Community level set forth cases in which it is not necessary<br />

for a particular operation to be notified to the RCC. The rule is that those transactions resulting only in a temporary change<br />

of control are not covered by the concept “economic concentration”.<br />

The already existing criteria in the Competition Act concerning the minimum set of conditions that must be met in order<br />

for a transaction to represent an economic concentration, which must be notified to the RCC, remained the same. According<br />

to the domestic antitrust rules, the transactions resulting in a change of control over a certain company or business must<br />

be cleared by the RCC to the extent they exceed the following legal turnover thresholds: (i) the aggregate turnover of the<br />

parties (in the previous year of the transaction) (e.g. the purchaser and the target) and their groups is above €10 million;<br />

and (ii) each of at least two of the undertakings involved has registered a turnover in Romania exceeding €4 million and<br />

at the same time, the turnover figures are below the de minimis thresholds set by EC <strong>Merger</strong> Regulation No. 139/2004.<br />

Similar to the provisions applicable at European Commission level and in other national jurisdictions from the EEA, the<br />

Romanian legal framework divides the notification procedure initiated by the RCC in case of notified economic<br />

concentrations in two phases.<br />

General remarks on RCC control procedure<br />

During Phase I, the RCC conducts an assessment of the notification and information/documents received from the notifying<br />

party, and requests additional information in case the notification is incomplete or inaccurate. As regards the last scenario,<br />

it is worth noting that within 20 days after submitting the notification, in case the RCC finds that the notification is<br />

incomplete or the information provided in the notification form are inaccurate, the RCC will send to the notifying party a<br />

written request for information and, if this is the case, it will grant the undertaking a 15-day term to provide the answers<br />

(with the possibility of extending the term with an additional 5-day period).<br />

At the same time, in practice, the RCC requests information from the market, both from the private sector (competing<br />

undertakings, suppliers, clients) and from the public sector (regulatory authorities, National Statistics Institute, professional<br />

associations of undertakings etc.).<br />

In most cases and even in those transactions which do not raise competitive issues, the RCC’s traditional approach during<br />

the assessment of notifications leads to detailed checking and cross-checking of the information gathered from the market<br />

on the one hand and of those provided by the parties, on the other hand.<br />

During this phase, the parties involved do not enjoy the right of access to the RCC file as such fundamental right of defence<br />

is granted to the parties in the last stage of the Phase II merger control procedure.<br />

Upon completion of the procedure depicted above, the RCC may reach various conclusions based on which a certain<br />

decision shall be issued. Thus, in those cases where the RCC reaches the conclusion that in fact the assessed operation<br />

does not meet the legal conditions in order to fall within the scope of the Competition Act, the RCC shall issue a nonintervention<br />

decision within 30 days as of the date the notification is deemed as complete.<br />

To the extent the notified operation falls under the Competition Act, based on the RCC conclusions as regards the operation<br />

and within 45 days as of the effectiveness of the notification, the RCC has the legal option: (i) to issue a non-objection<br />

decision when the RCC finds that no serious doubts were identified as regards the compatibility with a normal competition<br />

environment on the relevant markets or any identified doubts are removed by proposed commitments; or (ii) to initiate<br />

Phase II procedure by opening an in-depth investigation if the economic concentration raises serious anticompetitive<br />

issues. iv<br />

According to article 10 of the RCC Regulation on economic concentrations, a notification becomes effective at the date<br />

when it is submitted to the RCC, except for the cases when the information provided is not complete and/or accurate<br />

and/or exact.<br />

From the RCC’s recent practice (2009-2010), it can been seen that, in fact, the notifications became effective after 1 or 2<br />

months as of the date the notification form was submitted with the RCC (depending on the nature of the information that<br />

must be provided by the undertakings).<br />

In those cases when the RCC decides to open an investigation and thus to initiate a Phase II procedure, the RCC has the<br />

following legal options: (i) to issue a decision whereby it declares the economic concentration as being incompatible with<br />

a normal competitive environment; (ii) to authorise the economic concentration in cases which do not raise serious doubts;<br />

or (iii) to authorise the economic concentration subject to certain commitments undertaken by the parties involved in order<br />

to ensure the compatibility of the proposed operation with a normal competitive environment.<br />

Beginning with December 2010, the RCC may accept commitments from the undertakings involved in an economic<br />

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concentrationv proposed in either of the two Phases. The main purpose of such commitments is to eliminate any<br />

anticompetitive concern identified by the RCC and thus to clear the economic concentration.<br />

In case the RCC intends to accept the commitments proposed by the parties, the RCC shall publish on its official website<br />

a summary of the case together with the key content of the proposed commitments. Within the term established by the<br />

RCC, interested third parties may communicate to the RCC their observations on the published content of the commitments.<br />

In case of commitments proposed by the parties during a Phase I procedure, the RCC does not have any legal obligation<br />

to publish on its official website the parties’ intention to propose commitments and the content thereof.<br />

Based on the specific issues identified in the context of a notified concentration, the commitments proposed by the parties<br />

may have a structural or behavioural nature but there is no restriction for the parties to propose and for the RCC to accept<br />

both types of commitments in case of a notified concentration. According to the Competition Act, structural commitments<br />

(i.e. a commitment to divest an activity/business) are preferable in most cases as they are more likely to prevent on a<br />

lasting basis the anti-competitive effects that would have been generated by the economic concentration.<br />

When accepting the commitments proposed by the parties, the RCC issues an authorisation decision stating that, in light<br />

of and subject to full observance of the undertaken commitments, the notified economic concentration is compatible with<br />

a normal competitive environment. The commitments form is annexed to the clearance decisions and both documents are<br />

also published on the official website of the Romanian competition authority.<br />

Considering the short period of time since these provisions are in force and also the small number of economic<br />

concentrations that occurred during this year, there is no consolidated practice regarding the commitments procedure or<br />

RCC position with respect to such commitments.<br />

Until now, the RCC accepted commitments in the case of only two economic concentrations notified at the end of 2010,<br />

respectively at the beginning of 2011. The commitments accepted by the RCC were attached to the merger control<br />

clearances obtained by Fresenius Medical Care group for recent acquisitions of two suppliers of renal care services: (a)<br />

Euromedic (an international acquisition with pan-European merger control implications); and (b) 4 Renamed companies<br />

active on the Romanian dialyses services market.<br />

The RCC assessed both transactions in parallel, as both involved Fresenius group and raised anticompetitive concerns due<br />

to their horizontal effects leading to the consolidation of Fresenius’ (already) dominant position on the dialysis market.<br />

The transactions received clearance from RCC through Decisions no. 19 and 20, dated June 20, 2011vi , without initiating<br />

a Phase II procedure.<br />

In order for such solution to be reached, the commitments proposed by the notifying parties removed all concerns identified<br />

by the RCC on the haemodialysis and peritoneal dialysis services markets rendered in the catchment area of the dialysis<br />

centre located in Botosani and Oradea towns and as well on the national distribution market of the dialysis products used<br />

in haemodialysis treatment.<br />

Following long meetings with the RCC, the parties presented a complex set of commitments consisting of both structural<br />

and sophisticated behavioural remedies aimed at removing the concerns raised by the RCC.<br />

As regards the behavioural commitments undertaken by Fresenius on the national trading market of dialysis products used<br />

in haemodialysis treatment, the main obligations undertaken by Fresenius are: (i) for a period of 5 years starting with the<br />

issuance date of the decision, Fresenius shall provide dialysis products used in haemodialysis treatment both to dialysis<br />

centres belonging to its own network and also to third party dialysis centres, public or private, which are interested in<br />

acquiring such products; (ii) Fresenius shall not unjustifiably refuse or reject the request for products received from third<br />

party companies. Any refusal to supply products to third party companies shall be reasoned and based on objective criteria;<br />

and (iii) the supply of products to third party companies shall be made under non-discriminatory terms and conditions.<br />

Fresenius shall not impose any condition upon the dialysis centres which purchase equipment/apparatus under the Fresenius<br />

trademark to also purchase as a “package” other Fresenius equipment or consumables during the warranty and postwarranty<br />

periods of such products or following the expiry of these periods.<br />

In order to eliminate the RCC’s concerns regarding the position to be held by Fresenius on the haemodialysis services<br />

market, and on the peritoneal dialysis services market, in the catchment areas of the dialysis centres from Botosani and<br />

Oradea towns, Fresenius undertook to transfer the activities consisting of the provision of haemodialysis and peritoneal<br />

dialysis services in the Botosani and Oradea relevant market (the catchment area was defined within a 50km radius of the<br />

dialysis centres) within a period of one calendar year as of the date each economic concentration is cleared.<br />

Court control over the RCC’s decision<br />

The RCC’s decision may be challenged by the parties to who it addressed before the Bucharest Court of Appeal within 30<br />

days from its communication. The Court of Appeal’s decision may in its turn be reviewed by the High Court of Cassation<br />

and Justice of Romania.<br />

The court of law may decide, upon request, to suspend the enforcement of the decision which is to be reviewed. In case<br />

of decisions containing obligations to pay fines, the suspension shall be granted only subject to payment of a judicial bail<br />

established in accordance with the applicable legal provisions in case of recovery of fiscal receivables.<br />

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Until now, third parties have not submitted to the competent courts of law any legal claims against RCC decisions for the<br />

authorisation of economic concentrations.<br />

Sanctions for failure to notify an economic concentration<br />

Theoretically, the RCC has the means to actively monitor the general compliance with the rules of the notification<br />

procedure, by requesting information from the Romanian Trade Registry, the Romanian National Securities Commission<br />

or other relevant authorities. However, in the absence of any public information in this respect, we cannot confirm that<br />

such monitoring is actually performed. Nevertheless, the RCC may become aware of a failure to notify in the course of<br />

other proceedings (e.g. notification of another economic concentration).<br />

As per Article 51 of the Competition Act, the undertaking is sanctioned with a fine ranging between 0.5% and 10% of the<br />

total turnover achieved in the previous financial year if, wilfully or negligently, it (i) fails to notify a concentration falling<br />

within the scope of the Competition Act, (ii) implements a concentration prior to obtaining the RCC’s authorisation, and/or<br />

(iii) implements a concentration declared by the RCC as incompatible with a normal competitive environment.<br />

Moreover, in case the RCC finds that an economic concentration has been implemented and that such concentration was<br />

declared as being incompatible with a normal competitive environment, the RCC, by issuing a decision, may request the<br />

undertakings involved to dissolute the entity that resulted from the concentration, in order to restore the situation existing<br />

prior to the implementation of the economic concentration or to impose any other adequate measure in order to ensure<br />

that the undertakings involved dissolute/reverse the concentration. Although the legal framework allows this intervention<br />

of the RCC, such cases did not exist until now.<br />

Specific provisions in case of economic concentration that may raise national security risks<br />

The recent amendments brought to the Competition Act introduce the concept of “operations that may raise national<br />

security risks” vii .<br />

As opposed to other jurisdictions, at national level, the legislation does not include additional clarifications concerning<br />

the exact limits of the area of intervention of the Supreme Council of National Defence and of the Government, the methods<br />

of intervention and the relations between these bodies and the RCC. More precisely, the newly adopted legal provisions<br />

do not stipulate: (a) the areas that may represent national security risks; (b) the special terms during which the RCC must<br />

notify the Supreme Council of National Defence and the consequences triggered by such notification made by RCC; or<br />

(c) the working procedure between the RCC, the Supreme Council of National Defence and the Government; the terms<br />

within the Supreme Council of National Defence must issue the proposal and the Government must issue the decision<br />

(especially by considering the special terms stipulated by the Competition Act for economic concentrations).<br />

Lack of the above listed legal provisions shall probably generate practical difficulties as regards the implementation of<br />

the said legal provisions, leading thus to prohibition decisions and also to decisions blocking such operations.<br />

Key industry sectors reviewed, and approach, adopted to market definition, barriers to entry, nature of<br />

international competition etc.<br />

In line with the RCC’s aim to have clear overviews on the markets, it should be noted that, in general, the RCC’s approach<br />

is to analyse in detail even those notifications which do not raise significant or particular issues on the market. Even in<br />

those economic sectors where the prices/tariffs are regulated by the state, the RCC further analyses the existence of the<br />

possibility of the parties to influence (for example, following the notified economic concentration) the prices/tariffs of the<br />

respective products/services. However, it is worth mentioning that, in fact, the RCC seems to be more relaxed in case of<br />

operations in case of which the parties involved (especially the target company) were assessed in the past by the RCC. In<br />

case of these operations, the RCC focuses on the new elements of the market, the market trend, the prices evolution, the<br />

entry of new competitors, development of new production capacities, etc.<br />

As regards the key sectors analysed by the RCC, during the past years, the RCC focused on the retail market, food market,<br />

media market and medical services market. In the medical services market, Fresenius Medical Care acquired the sole<br />

control over Nefromed companies and Renamed companiesviii ; in the media market, Romtelecom acquired DTH Television<br />

Group SA and Digital Cable Systems SA dedicated assetsix ; and in the food market, Caroli Foods Group BV acquired<br />

control over Caroli Prod 2000 SRL, Caroli Foods Group SRL, Caroli Brands SRL and Tabco Campofrio SAx .<br />

As regards the definition of the relevant market in a certain case, the RCC relies on past decisions issued by the RCC itself<br />

or by the European Commission, using also for informative or argumentative purposes decisions issued by non-EU<br />

competition authorities (e.g. the Federal Trade Commission and even the competition authority from Singapore – Case<br />

Fresenius/Einstein, Fresenius/Renamed).<br />

Even if, as regards the products market, the RCC is more open to rely on and use the decisions issued by other competition<br />

authorities, when defining the geographical market, the RCC’s approach changes particularly when the parties invoke<br />

arguments which support defining a market which exceeds the national territory.<br />

In order to define the relevant market of an economic concentration, the RCC leans to a national or even local market.<br />

For example, in assessing Fresenius Medical Care acquisitions of two suppliers of renal care services, Euromedic (an<br />

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international acquisition with pan-European merger control implications) and Renamed (most important local competitor<br />

of Fresenius), the RCC defined the catchment area of renal care services (the relevant market) as a 50km radius around<br />

the dialysis centresxi .<br />

Also in operations concerning retail markets, RCC considers the geographic relevant market to be local by drawing a<br />

circle around the store which has a radius corresponding to the distance that consumers can travel by car in 10-30 minutes<br />

(depending on several factors such as household size and preferences, income levels, store accessibility, store size, transport<br />

network).<br />

In reviewing specific markets, with a strict regulation, the RCC’s policy is to request information necessary for defining<br />

the markets from public regulatory authorities (e.g. Ministry of Health, Romanian National Health Insurance House,<br />

ANCOM etc.). The RCC takes into account the information/opinions provided by such authorities in assessing the specific<br />

markets.<br />

In considering the impact of the operation on the relevant market, the RCC uses, in particular, the Herfindahl-Hirschman<br />

Index (“HHI”). The higher the HHI is, the more information the undertakings have to provide to the RCC. Even if the<br />

concentration of the market should be indicative in assessing the operation, for the RCC the HHI seems to become an<br />

essential tool for conducting the competitive assessment, in many cases being the determining factor.<br />

When defining the relevant markets, and during the assessment of economic concentrations, an important role is attributable<br />

to the investigations initiated by the RCC ex officio on certain markets. The RCC’s policy is to periodically review various<br />

sectors of industries and markets and to prepare reports regarding these investigations.<br />

For example, in May 2010, an investigation on maritime transport services was also finalised. xii The analysis made within<br />

the investigation mainly followed the market on maritime transport services, but some related markets were also concerned<br />

(port handling services, maritime agency services, pilotage services, tug services). The study showed that the maritime<br />

transport service market is a competitive one (this aspect may be used as an additional argument by the parties involved<br />

in concentrations on these markets).<br />

The RCC also issued, in September 2009, a detailed report regarding the food market investigationxiii . Within this report,<br />

the RCC determined that the retail market can be separated into two relevant markets: (i) an upstream market that considers<br />

the supply market on which the retailers act as clients in the relationship with the producers/wholesalers; and (ii) a<br />

downstream market that considers the retail market on which retailers act as suppliers for the end user. In terms of<br />

geographic markets, the retail food sector consists of local markets which are easily accessed by consumers.<br />

More recently, the RCC focused on the wholesale drug distribution market for which it published a report in 2011xiv . One<br />

of the objectives of the RCC report was to analyse a representative sample of drugs. According to this Report, in line with<br />

European practice, although the flow of drugs between states could lead to the idea that the geographic dimension of the<br />

relevant market is at least Community-wide, in reality, the drugs market was defined as a national market. The RCC has<br />

noticed also in this Report a concentration tendency in the Romanian pharmaceutical market over the past years, as the<br />

first 20 companies in the field control 78% of the market. According to the RCC, the concentration is mainly due to<br />

mergers and acquisitions operations performed at international level by the companies operating in the pharmaceutical<br />

market.<br />

Key economic appraisal techniques applied<br />

In light of the recent amendments, the Dominance Test was replaced by the Significant Impediment to Effective<br />

Competition Test (SIEC). In essence, in order to declare an economic concentration compatible with a normal competition<br />

environment, the RCC takes into consideration other factors in addition to the risk of the creation and consolidation of a<br />

dominant position on the market – the main criteria on which the old test was based on. As a result, the passing to the<br />

SIEC Test provides a more profound and rigorous analysis, similar to the one used in the Community-specific practice.<br />

Also, the calculation of the authorisation fee has been modified by taking into account the total turnover of the parties<br />

involved in such operations and by stipulating a maximum value of the fee (i.e. 25,000 Euro). This amendment simplifies<br />

the calculation of the fee and helps the involved undertakings, taking into account that the old calculation formula required<br />

these undertakings to identify the turnover registered on the relevant market of the operation.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

(i) Avoidance of second stage investigation<br />

In order to avoid reaching Phase II in an economic concentration, communication with the competition authority is<br />

essential. Therefore, it is recommended that a communication channel is established from the beginning, i.e. from the<br />

moment the notification form is submitted with the RCC.<br />

By communicating with the RCC’s representatives, the parties are able to anticipate the potential issues that the RCC<br />

might raise regarding the envisaged economic concentration. When this is the case, the parties may: (i) argue why the<br />

aspects that concern the RCC from a competition perspective are consistent with a normal competitive environment; or<br />

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(ii) propose commitments in order to eliminate, before or after the authorisation of the economic concentration, the matters<br />

that raise significant impediments to competition.<br />

In the notification’s preliminary stage, the undertakings are recommended to collect information from the market, client<br />

declaration, and expert opinions obtained from the parties or from third parties that confirm that the notification is compliant<br />

with a normal competition environment.<br />

As mentioned above, the only example of the commitment’s procedure applied so far is the merger control clearances<br />

issued by the RCC with respect to the economic concentrations between Fresenius Medical Care Beteiligungsgesellschaft<br />

and Euromedic and Fresenius Nephrocare Romania and 4 Renamed companiesxv .<br />

(ii) Following second stage investigation<br />

After entering a Phase II investigation, the RCC has 5 months to decide on the economic concentration. In this stage, the<br />

RCC can: (i) give a decision to declare the economic concentration as incompatible with a normal competition environment;<br />

(ii) authorise the economic concentration because no serious doubts were identified about the compatibility with a normal<br />

competition environment on the relevant markets; and/or (iii) authorise the economic concentration under some<br />

commitments in order to comply with a normal competition environment.<br />

According to the public information registered in the RCC’s Annual Reports, in our jurisdiction, no economic concentration<br />

has reached Phase II after the recent developments of the legislation.<br />

Key policy developments<br />

One of the most important developments in the Romanian competition legislation is that, starting December 2010, the<br />

RCC can accept commitments from the undertakings involved in an economic concentrationxvi . The purpose of such<br />

commitments is to eliminate any anticompetitive concern identified by the RCC in order to clear the economic<br />

concentration.<br />

The new legal provisions in concerning mergers also include the possibility to notify the intention to have an economic<br />

concentration (by taking over a company or by merging). The operation may be notified in cases where the concerned<br />

undertakings demonstrate to the RCC in good faith the intention to conclude an agreement or, in case of public offering,<br />

they announced their intention to make a public offer, with the condition that the agreement or offer planned is to result<br />

in a concentration that meets the requirements of the Competition Act. Previously, the RCC was notified only after signing<br />

the agreement regarding the concentration operation.<br />

The calculation method for the authorisation fee, which is set between 10,000 and 25,000 Euro, has also been simplified.<br />

Prior to the recent amendment, the authorisation fee represented 0.1% of the companies’ turnover on the market on which<br />

the merger takes place.<br />

Significant changes were introduced as to the compatibility test of the merger with a normal competitive environment.<br />

Thus, in line with the European Commission’s practice, the Romanian law was changed by abandoning the “dominance<br />

test” in favour of the SIEC Test (Substantial Impediment of Effective Competition Test) xvii .<br />

One disputed development of the Competition Act concerns the access to the file procedure. In light of the new<br />

amendments, once the RCC’s President order to access the file is challenged at the Court of Appeal, the scheduled hearings<br />

are suspended until the judgment of the court.<br />

As highlighted above, another important legislative development is new legal provisions as regards economic<br />

concentrations which may raise a potential risk to national security and, whereby, the Government at the proposal of the<br />

Supreme Defence Council may issue a decision that would prohibit the economic concentration.<br />

Reform proposals<br />

At this moment, the RCC has issued for public debate several projects to review and update the secondary competition<br />

legislation.<br />

Within the proposed amendments of the secondary legislation, we mention, as an example, the Council guidelines and<br />

regulations with respect to: (a) the individualisation of sanctions for the contraventions stipulated by the Competition Act,<br />

including for the establishment of contraventions and application of sanctions; (b) the analysis and solving of the complaints<br />

regarding the breach of Articles 5, 6 and 9 of the Competition Act and Articles 101 and 102 of the TFEU; (c) the proceedings<br />

regarding the hearings on-going before the Council Plenum and adoption of decisions; and (d) the terms, conditions and<br />

procedures for proposing and accepting commitments, both in case of mergers and anticompetitive practices that were<br />

adopted by the Council.<br />

As regards merger control, the main changes proposed by the RCC concern the amendments to be brought to the secondary<br />

legislation as to reflect the new legal provisions inserted in the Competition Act.<br />

Thus, the drafts of the regulations, proposed by the RCC and which are subject to public debates (as such proposals are<br />

published on the official website of the Competition Council), are meant to provide more details as regards the principles<br />

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Popovici Nițu & Asociații Romania<br />

newly introduced in the Competition Act particularly those regarding: (a) the hearing conditions and proceedings; (b) the<br />

applicable fines and the computation mechanisms of such fines; and (c) evidence used by the RCC during investigations<br />

and methods for obtaining such evidence.<br />

* * *<br />

i.<br />

Endnotes<br />

Quarterly bulletin no. 1-4 from 2009 and Quarterly bulletin no. 1-4 from 2010.<br />

ii. Quarterly bulletin no. 1-4 from 2010.<br />

iii. The method to appoint the members, role, functioning and organising of the Advisory Board shall be established<br />

within a regulation for functioning, approved by a Government decision.<br />

iv. Articles 21 and 22 from RCC’s Order no. 385 dated August 5, 2010 for approval regarding the economic<br />

concentration.<br />

v. RCC’s Order no. 688 dated December 9, 2010 for approving the guidelines regarding the commitments<br />

implementation on economic concentrations.<br />

vi. RCC’s Decisions no. 19 and 20 dated June 20, 2011 and the Commitments attached.<br />

vii. In accordance with the new provisions (a) in those cases when an operation raises national security risks, the<br />

Government, based on the proposal made by the Supreme Council of National Defence shall issue a decision which<br />

prohibits such operation, (b) RCC shall inform the Supreme Council of National Defence in relation with the<br />

economic concentration operations notified to the RCC and which are susceptible of being assessed from a national<br />

security standpoint.<br />

viii. RCC’s Decisions no. 19 and 20 dated June 20, 2011.<br />

ix. RCC’s Decision no. 11 dated April 5, 2011 and no. 16 dated May 25, 2011.<br />

x. RCC’s Decision no. 27 dated June 30, 2010.<br />

xi. RCC’s Decisions no. 19 and 20 dated June 20, 2011.<br />

xii. RCC’s report regarding the investigation on maritime transport services. Website:<br />

http://www.consiliulconcurentei.ro/uploads/docs/items/id6540/raport_investigatie_servicii_de_transport_maritim.<br />

pdf<br />

xiii. RCC’s report regarding the food market investigation. Website:<br />

http://www.consiliulconcurentei.ro/uploads/docs/items/id2968/raport.pdf<br />

xiv. RCC’s report regarding the the wholesale drug distribution market. Website:<br />

xv.<br />

http://www.consiliulconcurentei.ro/uploads/docs/items/id6495/raport_total.pdf<br />

RCC’s Decisions no. 19 and 20 dated June 20, 2011 and the Commitments attached.<br />

xvi. RCC’s Order no. 688 dated December 9, 2010 for approving the guidelines regarding the commitments<br />

implementation on economic concentrations.<br />

xvii. Competition Act no. 21/1996 and CC’s Order no. 385 dated August 5, 2010 for approval regarding the economic<br />

concentration.<br />

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Popovici Nițu & Asociații Romania<br />

Silviu Stoica<br />

Tel: +4021 317 7919 / Email: silviu.stoica@pnpartners.ro<br />

Silviu Stoica is partner with Popovici Nitu & Asociatii and head of the competition practice group. His<br />

practice focuses on a broad range of contentious and non-contentious competition matters, with an<br />

emphasis on cartel investigations and industry inquiries, abuses of dominant position and antitrust<br />

disputes.<br />

Mr Stoica has been commended in Chambers Europe as “very client-oriented” and “focused on<br />

solutions”. Established clients of Silviu Stoica include Philip Morris, Cargill, ArcelorMittal, Innova<br />

Capital and Oresa Ventures on a whole array of competition matters and investment issues.<br />

Mr Stoica has been with the firm since its inception, pursuing all carrier stages from associate to senior<br />

associate and head of practice group. Silviu Stoica holds a degree in law from the University of Bucharest<br />

Faculty of Law and is a member of the Bucharest Bar Association. Mr Stoica attended US Legal Methods<br />

– Introduction to US Law Institute for US Law in Washington, DC and International Development Law<br />

Organization Development Lawyers Course (DLC-20E) in Rome.<br />

Mihaela Ion<br />

Tel: +4021 317 7919 / Email: mihaela.ion@pnpartners.ro<br />

Mihaela Ion is a managing associate within the competition practice group of Popovici Nitu & Asociatii.<br />

Her area of expertise covers in particular antitrust litigation, unfair trade practices, consumer law, merger<br />

control proceedings and state aid. She also assists clients in structuring and implementing compliance<br />

programmes, providing regular training as external legal counsel on all relevant aspects of competition<br />

law.<br />

Ms Ion holds a degree in law from “Lucian Blaga” University of Sibiu and is member of the Romanian<br />

Bar Association. Mihaela Ion holds also a Master Degree in Competition from Bucharest Academy for<br />

Economic Studies and a Master Degree in International Relation and European Integration from<br />

Romanian Diplomatic Institute.<br />

Popovici Nițu & Asociații<br />

Calea Dorobanti, 6th floor, Bucharest, 1st District, Postal Code 010567, Romania<br />

Tel: +4021 317 7919 / Fax: +4021 317 8500 / URL: http://www.pnpartners.ro/<br />

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South Africa<br />

Lesley Morphet & Desmond Rudman<br />

Webber Wentzel<br />

Overview of merger procedure and trends<br />

When considering how a merger will be assessed in South Africa, one must first understand the authority structure which<br />

prevails. All notifiable mergers are assessed by the Competition Commission (“the Commission”), but only mergers which<br />

meet the financial thresholds for large mergers progress to the Competition Tribunal (“the Tribunal”) for a decision.<br />

Decisions of the Commission are reached in private, whereas the Tribunal holds formal hearings where evidence is led in<br />

public, and only confidential information is withheld from the general public. Interested third parties can make submissions<br />

to the Commission, which no doubt informs their thinking in reaching a decision regarding an intermediate merger, but in<br />

large merger proceedings they can apply to intervene formally, and if given full participation rights they may lead and<br />

cross-examine witnesses, submit evidence, and generally participate in full in the process. This enables the Tribunal to<br />

have access to a wide range of views to assist it in informing its decision, although it is wary of interveners who might<br />

have their own agenda to derail the merger. Decisions of the Tribunal may be taken on appeal to the Competition Appeal<br />

Court, although only parties to the merger may appeal. This has led to a trend where disgruntled parties who do not have<br />

a right of appeal have taken matters on review to the Competition Appeal Court. This entity is the highest court of appeal<br />

with respect to competition-related matters, although the Supreme Court of Appeal has in the past reaffirmed its residual<br />

jurisdiction in appropriate cases, and there is also a possibility that matters may be taken on appeal to the Constitutional<br />

Court in future.<br />

The South African competition regime is peremptory - if the transaction amounts to a merger as defined, and meets the<br />

thresholds of either an intermediate or a large merger, it must be notified for approval, and may not be implemented until<br />

approval has been obtained. As one might expect, in the early years of the current competition regime there were some<br />

cases relating to prior implementation, but these have not featured large on the radar screen for some years. However,<br />

recently there have been a couple of cases where firms were fined for failing to notify a transaction before implementation.<br />

The competition authorities have made it clear that, whereas in the past they took a lenient approach to bona fide failures<br />

to notify, they will now closely interrogate whether the parties were indeed bona fide, or whether their failure to notify<br />

was negligent or wilful, and have cautioned that fines may well increase from the relatively modest (less than R1 million)<br />

levels of the past. They will also look to fine both the acquirer and the target, whereas in the past the fine has been imposed<br />

on the acquirer. Note that the maximum allowable penalty is 10% of turnover in, and exports from, South Africa.<br />

The legislation applies to all economic activity within, or having an effect within, South Africa. Accordingly, international<br />

transactions are notifiable to the South African competition authorities if the parties have activities in South Africa, or<br />

even if only the target has activities in, or sales into, South Africa. Parties in international transactions in which the South<br />

African leg is relatively small often want to close the transaction before clearance has been obtained from the competition<br />

authorities in South Africa. However, there is no formal mechanism in South African competition law for doing so where<br />

closing the international transaction results in control over the acquired business in South Africa passing to the acquirer.<br />

The Commission has historically also been reluctant to accept “hold-separate” or “warehousing” arrangements as ways to<br />

ring-fence the South African business of the target pending clearance in South Africa. More recently (in the last year or<br />

so), the Commission has been more accepting of such arrangements and has informally sanctioned ring-fencing structures<br />

that either retain the seller’s control over the target business in South Africa pending approval or ensure that the target<br />

business is managed as an independent and separately identifiable business within the acquiring firm until approval is<br />

obtained. In share purchase transactions, the acquired shares in the South African target could also possibly be held in<br />

escrow by a third party on behalf of the purchaser in the interim period, although this type of arrangement is arguably not<br />

permissible in terms of the Competition Act.<br />

As there is mandatory notification for mergers that reach the requisite thresholds, the Commission and the Tribunal review<br />

many mergers that raise no competition concerns. Furthermore, there is no “short form” filing available for non-complex<br />

mergers - the same forms are used, although the Commission accepts less detailed information and supporting<br />

documentation. Whilst one might have anticipated that the Tribunal would review more complex transactions, because<br />

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Webber Wentzel South Africa<br />

the determining threshold is purely a monetary one, it reviews many completely unproblematic transactions, and most<br />

transactions are approved unconditionally. Indeed, many of the transactions regularly reviewed by the competition<br />

authorities are property mergers and the past year has been no exception. However, the Commission has indicated that it<br />

is seeing an increase in the complexity of mergers filed. Its case analysis is similarly becoming more sophisticated, with<br />

more reliance on various economic analysis tools - a trend that the Tribunal has welcomed.<br />

The competition authorities try to decide mergers expeditiously, and in March 2010 the Commission issued a document<br />

outlining the time periods it would endeavour to abide by in relation to mergers depending on the level of complexity<br />

involved. These are not binding time periods, however, and much depends on their workload and staffing levels. The<br />

chair of the Tribunal stated in a speech in late 2010 that he was concerned about timing delays in competition matters<br />

(albeit his major concern relates to prohibited practice proceedings). The Tribunal’s track record of decision-making in<br />

merger cases is a good one, showing a commitment to expeditious case handling and decision making.<br />

Although the Commission welcomes contact by parties prior to filing, it will give guidance on technical rather than<br />

substantive issues. The Commission adopts the approach that it cannot give a view on substantive issues without the<br />

necessary market background and information, which it only obtains as part of the merger filing.<br />

The question of confidentiality is an issue that exercises many advisers’ minds when submitting supporting documentation<br />

which may be highly commercially sensitive. Confidentiality claims are routine, and the competition authorities have an<br />

obligation to maintain such confidentiality unless and until a confidentiality claim is successfully challenged in the Tribunal.<br />

In early 2009 the notification thresholds were substantially increased, approximately at the same time as the global recession<br />

hit South Africa. Accordingly, the overall number of merger notifications dropped dramatically. There has been a steady<br />

increase ever since, although with the very substantial threshold increase for large mergers, the number of mergers reviewed<br />

by the Tribunal has decreased significantly.<br />

<strong>Merger</strong> Notification Statistics for the period 1 June 2010 to 30 June 2011<br />

Category of <strong>Merger</strong> Number of Notifications<br />

Number of Unconditional<br />

Approvals<br />

Source: The statistics for large mergers are available on the Competition Tribunal’s website at -<br />

http://www.comptrib.co.za/cases/large-merger/; and the statistics for small and intermediate mergers are available on the<br />

Competition Commission’s website at - http://www.compcom.co.za/merger-and-acquisition-activity-update/.<br />

Whilst only intermediate and large mergers require notification, it should not be understood that small mergers receive no<br />

attention at all. Although small mergers may be implemented without first obtaining merger approval from the competition<br />

authorities for them, the Commission is entitled to require a small merger to be notified and approved, if the Commission<br />

is of the view that the transaction may raise competition or public interest concerns. In fact, some of the mergers prohibited<br />

in the past have been small mergers. Indeed, because of the increase in thresholds, the Commission is particularly anxious<br />

not to overlook problematic transactions simply because they are small mergers, and is particularly interested in mergers<br />

in industries under investigation in relation to prohibited practices. The Commission went so far as to issue a practitioner<br />

guideline requiring to be informed of small mergers in such industries, so that it could decide whether to require formal<br />

notification of that merger or not.<br />

The merger definition focuses on the acquisition or establishment of control by one firm over another and the question of<br />

“control” is always a vexed one. Until last year it had been understood that where a shareholder holding more than 50%<br />

of the shares in a company sought to increase its shareholding, this would not require notification since it was understood<br />

that the shareholder already had sole control. However, early last year Nedbank Limited, which had 50.1% of the share<br />

capital of Imperial Bank Limited, sought to acquire the remaining 49.9% of the shares. The merging parties argued that<br />

the merger was not notifiable to the competition authorities as the Nedbank group already owned more than 50% of the<br />

shares in Imperial. The Commission disagreed and required notification. The transaction was a large merger and therefore<br />

subject to decision by the Tribunal. The Tribunal did not give an express ruling on this issue, but assessed the transaction<br />

as if it were indeed notifiable. This aspect of the control question is therefore not settled at this time.<br />

The issue of control also looms large because of changes to the South African Companies Act. One example of control<br />

stipulated in our Competition Act is where a person holds a majority of a firm’s “issued share capital”. The case law on<br />

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Number of Conditional<br />

Approvals<br />

Number of Prohibitions<br />

Large 58 53 5 0<br />

Intermediate 139 132 6 1<br />

Small 15 12 3 0<br />

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Webber Wentzel South Africa<br />

this point was always difficult, but specifically referred to a company’s par value shares. With the move in the new<br />

Companies Act to do away with the concept of par value shares, this question will occupy legal minds for some time to<br />

come. The development has implications for transactions involving preference shares in particular, which has been a<br />

favourite mechanism used in structuring debt transactions, and it is envisaged that the Commission will need to issue a<br />

practice note to deal with the matter.<br />

The Commission has never issued formal guidelines on the substantive aspects of its merger control functions. It has<br />

however occasionally issued “Practitioner Updates” explaining its approach to various procedural issues, such as the<br />

application of the Competition Act’s provisions and regulations to joint ventures, but has not issued a Practitioner Update<br />

in several years.<br />

Industry sectors reviewed<br />

As mentioned above, many mergers notified occur in the property industry, and most of these are non-problematic. As<br />

South Africa is a country with a large agricultural sector and a significant mining industry, there are often mergers in these<br />

sectors too. Otherwise there is a spread of mergers across many sectors of the economy.<br />

General industries/sectors identified in large merger notifications for the period 1 June 2010 to 30 June 2011*<br />

INDUSTRY / SECTOR NO. OF MERGERS DECIDED<br />

Property 18<br />

Financial Services & Products 11<br />

Mining 4<br />

Food & Food Products / Retail /<br />

Agriculture<br />

11<br />

Logistics & Transportation 2<br />

Construction & Engineering 2<br />

Leisure & Entertainment 3<br />

Pharmaceutical & Healthcare 2<br />

Other 5<br />

*The Competition Commission’s website does not provide information regarding sectors or industries in small and<br />

intermediate merger notifications.<br />

Although it is not always appropriate to do so, the competition authorities use the information gained from merger<br />

investigations to further their knowledge of problematic practices in industries. They scrutinise most closely mergers<br />

taking place in industries which are under investigation. At present these include the construction, agro-processing,<br />

financial services and retail industries.<br />

It is noteworthy that some investigations into prohibited practices have been precipitated by information gleaned from a<br />

merger notification. Very recently yet another example arose, as the Commission announced that it was conducting an<br />

investigation into the newspaper industry arising from a merger notification involving the newspaper industry in KwaZulu-<br />

Natal.<br />

Remedies<br />

The competition authorities can approve a transaction unconditionally or subject to conditions. As might be expected,<br />

they prefer to impose structural rather than behavioural remedies. A particular competition concern relates to information<br />

sharing between competitors, and conditions are often imposed on mergers to avoid that risk. Thus several cases over the<br />

past year involving cross-shareholdings were approved only subject to the condition that there be strictly separate board<br />

representation. Other conditions will be dealt with below.<br />

Key policy developments<br />

The South African competition regime is unusual for practitioners in developed economies in that the authorities must<br />

take into account not only competition factors but also public interest factors. This is a balancing exercise in which the<br />

authorities look at the effect of the merger on a particular industrial sector or region, on employment, on the ability of<br />

small businesses and firms owned by historically disadvantaged persons to become competitive, and on international<br />

competitiveness. Although it has not yet occurred, a merger could theoretically be prohibited if the public interest concerns<br />

are very significant and outweigh the competition benefits thereof.<br />

Given the high unemployment rate in South Africa, a particular focus for our competition authorities for many years has<br />

been the effect of a transaction on employment. In the past year this concern has intensified and either conditions are<br />

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Webber Wentzel South Africa<br />

imposed or merging parties are required to give undertakings to limit job losses, undertake re-skilling of retrenched workers<br />

and the like. Moratoriums on retrenchments for a period are also becoming common. Thus in the merger of Momentum<br />

Group Limited and Metropolitan Holdings Limited last year (41/LM/Jul10), although there were no competition concerns,<br />

stringent conditions were imposed to deal with employment concerns. The competition authorities also pay close heed to<br />

the concerns of trade unions. Trade unions are entitled by law to participate in the merger process, and they are exercising<br />

their rights more and more vigorously, to the extent that they seek to give input even where their members are not affected<br />

by a merger.<br />

The competition authorities formerly fell under the Department of Trade & Industry, but in the last year oversight moved<br />

to the portfolio of the newly-created Department of Economic Development. Since then greater attention has been paid<br />

not only to employment, but also to other public interest considerations. Indeed in a policy document issued by the<br />

Department of Economic Development, it is stated that more consideration should be given to the possibility of imposing<br />

public interest conditions in mergers. The Minister is entitled to participate in mergers in order to make representations<br />

on public interest grounds, and he appears to be exercising that right more vigorously. Thus in the intermediate merger<br />

where the Japanese company Kansai Paint Co. Limited (“Kansai”) acquired the South African company Freeworld Coating<br />

Limited (“Freeworld”), the Minister expressed his views on the transaction and the Commission ultimately approved the<br />

transaction only subject to a number of conditions. Aside from a divestiture condition imposed to alleviate competition<br />

concerns, and an employment condition precluding retrenchments for a period of three years, Kansai was required: to<br />

continue to manufacture decorative coatings for ten years; to establish an automotive coatings manufacturing facility in<br />

South Africa within five years; to invest in South African research and development in decorative coatings; and to<br />

implement an empowerment transaction involving formerly disadvantaged persons within two years. These public interest<br />

conditions are wide ranging and far more extensive than have been seen previously.<br />

The most prominent recent transaction dealing with public interest involves WalMart Stores Inc, which has acquired a<br />

majority stake in Massmart Retail Holdings Limited (73/LM/Nov10). The transaction raised no competition concerns,<br />

but trade unions intervened in the large merger hearing, and several South African Ministries, including the Department<br />

of Economic Development and Department of Trade & Industry also participated to air their views. The gainsayers, who<br />

were particularly worried that the acquisition would result in Massmart substituting imports for locally produced products<br />

and the effect this would have on local suppliers and their employees, sought the prohibition of the transaction. After a<br />

lengthy and very public hearing the Tribunal found that many of the concerns raised by interveners did not fall within the<br />

competition arena and therefore could not be resolved by the Tribunal. After careful consideration they approved the<br />

transaction subject to certain conditions which had been proposed by the merging parties. Although the transaction was<br />

approved, the unions and the government departments are taking the matter further, and we have therefore not heard the<br />

end of this saga.<br />

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Webber Wentzel South Africa<br />

Lesley Morphet<br />

Tel: +27 11 530 5359 / Email: lesley.morphet@webberwentzel.com<br />

In addition to advising clients on competition issues across a wide range of industries, Lesley has<br />

extensive experience in all aspects of competition law, including merger notifications, complaints,<br />

leniency issues and exemptions and also provides compliance advice, including compliance audits. She<br />

has also assisted clients with competition queries in a number of African jurisdictions.<br />

For a number of years Lesley has been rated as a leading practitioner in the field of competition law in<br />

a number of international directories including Who’s Who Legal, Chambers and Global Counsel Review.<br />

Lesley is a member of the Executive Committee of the Competition Committee of the Law Society of<br />

the Northern Provinces and obtained her BA (LLB) from the University of Cape Town.<br />

Desmond Rudman<br />

Tel: +27 11 530 5272 / Email: desmond.rudman@webberwentzel.com<br />

Desmond is a partner in the Competition Practice of Webber Wentzel. He joined the firm in May 2009<br />

from Werksmans Inc., where he had been a director since 2003.<br />

Desmond has a wealth of experience in law and economics and was previously Head of Research at the<br />

Competition Tribunal. He has also consulted in economic price-cap regulation. He has experience in a<br />

range of sectors including agriculture, mining, petrochemicals, construction, pharmaceuticals, consumer<br />

goods, retail, and information and communication technology.<br />

Desmond obtained his BCom (with distinction) from the University of the Free State and obtained an<br />

LLB and BCom (Honours) (with distinction) from the University of South Africa. He also has a post<br />

graduate qualification in economics (Advanced Studies Program in International Economic Policy<br />

Research) from the Kiel Institute of World Economics.<br />

Webber Wentzel<br />

10 Fricker Road, Illovo Boulevard, Johannesburg, South Africa, 2196<br />

Tel: +27 11 530 5000 / Fax: +27 11 530 5111 / URL: http://www.webberwentzel.com<br />

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Spain<br />

Jaime Folguera Crespo & Borja Martínez Corral<br />

Uría Menéndez<br />

Overview of merger control activity during the last 12 months<br />

In the last twelve months, the activity of the Spanish Competition Commission (“CNC”) in merger control procedures<br />

has recovered some pulse after the dramatic decrease felt in previous months as a consequence of the financial crisis<br />

starting in 2008.<br />

In view of the information published on the CNC’s website, the general overview of the merger control activity of the<br />

CNC in the last twelve months can be summarised as follows: between June 2010 and July 2011, 129 transactions have<br />

been filed with the CNC under the Spanish merger control legislation. Out of this number, only 4 notifications were<br />

archived (i.e., closed without a decision), while all the remaining 125 have been cleared.<br />

In this period, only two transactions were referred to a second phase assessment and subject to certain conditions. Only<br />

in one case did the CNC impose conditions on a first-phase decision (see “Key economic appraisal techniques”, below).<br />

New developments in jurisdictional assessment or procedure<br />

In this period, there have been three relevant developments in relation to the jurisdictional assessment of mergers and the<br />

merger control procedure: (i) the implementation of a de minimis notification threshold; (ii) the publication of draft<br />

guidelines for simplified notifications; and (iii) an increase in the CNC enforcement activity in relation to merger control.<br />

(i) Implementation of a merger control de minimis threshold to exclude small transactions from the notification obligation<br />

Perhaps the most noticeable development in Spanish merger control in the last year has been the implementation of a new<br />

de minimis threshold. The new threshold, that complements the existing ones, is aimed at excluding transactions that, due<br />

to their size and to their foreseeable impact in the market, are not likely to raise competition concerns.<br />

On 15 February 2001, the Spanish Parliament definitively approved the new threshold as an amendment to Article 8 of<br />

Law 15/2007, of 3 July, on the Defence of Competition (the “Competition Act”).<br />

Up to the entry into force of this amendment, the obligation to file an economic concentration to the Spanish competition<br />

authorities was triggered if any of the following alternative thresholds was met: (a) the transaction entailed the acquisition<br />

of a market share equal to or higher than 30%; or (b) the global turnover in Spain for all the undertakings concerned in the<br />

last accounting year exceeded EUR 240 million, providing that at least two of them achieved an individual turnover in<br />

Spain higher than EUR 60 million.<br />

Under the new de minimis rule, certain economic concentrations will not fall within the notification obligation in cases<br />

where the 30% market share threshold is met but:<br />

a) the joint market share of the parties resulting from the transaction is below 50%; and<br />

b) the target’s aggregate turnover in Spain is below EUR 10 million.<br />

The turnover notification threshold has not been affected by this amendment.<br />

The amendment constitutes an improvement in relation to the previous threshold, as it eliminates the need to file<br />

transactions that are not relevant from a competition perspective, eliminating the legal and economic burden that the<br />

clearance procedure represents for the notifying parties. However, in our view, the new de minimis threshold is to have a<br />

narrow application, as it would only affect a limited number of transactions. Most small and non-relevant transactions<br />

would still fall within the notification obligation anyway (particularly in relation to acquisitions of Spanish companies by<br />

foreign entities where there is no overlap whatsoever).<br />

(ii) Publication of draft guidelines for simplified notification cases<br />

In the spring of 2011 the CNC also published a draft of guidelines for merger control addressing the simplified notifications<br />

which are intended to enter into force later this year. This would be the first time that the CNC issues guidelines on merger<br />

control proceedings since the entry into force of the current Competition Act in September 2007.<br />

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Article 56 of the Competition Act provides for a number of cases where the parties to a reportable transaction may submit<br />

a simplified filing form. The benefits of the simplified filing form are not only a significant reduction of the information<br />

requested by the CNC, but also in the fact that simplified notifications can benefit from a special filing fee which can be<br />

considerably lower in relation to the filing fee applicable to ordinary notifications. Although the simplified notification<br />

does not entail any particularity in relation to the procedure, in practice, the CNC usually clears transactions notified under<br />

the simplified filing form much swifter than ordinary filings. Therefore, the possibility that a transaction can qualify for<br />

a simplified filing is very relevant in terms of costs and timing.<br />

Currently, the Competition Regulation (Article 57) defines the cases where a transaction could qualify for a simplified<br />

filing form. Since the entry into force of the Competition Regulation, a high number of transactions have been able to use<br />

this simplified filing form (especially in cases where there was no overlap between the parties’ activities). In addition, the<br />

CNC has acknowledged that the cases for simplified procedure are not limited by the Competition Regulation (numerus<br />

apertus).<br />

In this scenario, the CNC has issued the draft guidelines on simplified notifications. Aside from certain general comments<br />

on procedural issues, the most significant element of the draft guidelines is the definition of some cases where the ordinary<br />

filing form would be required even though the transaction falls within the scope of Article 57 of the Competition Regulation.<br />

These cases would include (i) transactions that require a report of a regulator (energy, telecommunications, stock exchange,<br />

etc.), (ii) transactions where the notifying party requests an exemption to the suspension obligation, and (iii) transactions<br />

arising from a commitment or condition included in a previous merger control decision.<br />

Although these guidelines would increase the legal certainty of the parties (that may foresee when the CNC will require<br />

an ordinary filing form), it clearly restricts the application of simplified notifications.<br />

(iii) Increase of enforcement activity in relation with merger cases<br />

Finally, it is worth noting that in the last months, the CNC has published several decisions imposing fines for the<br />

implementation of reportable transactions before its previous authorisation. Although the infringement of the suspension<br />

obligation has long existed in Spanish law, there were few cases where the competition authorities imposed fines on these<br />

grounds.<br />

Since June 2010, the CNC has made public 3 of these decisions:<br />

• Case SNC/0008/10, Tompla (Decision of May 17, 2011). A fine of EUR 3,000 was imposed. The fine was low for<br />

two reasons: (i) the company notified the transaction before the CNC noticed it; and (ii) the transaction would have<br />

not had to be notified under the new de minimis threshold.<br />

• Case SNC/0006/10, Berge/Maritima Candina (Decision of July 29, 2010). This case should have been filed under<br />

the market share threshold. However, the market definition was not clear. The CNC imposed a fine of EUR 76,000.<br />

• Case SNC/0005/09, Consenur/Ecotec (Decision of April 9, 2010). The CNC became aware of this transaction in<br />

the course of an infringement procedure for anticompetitive behaviour. As in the previous case, in this case the<br />

market definition was not clear. The CNC imposed a fine of EUR 46,500.<br />

The fines imposed on the three cases were relatively low, as none of the cases raised competition concerns.<br />

As of 14 July 2011, the CNC is investigating another possible infringement of the suspension obligation.<br />

In all these cases, the CNC found that the transaction met the merger control threshold, and the parties fiercely contested<br />

the market definition finally adopted. These procedures (and the fines imposed on the companies) evidence the legal<br />

uncertainty that arises from the existence of merger control thresholds. Although the Competition Act foresees a<br />

consultation mechanism for solving any doubt on the market definition, this procedure is not subject to any legal deadline<br />

and does not always solve the initial doubts of the parties.<br />

In addition, in April 2011, the CNC made public that it was investigating a possible infringement of the conditions imposed<br />

in a merger control decision. This is the first time that the CNC has investigated this kind of infringement after the normal<br />

monitoring process.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

In the last twelve months, the CNC has assessed a number of sectors, although it has not developed a special interest in<br />

any of them. The activity of the CNC in relation to merger control is limited to the filings submitted to it. The CNC<br />

usually adopts a case-by-case approach, although when several transactions are notified in one sector in a brief period of<br />

time, the CNC normally relies on previous decisions.<br />

In the last months, there has been a significant number of transactions in the field of the health industry (including medical<br />

devices, drugs, etc.), energy (especially in relation to the sale of distribution assets) and financial services (especially<br />

banks and financial services). Energy and health industries are usually among the sectors that normally represent a<br />

significant part of the filings. In the case of health industries, the market share threshold in Spain is normally met, as the<br />

market definition tends to be narrow. In the case of the energy sector, the size and turnover of the companies (and, in the<br />

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case of the distribution assets, the market share) can also explain this fact.<br />

In relation to the financial services, the CNC has clearly increased its activity in the sector in this period (adding up to<br />

fourteen cases in total). The main reason has been the restructuring phase of the Spanish banking markets, especially in<br />

relation to saving banks.<br />

In this regard, the CNC has assessed as mergers the so-called Institutional Protection Systems (Sistema Institucional de<br />

Protección o SIP), a structure under which a group of saving banks mutualise their losses and profits and subject their<br />

activities to a common direction under a central company of which they are shareholders. These structures normally entail<br />

an integration of the different businesses of the parties, the operation under common brands (although retaining local<br />

brands in some cases) or the definition of strategic policies decided by the central company.<br />

Among these cases, it is worth referring to the CNC decisions in cases C/0227/10, Grupo Banca Cívica, C/0259/10, Mare<br />

Nostrum and C/0286/10, Cajamadrid/Bancaja/Caja Insular Canarias/Caja Ávila/Caixa Laietana/Caja Segovia/Caja<br />

Rioja.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

As indicated under “Overview of merger control activity” above, in the last twelve months there have been few clearance<br />

decisions that were subject to the compliance with certain commitments from the parties. Two of the cases were secondphase<br />

decisions in relatively significant transactions, while the third was a first-phase case.<br />

As to remedies, the CNC tend to favour structural commitments and conditions, although it also studies and accepts<br />

behavioural solutions to competition concerns raised in merger cases. However, in relation to the practice of the CNC in<br />

the last year, the CNC has accepted a majority of behavioural commitments.<br />

When the parties identify the risk of a potential competition concern arising from a reportable transaction, it is extremely<br />

important that they start analysing possible remedies as soon as possible in order to submit the commitments in the first<br />

phase and avoid the opening of the second phase. The proposal of commitments usually involves some discussion with<br />

the CNC officials.<br />

Under the Competition Act, the CNC can accept commitments submitted by the parties if they remove the competition<br />

concerns, but it may also impose conditions ex officio in the case that the parties do not submit any commitment or the<br />

proposed commitments are deemed to be insufficient.<br />

The cases involving commitments imposed by the CNC in the last year are the following:<br />

a) Case C230/10 Telecinco/Cuatro (decision of October 28, 2010): This transaction entailed the acquisition by Gestevisión<br />

Telecinco, S.A. (“Telecinco”) of Sociedad General De Televisión Cuatro, S.A.U. (“Cuatro”). The day after such a<br />

notification, the joint acquisition by Prisa, Telefónica and Telecinco of Digital+ was also notified.<br />

This transaction involved a significant concentration on the Spanish free-to-air television sector. The Council of the CNC<br />

decided to open the second phase of the procedure, as it identified two potential sources of concern:<br />

• <strong>First</strong>ly, the CNC assessed the television advertising market. In view of the total combined audience of the merging<br />

television channels, the CNC found that the access to their advertising space could become essential for some<br />

advertisers in the event that these spaces were to be jointly marketed.<br />

• Secondly, the CNC detected a possible increase in the bargaining power of the merged entity in the market for<br />

acquisition of audio visual contents. This reinforced bargaining power could affect both the competitors of<br />

Telecinco (which could be excluded from having access to some contents on competitive conditions) and smaller<br />

contents’ suppliers (that could be forced to accept Telecinco’s conditions).<br />

After discussing different remedies with the CNC, on 19 October 2010 Telecinco submitted a set of commitments that<br />

were considered by the CNC to be adequate. These commitments were structured into three groups.<br />

The first group of commitments basically involves that (i) Telecinco cannot use the same commercial package for selling<br />

advertising space for two of its free-to-air television channels with the largest audience, (ii) the joint audience of the<br />

television channels included in a commercial package of advertising spaces may not exceed 22%, and (ii) Telecinco may<br />

not implement commercial policies (and particularly pricing policies) that may entail the tying of advertising packages of<br />

its television channels to advertisers.<br />

The second group of commitments intends to limit the power of Telecinco on the free-to-air television market and indirectly<br />

guarantee competition on the television advertising market by the following undertakings: (i) Telecinco undertakes not to<br />

extend its offer of free television channels by leasing TDT channels from third party operators; and (ii) Telecinco undertakes<br />

not to block any quality improvements in the television channels that may be launched by its competitors Net and La<br />

Sexta, with which the merged entity shares TDT multiples until 2015.<br />

Finally, a third group of commitments was aimed at countervailing its power as a purchaser of audiovisual contents through<br />

the following commitments: (i) Telecinco undertakes to limit the duration of its exclusive contents acquisition contracts<br />

to three years, without including pre-emption rights or rights of extension; and (ii) Telecinco undertakes to restrict its<br />

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ability to exclude national television producers as suppliers of programmes to free-to-air television competitors.<br />

b) Case C271/10, Redsys Servicios de Procesamiento, S.L.U. / Redes Y Procesos, S.A. (decision of March 14, 2011): in<br />

this case, the CNC analysed the merger of Redsys Servicios de Procesamiento, S.L.U. (“Redsys”) and Redes y Procesos,<br />

S.A. (“Redy”), the two main operators of the market for card payment processing in Spain. The initial competition<br />

concerns identified by the CNC were:<br />

• The transaction could represent a reduction in the number of operators from three to two on the market for card<br />

payment processing services, a market which, in the CNC’s view, has high barriers to entry. This fact led the CNC<br />

to the conclusion that there was a risk that the merged entity could charge excessive or discriminatory rates to<br />

customers that were not their own shareholders or shareholders that do not support the transaction.<br />

• The CNC also feared that the merged entity would not adequately define or update the technical standards and<br />

procedures relating to the interoperability of the payment transactions, which could result in the exclusion or<br />

hindering of the activity of rival processors or payment systems to which the merged entity would provide its<br />

services.<br />

• In addition, the fact that the main shareholders of the merged entity are the main Spanish banking institutions, and<br />

that these institutions are all linked to two of the three country-wide payment systems, the CNC was concerned<br />

about the potential coordination between the banks and the payment systems.<br />

To counterbalance these objections, the parties submitted a set of commitments that were considered sufficient by the<br />

CNC. These commitments were the following:<br />

• The merged entity commits to be an open provider of processing services to any operator requesting these services,<br />

without exclusion or discrimination. The resulting entity will have a single fee structure that will be applied without<br />

discrimination to all of the entity’s customers.<br />

• The parties undertook not to unilaterally intervene in processes to define, update or modify the standards and<br />

technical procedures that are permitting interoperability in electronic payments.<br />

• To deactivate the coordination risks, Redsys and Redy have committed that no members of the governing bodies of<br />

these payment systems or of any other international payment system would be present on the governing bodies of<br />

the resulting entity.<br />

• In addition, the Chairman of the Board of Directors of the resulting entity must be an independent professional who<br />

is not employed by, or in any other way directly or indirectly connected with, the payment system structures or their<br />

shareholders. In addition, neither the members of the Board of Directors nor the shareholders and/or customers may<br />

have access to information (commercial and process-related) on individual customers. An external auditor will<br />

verify the implementation of these commitments.<br />

c) Case C-312/10, Ser / Radio Lleida (decision of January 20, 2011): In 2011 this has been the only first-phase decision<br />

with commitments. The transaction, in this case, affected the radio broadcasting sector and involved the acquisition by<br />

Sociedad Española de Radiodifusión, S.L. (“Ser”) of sole control over Comunicaciones Pla, S.A. and three other radio<br />

broadcasting licences held by Radio Terraferma de Lleida, S.A.<br />

The transaction entailed a concentration of several radio stations in some areas of North-East Spain. In line with other<br />

precedents in the sector, the CNC cleared the transaction subject to a set of commitments to balance the position of the<br />

resulting entity in the province and the city of Lleida. Basically, the CNC requested the divesture of a radio station owned<br />

by Ser in the city of Lleida.<br />

The divesture must be authorised by the CNC beforehand and comply with the following requirements: (i) the acquirer<br />

must be a viable existing or potential competitor in the radio broadcasting sector; (ii) the acquirer must be provided with<br />

financial resources alien to the seller’s proven expertise and incentives to maintain and develop the divested radio station;<br />

(iii) the divesture will not give rise to new competition concerns and does not cause risks which delay the application of<br />

the commitments; and (iv) the acquirer cannot programme any of the Ser radio broadcasting products.<br />

Reform proposals<br />

The Spanish merger control regime is working with reasonable efficiency. The CNC normally takes its decisions within<br />

the legal deadlines and maintains a certain degree of flexibility and a fluent communication with the parties.<br />

However, in the regulatory field, there are grounds for improvement. Our main criticism to the Spanish merger control<br />

system is the maintenance of the market share threshold for notifications. As detailed under “New developments in<br />

jurisdictional assessment or procedure” above, the market share threshold is still a source of legal uncertainty for companies,<br />

particularly in sectors where no precedents exist. It requires a sound economic assessment which in a large number of<br />

cases is inconclusive or which the parties do not have enough information to perform.<br />

Although the CNC steadily holds that the consultation process eliminates this uncertainty, the fact that the consultation<br />

process is not subject to a legal deadline and other procedural constraints makes it an unsuitable instrument for this purpose.<br />

For this reason, we understand that the efficiency and legal certainty of the Spanish merger control system could be<br />

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improved by either removing the market share threshold (in line with most EU jurisdictions) or, at least, implementing a<br />

more efficient and reliable consultation process.<br />

In addition to this major proposal, we believe that the Spanish merger control procedure could be further improved by the<br />

adoption of certain measures:<br />

• <strong>First</strong> of all, access to the administrative file by the notifying party should be generally acknowledged from the<br />

moment of the filing (currently it is only limited to second phase cases). Although the Spanish law guarantees free<br />

access of the parties to an administrative procedure to the administrative file, the CNC systematically denies this<br />

access in first phase procedures. This denial is significant in cases where the CNC sends information requests to<br />

third parties, launches market investigations or requests the intervention of a sector regulator, as the result of these<br />

actions could affect the outcome of the case. Therefore, we hold that the CNC must recognise the right of the<br />

notifying parties to have access to the file at any moment, in order to identify the existence of potential elements<br />

that may influence the assessment of the CNC.<br />

• Secondly, the Spanish merger control procedure could also be improved by clarifying the criteria and procedure in<br />

case of referral of cases to the European Commission under Article 22 of Council Regulation (EC) No 139/2004 of<br />

20 January 2004 on the control of concentrations between undertakings.<br />

• Finally, the CNC should also relax the stringent criteria set for granting an exemption to the suspension obligation.<br />

To our knowledge, the CNC has never granted one of these exemptions, expressly provided for in the Competition<br />

Act. In view of the fact that the great majority of the transactions submitted to the CNC are cleared in the firstphase<br />

without any objection or commitment (see “Overview of merger control activity”, above), the CNC should<br />

take into account that the risk for competition of implementing most of the notified transactions is absolutely<br />

remote. On the contrary, the delay in the implementation of some transactions has become a heavy burden to the<br />

notifying parties, that have to bear the financial costs of the delay and that can lose commercial opportunities arising<br />

from the transaction.<br />

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Jaime Folguera Crespo<br />

Tel: +34 91 5860 657 / Email: jfc@uria.com<br />

Jaime Folguera is based in Uría Menéndez’s Madrid office. He joined the firm as a partner in 1993,<br />

having been an EU legal affairs advisor to several Spanish government agencies. He currently heads<br />

the Competition Law Practice Area.<br />

His practice focuses on EU and Spanish competition law, and he is regularly asked to advise on EU and<br />

Spanish mergers in various sectors, such as banking and insurance, energy, telecommunications,<br />

pharmaceuticals and basic industries.<br />

He is often consulted on cases related to horizontal agreements, distribution, individual or collective<br />

abuse, and State aid. He is frequently involved in proceedings before the European Commission, the<br />

Spanish Competition Authority and other regulatory agencies, as well as before the European Union and<br />

Spanish courts.<br />

Borja Martínez Corral<br />

Tel: +34 91 5860 657 / Email: bom@uria.com<br />

Borja Martínez is a Principal Associate based in Uría Menéndez’s Madrid office. He joined the firm in<br />

2002, having worked both in the Brussels and Madrid offices.<br />

He has worked on a wide variety of national and international antitrust infringement cases before the<br />

Spanish and EU authorities, and is regularly asked to advise on mergers, analyse agreements and strategic<br />

alliances and state aid issues.<br />

He regularly advises companies in a variety of sectors, among others: banking, telecommunications,<br />

media, building materials, pharmaceuticals and energy.<br />

Uría Menéndez<br />

Príncipe de Vergara, 187, Plaza de Rodrigo Uría, 28002 Madrid, Spain<br />

Tel: +34 91 5860 657 / Fax: +34 91 5860 753 / URL: http://www.uria.com<br />

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Switzerland<br />

Benoît Merkt & Marcel Meinhardt<br />

Lenz & Staehelin<br />

Overview of merger control activity during the last 12 months<br />

In 2010, 34 notifications were made to the Swiss Competition Commission (“Comco”). Although this number is higher<br />

than in 2009, when only 26 notifications were filed, it is lower than in 2008 (40 notifications) and in 2007 (45 notifications).<br />

However, these figures can, in our view, not be interpreted as showing a downward trend these past years, as the overall<br />

number of notifications that are made remains in the same range.<br />

In more detail, among the 34 notifications that were made in 2010, a large majority of cases (29) were cleared after the<br />

preliminary investigation (the so-called “Phase I”), which lasts at most for 1 month according to Article 32(1) of the Cartel<br />

Act (“CartA”). In these cases, the Comco did not decide to open an investigation but gave its clearance after a preliminary<br />

assessment of the notified concentration, considering that the latter did not create or strengthen a dominant position.<br />

The Comco decided in one case to open an investigation, i.e. to proceed to the so-called “Phase II” of the procedure in<br />

accordance to Article 33 CartA. During this second phase, the Comco usually organises hearings and sends out additional<br />

questionnaires to customers, suppliers and competitors in order to deepen the market research and analysis. The number<br />

of Phase II investigations opened by the Comco in 2010 is lower than in 2009 (5), in 2008 (3) and 2007 (5).<br />

New developments in jurisdictional assessment or procedure<br />

a) Jurisdictional assessment: Foreign-to-foreign concentrations are caught by Swiss merger control if the relevant<br />

thresholds are met. Two turnovers must be cumulatively met for the last business year prior to the concentration, namely:<br />

• the concerned undertakings must have reported an aggregate turnover of at least 2 billion Swiss francs worldwide<br />

or 500 million Swiss francs in Switzerland; and<br />

• at least two of the enterprises involved in the transaction must have reported individual turnovers in Switzerland of<br />

at least 100 million Swiss francs.<br />

Concerning corporate joint ventures, the 100 million Swiss francs threshold was, until recently, considered as met as soon<br />

as two of the participating undertakings (e.g. the two companies establishing the joint venture) had a turnover of at least<br />

such an amount, regardless of the question whether the joint venture to be established was going to be active in Switzerland<br />

or not.<br />

The Comco has, however, revised its practice in a 2010 decision1 , and considers now that the notification requirements do<br />

not apply, although both of the above mentioned thresholds are met, as long as the joint venture does not and will not in<br />

the future have any activity or turnover in Switzerland.<br />

b) Procedure: Considering the fact that only one notified concentration led to the opening of a Phase II investigation based<br />

on Article 33 CartA, and that a vast majority of cases have therefore been cleared after the Phase I preliminary investigation,<br />

there has been no significant development on procedural questions in 2010/2011.<br />

As a brief recall, the Swiss merger control procedure is divided into two distinct phases, which are very similar to the ones<br />

that apply in EU law:<br />

• During the Phase I (or preliminary) investigation, the Comco is required to notify, within one month of receipt of<br />

the complete notification, whether it intends to initiate an in-depth review of the concentration. If no<br />

communication is made within this period, the concentration can be completed. This first phase aims to verify<br />

whether there are indications of a dominant position being created or strengthened as a result of a concentration. In<br />

principle, the information provided in the notification is sufficient for the Comco to verify whether such a dominant<br />

position is created or strengthened.<br />

• The Comco may decide to open an in-depth review of the notified concentration, and therefore proceed to the Phase<br />

II investigation, if the preliminary review reveals signs that the concentration creates or reinforces a dominant<br />

position. In this case, the Comco must complete its investigation within a 4-month period as from the day after the<br />

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Lenz & Staehelin Switzerland<br />

notification of its opening. This deadline can only exceptionally be extended if the participating undertakings are<br />

responsible for delays in the procedure. It is finally interesting to note that, in opposition to what prevails under EU<br />

law, this 4-month deadline is not delayed due to public holidays.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition, etc.<br />

In 2010/2011, one of the main focuses of the Comco in the field of merger control has been the telecommunication sector,<br />

where it has examined several concentrations (e.g. France Télécom/Sunrise, Sunrise/CVC and Swisscom/Groupe E).<br />

The concentration involving France Télécom/Sunrise has been subject to a Phase II investigation2 . The Comco considered<br />

that there were indications that the concentration would create or strengthen a dominant position in a variety of mobile<br />

telephony markets. On 22 April 2010, the Comco decided to prohibit the contemplated concentration inasmuch as it would<br />

have created a collective dominant position on the end-consumer and the network access markets for mobile<br />

telecommunication services between the merged undertaking and Swisscom, which would have been likely to eliminate<br />

effective competition. The parties filed an appeal against the decision of the Comco before the Federal Administrative<br />

Tribunal, which they later withdrew.<br />

Pursuant to Article 9 CartA, the concentration must “create or strengthen a dominant position capable of eliminating<br />

effective competition in the relevant market”.<br />

The Comco argued that the proposed concentration would have created a situation of collective market dominance of the<br />

merged entity and the only other remaining operator, Swisscom, the incumbent telecommunications provider in<br />

Switzerland, in the retail market for mobile telecommunication services and the wholesale market for access to mobile<br />

networks. Thus, in the view of the Comco, the merger would not only have created or strengthened a dominant market<br />

position, but eliminated effective competition entirely.<br />

According to the Comco, the duopoly that Orange/Sunrise – which would have held 40% of the Swiss market – and<br />

Swisscom would have constituted, would also have suppressed any incitation of the market players to compete with each<br />

other. Inter alia, the Comco found that the market was foreclosed inasmuch as no new market entrants are to be expected.<br />

In addition, it did not regard existing virtual mobile network operators (MVNO), resellers or providers of VoIP telephony<br />

to be competitors in the retail market for the provision of mobile telecommunication services irrespective of their<br />

considerable market shares.<br />

The Comco stressed out the fact that the telecommunication sector is comprised of markets with special characteristics<br />

and features and which therefore require specific approaches and analysis. According to the Comco, in the relevant market,<br />

the presence of three independent competitors is an essential condition for competition as it allows dynamic competition<br />

to be kept.<br />

Despite several proposals of the parties, the Comco did not find any remedy that would have alleviated its concerns on the<br />

elimination of competition. It therefore decided to prohibit the concentration.<br />

A few months later, the Comco considered the planned concentration between Sunrise and CVC as being unobjectionable<br />

under Swiss competition law3 . The Comco indicated that its preliminary investigation revealed no indications that a<br />

dominant position would be created or strengthened on the different examined markets (which include notably the market<br />

for fixed telephony, broadband Internet, cell phones). As a result thereof, it was decided to approve the purchase of Sunrise<br />

by the investment company CVC. The Comco stressed out the fact that following the concentration, three large network<br />

providers would remain in the mobile telephony market; this is the reason why the market would continue to guarantee a<br />

certain level of competitive dynamics thereby remaining open for innovation.<br />

In both the France Télécom/Sunrise and the Sunrise/CVC decisions, the Comco demonstrated it is very much concerned<br />

not only by the effects of a concentration on prices but also by its effects on innovation, which is viewed as an essential<br />

element of competition in the telecommunication sector.<br />

In November 2010, Swisscom and Groupe E notified a planned concentration to the Comco relating to the construction<br />

of an optical fibre network in the Canton of Fribourg and the creation of a joint venture to develop the said network. The<br />

Comco conducted a preliminary investigation in December 2010 and then decided to proceed to a detailed examination.<br />

This Phase II investigation was carried out during the first quarter of 2011. On April 29, 2011, the Comco came to the<br />

conclusion that the notified transaction was not a concentration subject to merger control, inasmuch as the joint venture<br />

to be created would not conduct commercial activities autonomous from the two holding companies in the near future4 .<br />

The decision of the Comco, according to which the contemplated joint venture between Swisscom and Groupe E was not<br />

a concentration subject to merger control, was taken at the very end of the procedure, nearly 4 months after the opening<br />

of its Phase II investigation. It is the first time that so much time has been necessary for the Comco to inform the notifying<br />

parties that the contemplated concentration should not have been notified. In our view, such a way of proceeding should<br />

remain exceptional inasmuch as the parties to a transaction have a clear and legitimate interest to know at the beginning<br />

of the procedure if they have to undergo the merger control notification process.<br />

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Key economic appraisal techniques applied<br />

The substantive test under Article 10(2) CartA measures whether:<br />

• the enterprises involved do create or strengthen a dominant position capable of eliminating effective competition in<br />

the relevant market; and<br />

• the concentration does not improve the conditions of competition in another market such that the harmful effects of<br />

the dominant position can be outweighed.<br />

The CartA does not provide for any specific substantive rules with respect to joint ventures. The same test as outlined<br />

above is applicable.<br />

The substantive test for clearance in Switzerland is the test of market dominance. Applying this test, the Comco also<br />

investigates coordinated effects in case of oligopolies and unilateral effects. In addition, the Comco examines conglomerate<br />

effects and vertical foreclosure.<br />

The Comco takes economic efficiencies into account, at least when it can be expected that consumers benefit from them.<br />

Also, economic efficiencies in one market may outweigh certain deficiencies of the merger in another.<br />

The substantive appraisal of the Comco includes, notably, the following factors: (i) the market shares of the undertakings<br />

concerned; (ii) the structure of the relevant markets; (iii) the existence of barriers to entry; (iv) the conditions of access to<br />

supplies and outlets; (v) the alternatives available to suppliers and users; (vi) the supply and demand trends for relevant<br />

goods and services; and (vii) the effects of the contemplated concentration on prices and innovation, and its possible harm<br />

to consumers.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

The clearance of a proposed merger transaction may be subject to certain conditions or obligations designed to safeguard<br />

effective competition. The CartA does not specify the types of conditions or obligations that may be attached. As opposed<br />

to what prevails under EU law, Switzerland does not have a specific remedy regulation.<br />

Recent cases have shown that conditions and other remedies will generally be discussed by the concerned undertakings<br />

with the Comco. Such remedies could involve divestments or certain behavioural undertakings.<br />

The divestment has to eliminate all material objections of the Comco to the proposed merger. According to the Comco,<br />

the divestment must be completed within a fixed period. It is not sufficient for the parties to offer to make a divestment<br />

“at the earliest possible stage”; a specific deadline must be offered. In international filings, it is important to coordinate<br />

the proposed divestments with other merger control authorities involved, namely the European Commission. So far,<br />

proposals for remedies have only rarely been offered by the parties in a Phase I investigation.<br />

Key policy developments<br />

The Comco issued in 2009 a New <strong>Merger</strong> Practice Communication (the “NMPC”), which describes certain developments<br />

that are brought to its practice in relation to the assessment of concentrations5 . In 2011, the NMPC was reviewed and an<br />

additional point concerning the definition of affected markets was introduced6 . Overall, four main practical changes<br />

resulted from this document:<br />

a) Cases in which the creation of a JV must be notified: Please refer to the section under “New developments in<br />

jurisdiction assessment or procedure” above for developments on this point.<br />

b) Reduction of the intermediate time period in case of interdependent transactions: Before 2011, a transaction which<br />

is structured in different steps can constitute a single transaction if certain conditions are met. These conditions are<br />

(i) common control during an intermediate period, (ii) transfer of common control to sole control based on a legally<br />

binding agreement, and (iii) the transaction steps must all take place within a maximum period of 3 years.<br />

Based on a modification of the European Commission’s practice (issued in the Commission Consolidated<br />

Jurisdictional Notice under Council regulation (EC) N° 139/2004 on the control of concentrations between<br />

undertakings), the Comco has now reduced the maximal period in which the transaction steps must all take place<br />

to 1 year.<br />

c) Turnover in Switzerland of the participating undertakings: As explained above, one of the thresholds that must be<br />

met in order for the notification of the concentration to be required is a turnover in Switzerland of at least 100<br />

million Swiss francs for at least two of the participating undertakings.<br />

According to the new practice of the Comco, the turnover will be considered as realised in Switzerland as long as<br />

the demand (i.e. where the product must be delivered or where competition with other competitors for customers<br />

takes place) is located in Switzerland. On the other hand, the Comco underlines the fact that the invoicing address<br />

is not relevant. Therefore, invoices that are sent to Switzerland for transactions that exclusively happen outside the<br />

country are not considered as relevant for the calculation of the turnover in Switzerland.<br />

d) Definition of affected markets: The Comco described for the first time in a decision rendered in 2009 the new<br />

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practice it was going to follow concerning the definition of affected markets under the merger control rules 7 .<br />

As a matter of principle, and pursuant to Swiss merger control rules, a market is deemed to be affected if (i) the<br />

accumulated market shares of the participating undertakings (in the broad sense as defined in Article 5 of the<br />

Ordinance on the Control of Undertaking Concentrations [“OCUC”]) represent at least 20% of the concerned<br />

markets, or (ii) one of the involved undertakings holds a market share of at least 30%, irrespective of any vertical<br />

overlap.<br />

The rule that applies to the individual market share’s threshold has for the first time been narrowed in scope by the<br />

Comco’s practice in 2009 and has recently been confirmed in the newest version of its Communication concerning<br />

the New <strong>Merger</strong> Practice (issued on 3 May 2011).<br />

As from now, in the absence of horizontal overlaps and if the 30% individual market shares threshold is met, a<br />

market will only be deemed to be affected in the following cases:<br />

• if the other party is active in a market that is closely linked to such 30% market;<br />

• if it intends to enter the 30% market in the near future or has tried to enter that market in the past two years;<br />

• if it owns intellectual property rights in that 30% market; or<br />

• if it is active in the 30% market, but in a different relevant geographic market.<br />

Reform proposals<br />

A possible partial revision of the CartA is currently being discussed. This revision is organised around two main categories<br />

of changes: (i) changes affecting the organisation of the competition authorities, as well as the procedure to be followed<br />

(for which the first consultation procedure ended on 19 November 2010); and (ii) changes relating to the administrative<br />

and criminal penalties (for which the second consultation ended on 6 July 2011).<br />

From a general point of view, the first category of changes aims essentially to reinforce the powers of the competition<br />

authorities in Switzerland, in particular by creating a “Competition Authority” that would be competent for all investigations<br />

in relation to competition law violations. The second category of changes concerns the reduction of administrative penalties<br />

for undertakings that have internal compliance systems, as well as the implementation of criminal sanctions for individuals<br />

who participated to illegal agreements.<br />

Concerning merger control, the partial revision of the CartA aims at reinforcing and simplifying the procedure. According<br />

to the explaining report from the Federal Council, the following changes are currently being envisaged8 :<br />

The administrative procedure would be simplified, in particular by avoiding duplicating investigation measures taken in<br />

Switzerland and in other countries for the same concentration:<br />

If a concentration must already be notified in the EU, the requirements in Switzerland should be much lighter. In particular,<br />

it is contemplated that a merger (i) for which the relevant geographical market includes Switzerland and at least the<br />

European Economic Area, and (ii) which is already subject to the merger control of the EC Commission would no longer<br />

have to be notified in Switzerland.<br />

In our view, this measure would be very difficult to implement in practice, in particular in relation to the definition of the<br />

markets that would have to be made by the parties themselves. Moreover, the fact that the relevant geographical market<br />

is European-wide does not exclude important market shares in Switzerland and, therefore, a clear interest of the Comco<br />

to examine the concentration.<br />

The assessment criteria would be hardened in order to avoid concentrations that do not benefit the market:<br />

Two variants are being examined in order to harden the assessment criteria that are used when analysing the effects of a<br />

concentration:<br />

• The first variant would lead to the SIEC test being applied in Switzerland and, therefore, to harmonising the<br />

applicable legal rules with European law.<br />

• The second variant would consist in keeping only one of the two assessment criteria that are applied today (i.e. the<br />

creation or strengthening of a dominant position and the fact for the latter is likely to eliminate effective competition).<br />

In such a case, a concentration could be forbidden (or allowed with conditions and/or obligations) based solely on the<br />

fact it creates or strengthens a dominant position. The second criteria would therefore be abandoned.<br />

The time-limits and procedures would be modified in order to be identical to the ones that apply under EU law.<br />

The procedure in front of the Federal Tribunal for Competition would be adapted to the requirements of merger control:<br />

The Federal Tribunal for Competition (which should be established by this revision) would in particular have to respect a<br />

three-month time-limit to take a decision following an appeal against the Comco’s decision.<br />

The consultation procedures launched by the Federal Council have now ended. The current proposed reform will be adapted<br />

according to the consultation results. Then, after a review by the Federal Council that is likely to take place end of<br />

2011/beginning of 2012, it should in principle be submitted to the Swiss Parliament.<br />

* * *<br />

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Endnotes<br />

1 RPW / DPC 2010/3, p. 562, Ringier AG/Springer AG (GU osteuropäische Aktivitäten), § 6.<br />

2 RPW / DPC 2010/3, p. 499, France Telecom SA / Sunrise Communication AG.<br />

3 RPW / DPC 2010/4, p. 775, CVC Capital Partners SICAV-FIS SA/Sunrise Communications AG.<br />

4 Press release of 29 April 2011.<br />

5 Mitteilung: Neue Praxis bei Zusammenschlussverfahren, 25 March 2009.<br />

6 Mitteilung: Neue Praxis bei Zusammenschlussverfahren, 2nd edition, 3 May 2011.<br />

7 RPW / DPC 2009/4, p. 442, Merck & Co./Schering-Plough.<br />

8 Explanatory report of the Federal Council, 30 June 2010, p. 21; http://www.weko.admin.ch/dokumentation/<br />

00216/01036/index.html?lang=fr.<br />

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Lenz & Staehelin Switzerland<br />

Benoît Merkt<br />

Tel: +41 58 450 7000 / Email: benoit.merkt@lenzstaehelin.com<br />

Dr. Benoît Merkt is a leading competition law expert. He has extensive experience in all areas of Swiss<br />

and European merger control and competition law, as well as in the handling and coordination of multijurisdictional<br />

filings. Benoît Merkt has acted on high profile cases, including retail, motor-car, media,<br />

high-tech, banking, petrochemical, energy and luxury goods industries. He has been responsible for a<br />

large number of merger notifications to the Swiss Competition Commission and co-ordinated multijurisdictional<br />

filings. Benoît Merkt regularly advises and represents clients in contentious and<br />

non-contentious matters in relation to horizontal and vertical agreements and abuses of a dominant<br />

position as well as, in general, on compliance with Swiss competition law. He heads the competition<br />

law practice group of Lenz & Staehelin in Geneva and Lausanne.<br />

Marcel Meinhardt<br />

Tel: +41 58 450 8000 / Email: marcel.meinhardt@lenzstaehelin.com<br />

Dr. Marcel Meinhardt is a leading expert in competition law and is renowned for his broad, first-rate<br />

practice. He specialises in all areas of Swiss and European merger control work and competition law,<br />

particularly in the postal services, insurance, banking, motor-car, energy, media, retail, construction,<br />

pharma and ticketing sectors. Marcel Meinhardt also advises on regulatory issues in connection with<br />

the electricity and gas industry. He has been responsible for a large number of merger notifications to<br />

the Swiss Competition Commission and co-ordinated multi-jurisdictional filings. Marcel Meinhardt<br />

advises in contentious and non-contentious matters and has acted in high profile cases on alleged abuses<br />

of dominant positions and vertical restraints. He heads the competition and regulated practice group of<br />

Lenz & Staehelin in Zurich.<br />

Lenz & Staehelin<br />

Route de Chêne 30, CH-1211 Genève 17, Switzerland<br />

Tel: +41 58 450 7000 / Fax: +41 58 450 7001 / URL: http://www.lenzstaehelin.com<br />

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Turkey<br />

Gönenç Gürkaynak & K. Korhan Yıldırım<br />

ELIG Attorneys at Law<br />

Overview of merger control activity during the last 12 months<br />

The Turkish merger control regime is primarily regulated by the Law on Protection of Competition No. 4054 (the Competition<br />

Law), dated 13 December 1994, and Communiqué No. 2010/4 on <strong>Merger</strong>s and Acquisitions Requiring the Approval of the<br />

Competition Board (the new Communiqué), published on 7 October 2010. The new Communiqué entered into force as of 1<br />

January 2011. Prior to the enactment of the new Communiqué, Communiqué No.1997/1 on <strong>Merger</strong>s and Acquisitions Requiring<br />

the Approval of the Competition Board (the old Communiqué) was the primary instrument in assessing merger cases in Turkey.<br />

In 2010, when the old Communiqué was applied over merger cases in Turkey, the Competition Authority reviewed more than<br />

200 merger cases (which includes mergers, acquisitions and joint ventures).<br />

The number of operations of concentration notified to the Competition Authority in 2010 (210) was significantly higher than<br />

in 2009 (144). The increase can be explained by the effect of the country’s recovery from the global economic crisis and by<br />

the application of the alternative turnover/market share thresholds under the old Communiqué. The new Communiqué has<br />

now abolished the market share threshold and replaced it by alternative turnover thresholds.<br />

The Competition Board granted unconditional clearances for the vast majority of transactions notified to it in 2010. Very few<br />

transactions fell to Phase II reviews (i.e. where the Competition Board takes the merger case/transaction to a second stage,<br />

which then becomes a fully-fledged investigation), and certain other transactions received conditional clearances.<br />

The Competition Board reviewed a total of 210 merger cases in 2010 among which included 160 cases that received unconditional<br />

clearance, 28 cases that were found to be not notifiable (i.e. a decision that the notified concentration does not exceed the<br />

applicable jurisdictional thresholds), and 17 cases that fell outside of the merger control regime (i.e. a decision that the notified<br />

transaction falls outside of the scope of applicability of merger control rules for not bringing about a change of control). 202 of<br />

the 210 cases were about acquisitions whereas 5 of the remaining 8 were about joint ventures and 3 were about mergers. In one<br />

transaction, the parties have dropped the deal on a global basis because the transaction could have been prohibited in many<br />

jurisdictions for competition concerns and withdrawn their notification in Turkey.<br />

After entry into force of the new Communiqué as of 1 January 2011, the number of merger cases in Turkey has not been<br />

statistically compiled by the Turkish Competition Authority for the year 2011 as of yet.<br />

New developments in jurisdictional assessment or procedure<br />

The most important change in the Turkish merger control regime was undoubtedly the enactment of the new Communiqué.<br />

The Competition Authority also issued guidelines to supplement and provide guidance on the enforcement of Turkish merger<br />

control rules. One of the guidelines is on market definition, which is closely modelled after the Commission Notice on the<br />

Definition of Relevant Market for the Purposes of Community Competition Law (97/C 372/03). The Competition Board has<br />

also very recently released another comprehensive guideline on Undertakings Concerned, Turnover and Ancillary Restraints<br />

in <strong>Merger</strong>s and Acquisitions (<strong>Merger</strong> Guidelines), published on 27 June 2011. Finally, the Competition Board has released<br />

another Guideline on Remedies Acceptable to the Competition Authority in <strong>Merger</strong>s and Acquisitions, just one day prior to<br />

the time of writing (17 August 2011).<br />

With the introduction of the new Communiqué, the Competition Board was expected to shift its focus from merger control<br />

cases to concentrate more on the fight against cartels and cases of abuses of dominance. Raising the merger control thresholds<br />

and seeking the existence of an affected market for notifiability had been considered as solid measures to decrease the number<br />

of merger notifications. They were expected to result in merger notifications in significantly lower numbers. However, the<br />

introduction of the new guideline on Undertakings Concerned, Turnover and Ancillary Restrictions in <strong>Merger</strong>s and Acquisitions<br />

may well reverse this trend as the guideline finds the existence of one or more overlaps at the global level sufficient to trigger<br />

a notification requirement, provided that one of the transaction parties has activities in Turkey in at least one of such overlap<br />

areas. While the Competition Board’s initial purpose was to deal with fewer merger control notifications by raising the<br />

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ELIG Attorneys at Law Turkey<br />

thresholds and to concentrate on a much more rigorous antitrust enforcement, the new guideline may block this trend. Since<br />

the new guideline states that a horizontal or vertical overlap between the worldwide activities of the transaction parties is<br />

sufficient to infer the existence of an affected market, provided that one of the transaction parties is active in such overlap<br />

segment in Turkey, this might result in an increase in the number of merger notifications. The relevant part of the guideline<br />

(paragraph 27) reads as follows:<br />

“(...) the fact that there is a relevant product market where the activities of the parties overlap horizontally or vertically fulfils<br />

the condition of the existence of an affected market provided that at least one party operates in Turkey.”<br />

Therefore, the <strong>Merger</strong> Guidelines define the overlapping markets extremely broadly. The Competition Authority takes into<br />

account worldwide activities of the undertakings as well as their activities in Turkey when it determines overlapping markets.<br />

It also says that a direct upstream-downstream link between undertakings is not a requirement; it is enough that undertakings<br />

have their activities in vertical markets.<br />

The <strong>Merger</strong> Guidelines cover certain other topics and questions about the concepts of (i) undertakings concerned, (ii) turnover<br />

calculations, and (iii) ancillary restraints. It is closely modelled after Council Regulation (EC) No. 139/2004 on the Control of<br />

Concentrations between Undertakings.<br />

Following a public consultation process, the Turkish Competition Authority has also introduced very recently another guideline<br />

on the remedies that would be accepted by the Turkish Competition Authority in mergers and acquisitions. The finalisation of<br />

the public consultation and the conclusive form of the guideline was published only one day prior to the time of writing (17<br />

August 2011). The guideline provides detailed explanations in relation to different forms of remedies such as divestiture,<br />

ownership unbundling, compulsory licensing, compulsory granting access to facilities, etc. The guideline also lays down<br />

procedures for the operation of trustees.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

As a traditional trend, the Turkish Competition Authority typically pays special attention to those transactions in sectors where<br />

infringements of competition are frequently observed and the concentration level is high. Concentrations that concern strategic<br />

sectors that are important to the country’s economy (such as automotive, telecommunications, energy, etc.) attract the Turkish<br />

Competition Authority’s special scrutiny as well.<br />

For instance, the Turkish Competition Authority traditionally handles transactions and possible concentrations in the Turkish<br />

cement and aviation sectors with a very high level of care. In addition to bringing more than 10 investigations in the Turkish<br />

cement sector, the Turkish Competition Authority also gave a number of rejection decisions in relation to contemplated sales<br />

of cement factories in the Turkish cement market. It would also be accurate to report that the Turkish Competition Authority<br />

has a special sensitivity in markets for construction materials. In addition to cement, markets for construction iron, aerated<br />

concrete blocks and ready-mixed blocks were investigated and the offenders were fined by the Turkish Competition Authority.<br />

The Turkish Competition Authority’s case handlers are always extremely eager to issue information requests (thereby cut the<br />

review period) in transactions relating to these sectors, where even transactions that raise low level competition law concerns<br />

are looked at very carefully. In some sectors, the Turkish Competition Authority is also statutorily required to seek the written<br />

opinion of other Turkish governmental bodies (such as the Turkish Information Technologies and Communication Authority<br />

pursuant to Section 7/2 of Law on Electronic Communication No. 5809). In such cases, the statutory opinion usually becomes<br />

a hold-up item that slows down the review process of the notified transaction.<br />

The consolidated statistics of the Turkish Competition Authority’s merger control activity report indicated that one fourth of<br />

the merger cases in Turkey in 2010 concerned the energy sector when the sectoral distribution of merger/acquisition/privatisation<br />

cases are looked at. It was observed in 2010 that the sector for food products, chemicals and chemical products, financial<br />

services and health sectors closely followed the energy sector.<br />

2010 witnessed the Competition Board taking some of the most important milestone decisions in the history of the Turkish<br />

merger control regime:<br />

In Besler Gıda ve Kimya San. ve Tic. A.Ş. (10-64/1355-498), the Competition Board reviewed and decided on the acquisition<br />

of 15.67% of the shares of Turyağ Sanayi ve Tic. A.Ş. from Ebubekir Çallı by Besler Gıda ve Kimya San. ve Tic. A.Ş. The<br />

Competition Board defined the relevant product markets as the markets for vegetable oils, butter and industrial butter separately.<br />

It concluded that while both Besler and Turyağ operated in these three markets, increasing Besler’s shares in Turyağ would not<br />

raise any competitive concerns due to a low concentration rate in the markets for vegetable oils, and butter. The concentration<br />

would have a heavier competitive impact on the industrial butter market, however. The decision merits particular significance<br />

with respect to the nature of the transaction because the parties argued that the transaction did not lead to a change of control<br />

over the target. Having analysed the familial and commercial links between the transaction parties, the Competition Board<br />

concluded that the transaction amounted to a notifiable concentration in that the acquirer would be able to exercise de facto<br />

control over the target post-transaction. The Competition Board, in its competitive analysis, determined that competitive<br />

concerns could rise following the transaction and the number of independent major players in the market could diminish from<br />

four to three with Ülker Grubu, the market leader, having the opportunity to influence the third biggest player in the industrial<br />

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ELIG Attorneys at Law Turkey<br />

butter market. Consequently, during the review process, the parties offered a remedy whereby one of the shareholders would<br />

divest his share and resign from his post. The Competition Board decided that the remedy would eliminate Besler’s de facto<br />

control over Turyağ and that the transaction will therefore fall outside the scope of the old Communiqué.<br />

In Novartis AG (10-49/929-327), the Competition Board cleared the transaction conditional upon the transfer of the medicines<br />

of Efemoline and Zaditen in S1B and S1G ATC-3 groups to third persons by Novartis from Alcon. The Competition Board<br />

primarily analysed the market entry barriers in the pharmaceutical sector. The Competition Board evaluated the transaction<br />

with respect to the positive and negative elements that would arise from the concentration for each relevant product market.<br />

In this context the positive elements were determined to be as follows: the existence of alternative supply resources in the<br />

relevant market; the buyer power of the Turkish Social Security Association; the limited number of medicines within the patent<br />

protection; and the existence of undertakings other than the parties which have market power. The negative elements were<br />

determined to be as follows: high market shares arising from the merger; the fact that no competitor entered into the relevant<br />

market within the last five years; the low growth potential of the market; and entry barriers based by equivalent medicine<br />

producers. As a result of the competitive assessment conducted for each relevant market, it was observed that in the markets<br />

for S1B-Ophtalmologic Corticosteroids and S1G-Ocular Antiallergents, Decongestants and Antiseptics, the negative elements<br />

were more prominent and as a result dominance was created or strengthened in these markets.<br />

In Burgaz/Mey Ickı (10-49/900-314), the Competition Board cleared the transaction but conditioned the clearance on the merger<br />

parties making certain commitments about fulfilling some measures about the anticompetitive issues that might have arisen<br />

after the merger in the markets for rakı, vodka and liqueur. The commitments proposed by the merger parties were not accepted<br />

as sufficient. Therefore the Competition Board granted clearance to the merger under more strict and radical conditions: Mey<br />

Icki (the acquirer) has committed to sell off the rakı, vodka and liqueur brands that belong to Burgaz (the target), except for the<br />

“Istanblue” brand and its own vodka brand, “Votka 1967”, within a certain period of time.<br />

In Turk Telekom/Invitel (10-59/1195-451), the Competition Board granted another conditional clearance: Turk Telekom has<br />

the strongest land infrastructure in Turkey and, with this international merger, it was set to become one of the two alternative<br />

supply sources on the market for providing services from the infrastructure. The Competition Board concluded that the<br />

transaction strengthened Turk Telekom’s dominant position in the relevant market. It opined that new market entries were not<br />

possible in the near future because of governmental barriers and technical difficulties. Therefore, the merger would have<br />

resulted in all other market players becoming dependent on their two competitors for infrastructural services, so Turk Telekom<br />

has committed to granting rights on its infrastructure to Vodafone. The Competition Board found the commitment sufficient<br />

and granted conditional clearance of the transaction.<br />

Key economic appraisal techniques applied<br />

The Turkish competition law regime currently utilises a ‘dominance test’ in the evaluation of concentrations. That said, there<br />

is a current proposal of a new law which could result in a shift to the ‘substantial lessening of competition’ test. According to<br />

article 13/II of the Communiqué, mergers and acquisitions, which do not create or strengthen a sole or joint dominant position<br />

and do not significantly impede effective competition in a relevant product market within the whole or part of Turkey, shall be<br />

cleared by the Competition Board. Article 3 of the Competition Law defines a dominant position as “any position enjoyed in<br />

a certain market by one or more undertakings by virtue of which those undertakings have the power to act independently from<br />

their competitors and purchasers in determining economic parameters such as the amount of production, distribution, price<br />

and supply”. Market shares of about 40 per cent and higher are considered, along with other factors such as vertical foreclosure<br />

or barriers to entry, as an indicator of a dominant position in a relevant product market. However, a merger or acquisition can<br />

only be blocked when the concentration not only creates or strengthens a dominant position but also significantly impedes the<br />

competition in the whole territory of Turkey or in a substantial part of it, pursuant to article 7 of the Competition Law.<br />

Unilateral effects have been the predominant criteria in the Turkish Competition Authority’s assessment of mergers and<br />

acquisitions in Turkey. That said, there were a couple of exceptional cases where the Competition Board discussed the coordinated<br />

effects under a ‘joint dominance test’, and rejected some transactions on those grounds. For instance, transactions for the sale<br />

of certain cement factories by the Savings Deposit Insurance Fund were rejected on that ground. The Competition Board<br />

evaluated the coordinated effects of the mergers under a joint dominance test and blocked the transactions on the ground that the<br />

transactions would lead to joint dominance in the relevant market. The Board took note of factors such as “structural links<br />

between the undertakings in the market” and “past coordinative behaviour”, in addition to “entry barriers”, “transparency of the<br />

market”, and the “structure of demand”. It concluded that certain factory sales would result in the establishment of joint dominance<br />

by certain players in the market whereby competition would be significantly impeded. No transaction has been blocked on the<br />

grounds of ‘vertical foreclosure’ or ‘conglomerate effects’ yet. A couple of decisions discuss those theories of harm.<br />

The Competition Board evaluates joint-venture notifications according to three criteria: existence of joint control in the joint<br />

venture; the joint venture not having as its object or effect the restriction of competition among the parties or between the<br />

parties and the joint venture itself; and (iii) the joint venture being an independent economic entity (i.e., having adequate capital,<br />

labour and an indefinite duration). In recent years, the Competition Board has consistently applied the test of ‘full-functioning’<br />

while determining whether the joint venture is an independent economic entity. If the transaction is a full-function JV after<br />

considering the three criteria above, the standard dominance test is applied.<br />

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ELIG Attorneys at Law Turkey<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

Pursuant to article 10 of the Competition Law, if the Competition Board, upon its preliminary review of the notification within<br />

15 days following the filing, decides to further investigate the transaction, it shall notify the parties within 30 days (from the<br />

filing) and the transaction will be suspended and additional precautionary actions deemed appropriate by the Competition<br />

Board may be taken until the final decision is rendered. Article 13(4) of the new Communiqué states that in such a case,<br />

provisions of article 40 to 59 of the Competition Law shall be applied to the extent they are compatible with the relevant<br />

situation. Regarding the procedure and steps of such an investigation, article 10 makes reference to sections IV (articles 40 to<br />

55) and V (articles 56 to 59) of the Competition Law, which govern the investigation procedures for cartel and abuse of<br />

dominance cases and legal consequences of restriction of competition, respectively.<br />

The Competition Board may grant conditional approvals to mergers and acquisitions, and such transactions may be implemented<br />

provided that measures deemed appropriate by the Competition Board are taken, and the parties comply with certain obligations.<br />

In addition, the parties may present some additional divestment, licensing or behavioural commitments to help resolve potential<br />

issues that may be raised by the Competition Board. These commitments are increasing in practice and may either be foreseen<br />

in the transaction documents or may be given during the review process or an investigation. The parties can complete the<br />

merger before the remedies have been complied with. However, the merger gains legal validity after the remedies have been<br />

complied with.<br />

Article 14 of the new Communiqué enables the parties to provide commitments to remedy substantive competition law issues<br />

of a concentration under article 7 of the Competition Law. The parties may submit to the Competition Board proposals for<br />

possible remedies either during the preliminary review or the investigation period. If the parties decide to submit the<br />

commitment during the preliminary review period, the notification is deemed filed only on the date of the submission of the<br />

commitment. The commitment can also be served together with the notification form. In such a case, a signed version of the<br />

commitment that contains detailed information on the context of the commitment should be attached to the notification form.<br />

Strategic thinking at the time of filing is somewhat discouraged through language confirming expressly that the review periods<br />

would start only after the filing is made. This is already the current situation in practice, but now it is explicitly stated. The<br />

Competition Board is now expressly given the right in the new Communiqué to secure certain conditions and obligations to<br />

ensure the proper performance of commitments.<br />

The Competition Authority does not have a policy of having clear preferences for particular types of remedies. The assessments<br />

are made on a case-by-case basis in view of specific circumstances surrounding the merger.<br />

Key policy developments<br />

The old Communiqué issued in 1997 had a dual-threshold system which took into account both market shares and turnovers<br />

when examining whether a transaction was subject to the Turkish Competition Authority’s approval. The critics indicated that<br />

this system did not provide legal certainty. The new Communiqué that was issued in 2010 considers turnover thresholds both<br />

worldwide and Turkish. The reason behind this move was to reduce the number of merger notifications and to help undertakings<br />

reach legal certainty more easily, without needing to deal with market definitions and shares.<br />

According to the new rules, a pre-merger notification and approval is required where either the total turnovers of the transaction<br />

parties in Turkey exceed 100 million lira, and turnovers of at least two of the transaction parties in Turkey each exceed 30<br />

million lira; or the global turnover of one of the transaction parties exceeds 500 million lira, and at least one of the remaining<br />

transaction parties has a turnover in Turkey exceeding 5 million lira. Aside from joint ventures, transactions that do not result<br />

in an affected market do not trigger a pre-merger notification or approval requirement, even if they meet the thresholds. Joint<br />

venture transactions require pre-merger notification and approval if they exceed the thresholds, regardless of whether they<br />

result in an affected market or not. Foreign-to-foreign transactions are caught if they meet the applicable thresholds and they<br />

result in an affected market – except for joint ventures for which the existence of an affected market is not sought.<br />

The new Communiqué also extended the notification form and introduced a new and much more complex notification form,<br />

which is similar to the Form CO of the European Commission in order to receive more information in detail from the parties<br />

at once and to expeditiously reach a decision. There is an increase in the information requested, including data with respect to<br />

supply and demand structure, imports, potential competition, expected efficiencies, etc. Some additional documents such as<br />

the executed or current copies and sworn Turkish translations of some of the transaction documents, annual reports including<br />

balance sheets of the parties, and, if available, market research reports for the relevant market are also required.<br />

The new notification form no longer insists on “signed copies of the agreement leading to the notified concentration”. This is<br />

a much welcome change allowing the parties to file before the transaction document is signed. While this will save very<br />

valuable time, and is certainly an improvement over the currently applicable regime, there remains a risk that the Board might<br />

still refuse to act on a memoranda of understanding or letters of intent, since the new provision refers to the “current version<br />

of the agreement”.<br />

With the recent changes observed in Turkish merger control legislation, the Competition Board has geared up for a merger<br />

control regime focusing much more on deterrents. As part of that trend, monetary fines have increased significantly for not<br />

filing or closing a transaction without the Competition Board’s approval. It is now even more advisable for the transaction<br />

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ELIG Attorneys at Law Turkey<br />

parties to observe the notification and suspension requirements and avoid potential violations. This is particularly important<br />

when transaction parties intend to put in place carve-out or hold-separate measures to override the operation of the notification<br />

and suspension requirements in foreign-to-foreign mergers. The Competition Board is currently rather dismissive of carveout<br />

and hold-separate arrangements, though the wording of the new regulation allows some room to speculate that carve-out<br />

or hold-separate arrangements are now allowed. Because the position that the Competition Authority will take in interpreting<br />

this provision is not clear as yet, such arrangements cannot be considered as safe early closing mechanisms recognised by the<br />

Competition Board. Under article 10 of the new Communiqué, a transaction is deemed to be ‘realised’ (i.e., closed) on the<br />

date when the change in control occurs. It remains to be seen if this provision will be interpreted by the Competition Authority<br />

in a way that provides the parties to a notification to carve out the Turkish jurisdiction with a hold separate agreement. This<br />

has consistently been rejected by the Turkish Competition Board so far, arguing that a closing is sufficient for the suspension<br />

violation fine to be imposed, and that a further analysis of whether change in control actually took effect in Turkey is<br />

unwarranted.<br />

Another important change in the Turkish merger control regime is brought about with article 13 of the new Communiqué. The<br />

Competition Board’s approval decision will be deemed to also cover only the directly related and necessary extent of restraints<br />

in competition brought by the concentration (e.g. non-compete, non-solicitation, confidentiality, etc.). This now allows the<br />

parties to engage in self-assessment, and the Board will not have to devote a separate part of its decision to the ancillary status<br />

of all restraints brought with the transaction anymore.<br />

Another talking point is the incorrect or incomplete filings. If the information requested in the notification form is incorrect or<br />

incomplete, the notification is deemed filed only on the date when such information is completed upon the Competition Board’s<br />

subsequent request for further data. In addition, the Competition Authority may impose a turnover-based monetary fine of 0.1<br />

per cent of the turnover generated in the financial year preceding the date of the fining decision (if this is not calculable, the<br />

turnover generated in the financial year nearest to the date of the fining decision will be taken into account) on the parties in<br />

cases where incorrect or misleading information is provided.<br />

Recent indications in practice show that ‘remedies’ and conditional clearances are becoming increasingly important in Turkish<br />

merger control enforcement. The number of cases in which the Competition Board decided on divestment or licensing<br />

commitments or other structural or behavioural remedies has increased dramatically over the past three years. Examples<br />

include some of the most important decisions in the history of Turkish merger control enforcement (Vatan/Doğan, 10 March<br />

2008, 08-23/237-75; ÇimSA/Bilecik Hazır Beton, 2 June 2008, 08-36/481-169; OYAK/Lafarge, 18 November 2009, 09-56/1338-<br />

341; THY/HAVAŞ; 27 August 2009, 09-40/986-248; Burgaz/Mey İçki, 8 July 2010, 10-49/900-314). The Competition Board<br />

may grant conditional approvals to mergers and acquisitions, and such transactions may be implemented provided that measures<br />

deemed appropriate by the Competition Board are taken, and the parties comply with certain obligations. In addition, the<br />

parties may present some additional divestment, licensing or behavioural commitments to help resolve potential issues that<br />

may be raised by the Competition Board. These commitments are increasing in practice and may either be foreseen in the<br />

transaction documents or may be given during the review process or an investigation.<br />

In addition, the Competition Authority now publishes the notified transactions on its official website with only the names of<br />

the parties, and their areas of commercial activity. To that end, once notified to the Turkish Competition Authority, the<br />

“existence” of a transaction will no longer be a confidential matter.<br />

Reform proposals<br />

A current proposal to change the entire competition law legislation is pending before Turkey’s Grand National Assembly. If<br />

enacted, the proposal will bring about significant amendments to Law No. 4054, such as the introduction of de minimis<br />

exceptions. It is still uncertain, however, when the relevant proposal will be on the Grand National Assembly’s agenda.<br />

The Turkish Competition Authority announced its priorities and policies for the year 2011 in the Activity Report of the year<br />

2010. According to the Report, the Turkish Competition Authority is planning to make necessary amendments in the legislation<br />

in order to modernise the law accordingly to the EU competition regulations. Secondly it prioritises to inform and educate the<br />

business world in Turkey about competition law. The Turkish Competition Authority plans to fight the significant competition<br />

law breaches regarding EU and worldwide competition regulations, avoiding focusing on insignificant competition law<br />

breaches, and to raise consciousness in public authorities and in the public using Regulatory Impact Assessment.<br />

Indeed, the enactment of the amendments to the merger control statutes has prompted the Competition Authority to work hard<br />

to put in place the implementing regulations. The back-to-back introduction of two important comprehensive guidelines is a<br />

reflection of this policy trend.<br />

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ELIG Attorneys at Law Turkey<br />

Gönenç Gürkaynak<br />

Tel: +90 212 327 17 24 / Email: gonenc.gurkaynak@elig.com<br />

Gönenç Gürkaynak holds an LLM degree from Harvard Law School, and he is qualified in Istanbul,<br />

New York, and England & Wales (currently non-practising solicitor). He has unparalleled experience<br />

in all matters of Turkish competition law counselling with over 14 years’ experience, starting with the<br />

establishment of the Turkish Competition Authority. Prior to joining ELIG as a partner more than six<br />

years ago, Gönenç worked as an attorney at the Istanbul, New York, Brussels and again in the Istanbul<br />

offices of a global law firm for more than eight years. He also holds a teaching position at undergraduate<br />

and graduate levels at the Bilkent University Law School in the fields of competition law and law and<br />

economics. Gönenç heads the competition law and regulatory department of ELIG. He has had tens of<br />

international and local articles published in English and in Turkish, and a book published by the Turkish<br />

Competition Authority.<br />

K. Korhan Yıldırım<br />

Tel: +90 212 327 17 24 / Email: korhan.yildirim@elig.com<br />

K Korhan Yıldırım holds an LLB degree from Galatasaray University Law School, and he is qualified<br />

to practice in Istanbul. Korhan is a senior associate in the competition law and regulatory department<br />

of ELIG. He has been assisting Gönenç Gürkaynak with a vast number of complex matters of Turkish<br />

competition law counselling, and also in numerous other fields of Turkish law, for more than six years.<br />

Korhan has also published a number of articles in collaboration with Mr Gürkaynak, and he is particularly<br />

experienced in merger control matters.<br />

ELIG Attorneys at Law<br />

Çitlenbik Sokak No:12, Yıldız Mahallesi, Beşiktaş, 34349 Istanbul, Turkey<br />

Tel: +90 212 327 17 24 / Fax: +90 212 327 17 25 / URL: http://www.elig.com<br />

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Ukraine<br />

Denis Lysenko & Mariya Nizhnik<br />

Vasil Kisil & Partners<br />

Overview of merger control activity during the last 12 months<br />

The number of concentrations filed with the Antimonopoly Committee of Ukraine (the “AMC”) in 2010 was slightly<br />

higher than in 2009, but still significantly lower than in 2008 and 2007.<br />

The below statistics clearly evidences that almost all transactions filed with the AMC were successfully cleared, except<br />

for a few transactions that involved market players holding dominant positions in Ukraine and transactions which might<br />

substantially restrict the competition in Ukraine.<br />

In 2010, 34 transactions out of 697 were cleared after a deeper investigation had been initiated by the AMC with respect<br />

to the transaction (Phase II ). In practice, the AMC generally initiates Phase II if the transaction concerned may potentially<br />

negatively effect the competition in Ukraine, e.g. when the parties to the concentration have relatively high market shares<br />

in Ukrainian markets (e.g. exceeding 15%).<br />

In 138 cases, the applications filed with the AMC for a concentration in 2010 were either returned by the authority or<br />

withdrawn by the applicants for their own reasons.<br />

According to the applicable legislation, a transaction prohibited by the AMC may be approved by the Cabinet of Ministers<br />

of Ukraine if the parties concerned can prove that the positive effect of the transaction for public interest is much greater<br />

than its negative consequences. However there were no transactions prohibited either by the AMC or by the Cabinet of<br />

Ministers of Ukraine in 2010.<br />

AMC official statistics: merger clearance applications1 Year<br />

Applications filed with<br />

AMC<br />

Approved transactions<br />

(unconditional clearances)<br />

New developments in jurisdictional assessment or procedure<br />

Notwithstanding the business community’s initiative to amend the legislation and its support by the AMC, the effective<br />

financial thresholds, that are the precondition for a transaction to be caught by merger control rules, are still low compared<br />

to other jurisdictions. No changes to applicable legislation have been made yet in this respect.<br />

Practically, this means that a number of transactions, which either do not have, or have little, effect on competition in<br />

Ukraine, including foreign-to-foreign transactions, technically fall under the merger control legislation and, thus, require<br />

prior merger clearance.<br />

Under applicable merger clearance regulations2 both parties are responsible for merger clearance in Ukraine. Based on<br />

the existing practice, the parties concerned file a joint application with the AMC.<br />

Filing requirements. No de minimis rule is still applicable in Ukraine, therefore there is no exclusion in case of absence<br />

of the substantive overlap3 . The applicable merger control rules require a substantive amount of information to be included<br />

in AMC filing forms. In particular, the notification must include detailed information on the transaction parties, taking<br />

into account their control relations, including registration data, contact details, officers, amount of shareholdings/votes<br />

and the Ukrainian turnover of each entity of the entire target and acquirer groups.<br />

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Approved transactions<br />

(conditional clearances)<br />

Prohibited transactions<br />

2010 697 559 0 0<br />

2009 599 476 4 1<br />

2008 1,021 814 1 0<br />

2007 911 715 4 4<br />

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Vasil Kisil & Partners Ukraine<br />

Despite the broad definition of the target group (extended to the sellers), the AMC, considering the international practice,<br />

has recently adopted a position allowing the parties to limit the definition of, and respectively the information on, a target<br />

group to companies that are subject to direct/indirect acquisition. Such limitation is only applicable if the seller loses any<br />

control over the target as of the date of closing and the parties provide sufficient information and documents confirming<br />

termination of such control. However, such position is not applicable for the purpose of calculation of triggering thresholds,<br />

i.e. in order to find out whether the transaction requires Ukrainian merger clearance or not (whether the thresholds envisaged<br />

by law are met), the entire seller group shall be considered.<br />

Furthermore the notification shall necessarily include the definition of the relevant product and geographical markets, the<br />

contact information of the Ukrainian competitors, customers and suppliers, and the volume of sales/gains in respect of<br />

each customer/supplier. Having said that, notably, such information shall be filed with the AMC in respect of each company<br />

of the target/acquirer group generating Ukrainian turnover, regardless of the markets concerned. In other words, even in<br />

the absence of the overlapping markets, the parties are bound to file detailed information about their activities in Ukraine.<br />

The applicable rules allow parties to request from the AMC to be exempted from filing certain information, if the latter<br />

does not affect the decision to be adopted by the AMC. However, in practice, the information regarding the parties’<br />

activities in Ukraine (including the above information regarding customers, competitors and suppliers) is treated by AMC<br />

officials as mandatory and, even in the absence of substantial overlaps, to receive any exemption in respect of such<br />

information is hardly possible.<br />

Global closing. Producing respective information at an early stage of a transaction often requires substantial time and<br />

costs that, in turn, gives one score in favour of the parties’ choice to close the transaction, especially a global one, without<br />

the Ukrainian merger clearance. At the same time, recently, market players more often use the scenario for allowing the<br />

avoidance of any delay regarding the closing of a transaction globally that has minimal Ukrainian “negative consequences”.<br />

The applicable provisions do not allow the parties to close a foreign-to-foreign transaction globally prior to obtaining<br />

AMC approval (where required), even if the parties commit to refrain from any actions in respect of Ukrainian markets<br />

(subsidiaries). The scenario involving closing of the foreign-to-foreign transaction before a Ukrainian clearance and<br />

obtaining post-closing approval shortly after the closing (providing the AMC with a reasonable justification for the failure<br />

to pre-notify) moderates the above strict rule. Given the technical failure to receive merger clearance before closing, the<br />

AMC usually (i) issues post-closing clearance (unless there are legal grounds to reject the transaction), and (ii) imposes a<br />

fine as envisaged by law. However in such case, the parties are usually considered by the AMC as acting in “good faith”,<br />

and the amount of fine to be imposed is rather technical in nature and not material.<br />

Phase I/Phase II. Based on the Economic Competition Act4 , the Ukrainian merger clearance procedure (Phase I) takes<br />

up to 45 (forty-five) calendar days. If a deeper investigation or expertise is required with respect to the transaction, the<br />

AMC may initiate a case on concentration (Phase II), which commences upon providing the AMC with a full set of<br />

information / documents additionally requested and shall not exceed 3 (three) months after the AMC has obtained all<br />

additionally requested documents/information.<br />

Given the recent AMC practice, within Phase II, the AMC (among other actions) generally requests certain information<br />

from the following third parties in order to confirm the existence of strong competition and the lack of a negative effect<br />

on the:<br />

(1) territorial (regional) departments of the AMC;<br />

(2) independent external experts specialising in dairy markets (in practice, these are non-commercial associations of<br />

dairy sector companies);<br />

(3) major consumers of the parties involved in the concentration; and/or<br />

(4) major competitors of the parties involved in the concentration.<br />

In addition, within Phase II, the AMC generally requests from the parties:<br />

(1) a business plan for a medium-term period (2–3 years) regarding the markets affected by the transaction (including<br />

respective calculations); and<br />

(2) an estimation of any negative impact of restriction of competition and the positive effect for the public achieved by<br />

means of:<br />

• improvement of production, purchase or sale of products;<br />

• technical and technological, as well as economic, development;<br />

• optimisation of the export or import of products;<br />

• development that unifies the technical conditions or standards of products; and/or<br />

• rationalisation of production, etc.<br />

Failure to notify. If the parties’ failure to notify (when required) is detected by the AMC, the following negative<br />

consequences are to be considered:<br />

• Fine of up to 5% of the total worldwide turnover of the parties in the year preceding enforcement of the fine (the<br />

limitation period for such fines in Ukraine is 5 years). This is a common AMC practice.<br />

• Invalidation of the transaction by the court (if the AMC proves that the respective transaction has harmed<br />

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Vasil Kisil & Partners Ukraine<br />

competition in Ukraine). This is a rather theoretical risk.<br />

• Recovery of double damages (if any) incurred by any third party as a result of the unauthorised transaction. This<br />

rarely happens.<br />

• Export/import ban (if the imposed fine is not duly paid by the defaulting party). This happens extremely rarely; it<br />

is a rather theoretical risk.<br />

• Publication of the information on the defaulting parties on the AMC’s official website. This is a common AMC<br />

practice.<br />

The applicable merger clearance regulations do not provide for any mechanism or rules applicable for the determination<br />

of the amount of a fine; it depends on the impact of the transaction on the competition situation in Ukraine. As a matter<br />

of practice, the AMC applies its internal guidelines to determine a specific amount of fine on a case-by-case basis.<br />

However, even if the party in breach is subject to a fine in the amount of 5% of the worldwide turnover as of the last<br />

financial year, such a fine would arguably still remain in line with the applicable Ukrainian legislation.<br />

There are certain cases when fines were imposed on parties to foreign-to-foreign transactions when the said transaction<br />

did not raise any material competition issues in Ukraine. The amounts of the fine in such cases generally did not exceed<br />

€20,000. Such amounts are significantly higher if defaulting parties refuse to cooperate with the AMC. The most recent<br />

cases on merger clearance violations involving global players are the following:<br />

• The establishment of a JV by two well-known groups of companies active in the agricultural sector (integrated soft<br />

commodities producers (operating commercial cereals and dairy farms), storage providers and traders).<br />

• The acquisition involving international investments groups active in the fields of real estate, construction &<br />

infrastructure, energy, and other related industries.<br />

• The acquisition by a Nordic equity fund of a leading international supplier of products and solutions for in-store<br />

communication and merchandising to the food and non-food retail sectors.<br />

In respect of detection risks, it should be noted that AMC representatives publicly announced several times that one of the<br />

AMC’s key tasks is the identification of breaches of competition legislation in historical M&A transactions, i.e. the review<br />

of historical structuring of target groups of companies for the purpose of checking compliance with the domestic<br />

competition legislation. Moreover, this year, the AMC has introduced a new electronic database on<br />

concentrations/concerted actions. Implementation of that software will inter alia increase the AMC’s control over historical<br />

transactions and revealing breaches of the competition legislation. Changes in relations of control of a particular company<br />

or group of companies will be available in a couple of “mouse” clicks (more details regarding the concentration database<br />

is provided below).<br />

Advance Ruling. There is no commonly-established practice to have a pre-notification meeting with the competition<br />

authority to discuss the proposed transaction. Indeed, the possibility to receive informal guidance in respect of a particular<br />

transaction without any filings is very limited.<br />

The applicable legislation provides for the possibility to receive preliminary rulings (formal guidance) from the AMC in<br />

respect of the contemplated transaction, i.e. a preliminary ruling from the AMC which determines whether prior approval<br />

is required, and whether it is likely to approve the contemplated transaction. However, given that the preliminary ruling<br />

procedure i) takes up to one month, ii) requires submitting with the AMC almost the same information as for the actual<br />

filing, and iii) legally does not relieve the parties from the need to receive the approval itself, when required, (which takes<br />

up to an additional 45 days (Phase I) as described above), such procedure is not commonly used in practice.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

In 2010, and at the beginning of 2011, the AMC representatives on numerous occasions have publicly announced that one<br />

of the AMC’s key tasks is the identification of breaches of competition laws on such sensitive markets as oil and other<br />

petroleum products, farm and food products (grain, sugar, milk), telecommunication services, certain types of minerals,<br />

and pharmaceuticals.<br />

In late 2010, Danone Group and Unimilk Group (leading dairy products manufacturers in Europe and the CIS) were<br />

granted merger clearance for the establishment of a joint venture.<br />

The respective approval was granted after a number of negotiations held with the AMC and the parties’ representatives<br />

aimed to, among others, solve the markets definition issues with both territorial and product measures.<br />

Regardless of the substantial market shares held by parties, an unconditional permit was granted by the AMC, i.e. no<br />

remedies were imposed by the AMC. The AMC acknowledged that the respective market is competitive enough and that<br />

the barriers to entry for the new players are not overwhelming.<br />

In the assessment of the effect of the concentration, the AMC analysed the combined market share of the relevant market<br />

players in the fermented products market without it further segmenting or dividing traditional and modern fermented<br />

markets, as suggested by other jurisdictions. Furthermore, based on the recent approach, it appears that the AMC divided<br />

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the milk procurement market into the market of procurement from individuals (the public) and the market of procurement<br />

from agricultural companies. In respect of geographical scope, it considered a particular region in Ukraine in respect of<br />

the procurement from agricultural companies, and an individual settlement (i.e. town, village) in respect of the procurement<br />

from individuals.<br />

Generally the AMC does not disclose its practice in respect of the merger clearance investigations, as well as approaches<br />

taken by the authority in terms of market definition and transaction assessment details. Therefore, respective information<br />

is generally limited to the practical experience gained by the applicants and their legal advisors. However, according to<br />

the AMC representatives, it is expected that the disclosure of the respective AMC practices (for the most distinguished<br />

cases) will become publicly available in the forthcoming year.<br />

Key economic appraisal techniques applied<br />

As of the current date, no guidelines on the approach to substantial merger assessment have been issued. The AMC grants<br />

its approval as long as the transaction will not result in the emergence of a monopoly in the affected market and will not<br />

materially restrict competition in the affected market or in its substantial part. In the case of overlapping market(s), the<br />

emergence of a monopoly is tested through the expected aggregated market share(s) (an entity holding a 35% share of the<br />

market may be considered as having a monopoly position in the market).<br />

Given the lack of accepted substantial merger assessment tests, the AMC usually applies market share assessment to also<br />

identify the effect on competition, i.e. the ability to substantially restrict competition.<br />

Please note that under internal “unpublished” AMC guidelines, the AMC generally estimates the level of competition (and<br />

respectively adopts its decision to approve or to prohibit the transaction) based on the market shares held by the parties,<br />

presuming that:<br />

(1) there is strong competition when neither entity has a market share exceeding 5%;<br />

(2) there is sufficient competition when neither entity has a market share exceeding 15%;<br />

(3) there is weak competition when one or more entities have a market share exceeding 15% but less than 35%; and<br />

(4) there is extremely weak or no competition when one or more entities have a market share exceeding 35%.<br />

In case of strong competition, the merger clearance procedure is rather technical; in case of weak competition, generally<br />

Phase II is initiated, but approval is commonly unconditional; and if competition is extremely weak, the approval is<br />

conditional, or the transaction is prohibited.<br />

Based on Article 12 of the Economic Competition Act, the AMC presumes the existence of collective dominance on the<br />

respective market if:<br />

(1) no more than three business entities jointly hold the market share in the amount of at least 50%; and/or<br />

(2) no more than five business entities jointly hold the market share in the amount of at least 70%.<br />

Should the collective dominance be presumed, the parties to the transaction shall prove to the AMC that there is a strong<br />

competition between the major market players that are active on the respective market.<br />

Generally, the main positions to be proved in respect of collective dominance and to be accepted by the AMC are the<br />

following: i) lack of any relations of control between the major players; ii) lack of any cooperation, including contractual<br />

arrangements between the major players; and iii) strong pricing competition, etc.<br />

The transaction prohibited by the AMC may be approved by the Cabinet of Ministers of Ukraine if the parties concerned<br />

can prove that the positive effect of the transaction for public interest is much greater than its negative consequences. In<br />

the last 5 years, only one concentration prohibited by the AMC was approved by the Cabinet of Ministers of Ukraine.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

The “remedies” to be imposed in the case of competition issues are not provided under the relevant Ukrainian legislation.<br />

Moreover, there is no guideline or unified approach followed by the AMC with regards to the terms and conditions of<br />

divestment implementation. The law provides that any divestment remedy should eliminate or mitigate the negative<br />

consequences of a merger for the competition and can be applied only within a Phase II procedure. The remedies may<br />

provide for the limitation of rights to manage, use or dispose of any assets, as well as for the forced disposition of the<br />

assets concerned. However, such conditions are rather uncommon for AMC practice.<br />

Whenever the participant holds the monopolistic (dominant) position in the market, the AMC is entitled to decide on a<br />

compulsory split of such monopolist. At the same time, the split is not applicable under the circumstances when: (i) there<br />

is no possibility to separate the company or its organisational units due to certain organisational or territorial reasons; and<br />

(ii) a close technological connection within the company or between its organisational units exists (e.g. if the company<br />

utilises more than 30% of the products produced by itself or its organisational unit).<br />

Furthermore, the company that is subject to the split may, at its discretion, decide on a transformation instead of a split,<br />

provided that its monopolistic (dominant) position would be eliminated.<br />

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At the same time, the applicable law provides no specific requirement to have the divestment remedy complied in full<br />

before the merger is completed. However, the AMC is entitled to reconsider its decision on granting the concentration<br />

whenever the divestment remedy is not complied with by the applicant / parties to the concentration.<br />

The AMC is entitled, simultaneously with the granting of its permit, to oblige the parties to the allowed transaction to take<br />

certain actions that eliminate or extenuate a negative impact of the transaction on competition in Ukraine. Such conditions<br />

are often imposed by the AMC and generally include prohibition of the following actions: establishment of barriers for<br />

the competitors; fixing unreasonably high or low prices; and division of territories, etc. In addition, in order to control the<br />

parties’ compliance with such conditions, the AMC obliges the respective parties to regularly report on the status of<br />

compliance. However, no guidelines in this respect have been issued.<br />

Key policy developments<br />

During 2010, the AMC’s focus on revealing historical breaches significantly increased. The authority paid specific attention<br />

to the formation of a corporate group structure as well as to the insertion of certain business divisions or business units<br />

into the group in order to control the compliance with the merger control legislation.<br />

Moreover, AMC representatives publicly announced several times that one of the AMC’s key tasks is the identification of<br />

breaches of competition legislation in historical M&A transactions, i.e. the review of the historical structuring of target<br />

groups of companies for the purpose of checking compliance with the Ukrainian competition legislation.<br />

The respective trend is supported by the cases investigated by the AMC during 2010, in particular, the case against a major<br />

financial and industrial group in connection with the acquisition of a telecommunication business without obtaining prior<br />

approval by the AMC, as well as the imposition of a number of fines on a leading household appliances and electronics company<br />

in Ukraine. Moreover, in early 2011, the internationally successful player in the markets for automotive components and<br />

defence equipment was fined for a number of acquisitions which occurred without the prior approval of the AMC.<br />

Special software. Recently the AMC introduced an updated procedure for submitting applications for merger clearance and<br />

concerted actions. In particular, starting from February 7 2011, the parties of the transaction falling under merger clearance<br />

thresholds, as well as concerted actions participants, shall file with the AMC certain parts of their applications (e.g. information<br />

on the participants of the transaction, their relations of control, activity and officials) using special software.<br />

The respective software provides for the establishment of an electronic database, available only at the AMC’s disposal,<br />

which shall contain unified information on the relation of control for all merger clearance and concerted actions applicants<br />

that have ever applied to the AMC. The respective software was presented by the AMC in order to reduce paper document<br />

flow and to ensure the optimisation of the AMC’s time expenditures for the verification of information, submitted by the<br />

applicants. It is expected that the database will contribute to more sophisticated AMC decisions.<br />

However, following the first practice of the software implementation, the parties are requested to file more detailed<br />

information with the AMC regarding their relations of control and activities in Ukraine. Furthermore, the so-called<br />

exemption procedure (usually used by the parties in order to reduce the amount of information filed with the AMC in<br />

respect of foreign-to-foreign transactions) now requires sufficient justification and reasoning to be approved by the AMC.<br />

The implementation of that software inter alia increases the AMC’s control over historical transactions and identification<br />

of breaches of the competition legislation. Changes in relations of control of a particular company or group of companies<br />

will be available in a couple of “mouse” clicks. Therefore, the detection risks of a transaction falling under merger control<br />

rules and not being notified with the AMC are now considerably higher.<br />

Updated procedure of state fee payments. The AMC has recently established an amended procedure for the payment of<br />

the state fee, which is required for the consideration of the merger clearance application. Based on respective amendment,<br />

foreign applicants are allowed to pay the filing fees in Euros or US Dollars5 .<br />

Reform proposals<br />

The undertakings accepted by Ukraine for the purposes of signing a Free Trade Agreement with the EU obliges Ukraine<br />

to considerably adapt its domestic legislation to comply with EU standards. The respective adaptation of the Ukrainian<br />

legislation is expected to be implemented during a certain period of time (up to 8 years depending on the adaptation issues).<br />

In this respect the most anticipated changes are the following:<br />

• The development and adoption of the AMC official guidelines for setting fines in competition cases. The guidelines<br />

shall insure the implementation of transparent and impartial approaches of the AMC in penalising infringements of<br />

the competition rules and assessing the amount of fines.<br />

• The implementation of the slim application procedure for those transactions which technically (i.e. that have no or<br />

minimal effect on competition in Ukraine / no competition concerns) fall under the merger control regulation.<br />

• The unification and disclosure, on a regular basis, of the actual AMC practice and information on AMC decisions.<br />

The respective process towards transparency and availability is already on the move and will most likely be further<br />

extended.<br />

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• The implementation of a clear and transparent procedure for obtaining evidence by the authority representatives in<br />

the course of the AMC investigations, including for failure to obtain a merger clearance permit.<br />

The following competition law changes can be expected in 2011/2012:<br />

• Amendments to the Economic Competition Act providing for an increase of the current financial threshold for<br />

merger control clearance. The respective amendments are now being prepared for a second reading in the<br />

Parliament6 .<br />

• Assigning jurisdiction over cases involving the Antimonopoly Committee of Ukraine. According to the current<br />

practice, the cases involving the Antimonopoly Committee of Ukraine and legal entities are resolved both by<br />

commercial and administrative courts. The proposed changes will assign the exclusive jurisdiction over these cases<br />

to commercial courts.<br />

* * *<br />

1<br />

Endnotes<br />

Source: AMC 2010 Annual report available in Ukrainian at AMC official website<br />

2<br />

http://www.amc.gov.ua/amc/control/uk/publish/article;jsessionid=554E708387ACB9A39C5BC9A0B4488AEA?ar<br />

t_id=194113&cat_id=194112. Please note that the annual report is available in the Ukrainian language only.<br />

Law of Ukraine No. 22-10 “On Protection of Economic Competition,” dated January 11, 2001 (the “Economic<br />

Competition Act”).<br />

3 Based on applicable law, the Ukrainian merger control rules are applicable to any transactions which affect or could<br />

affect the economic competition in Ukraine. At the same time, there is no specific legal doctrine or rules of law<br />

demonstrating how the effect test shall be applied by the national competition authorities in Ukraine. In fact,<br />

according to the existing practice and the recent approach adopted by the AMC officials, if the parties technically<br />

meet the thresholds envisaged by law, receipt of the prior approval of AMC is required even in case of a pure<br />

foreign-to foreign transaction with minimal (no) effect on the Ukrainian competition.<br />

4 The Law of Ukraine “On Protection of Economic Competition” No. 2210-III dated 11.01.2001 as amended.<br />

5 Prior to the respective amendment, the filing fee should have been paid in Hryvnyas primarily through a Ukrainian<br />

legal entity - intermediary or respective Ukrainian legal advisor on behalf of the parties.<br />

6 The draft legislation proposes to quadruple the existing thresholds. The draft legislation also clarifies that the<br />

merger notification obligations are not triggered when the asset/turnover thresholds are met by only one party.<br />

Based on the said draft, Ukrainian merger clearance is required if the following conditions are met: i) the aggregate<br />

value of assets/turnover over the last financial year, including those abroad, by all participants of the transaction,<br />

exceeded an amount equivalent to EUR 50 million under the exchange rate of the NBU effective on the last day of<br />

such financial year and the aggregate value of assets/turnover in Ukraine at least by two participants exceeded an<br />

amount equivalent to EUR 4 million; or ii) the aggregate value of assets/turnover in Ukraine at least by one<br />

participant of the transaction, exceeded an amount equivalent to EUR 50 million under the exchange rate of the<br />

NBU effective on the last day of such financial year and the aggregate value of assets/turnover over the last financial<br />

year, including those abroad, by any other participant of the transaction, exceeded an amount equivalent to EUR 50<br />

million.<br />

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Vasil Kisil & Partners Ukraine<br />

Denis Lysenko<br />

Tel: +38 044 581 7777 / Email: lysenko@vkp.kiev.ua<br />

Denis Lysenko has been a partner with Vasil Kisil & Partners since 2006; he joined the firm in 1999.<br />

His practice focuses on mergers and acquisitions, banking and corporate law, antitrust law, investments,<br />

privatisation.<br />

Mr. Lysenko has wide experience in representing interests of foreign investors (lenders) in cross-border<br />

transactions involving Ukrainian assets, as well as of Ukrainian companies – strategic investors in<br />

privatisation projects of Central and Eastern Europe, and experience of cooperation with the European<br />

Commission on competition matters. Mr. Lysenko successfully led the team of the firm’s lawyers in<br />

multiple M&A and investment projects in the following industries: banking and insurance; real estate;<br />

steel, machine- and shipbuilding; telecommunications etc.<br />

The firm’s Competition and M&A practice groups led by Mr. Lysenko have been continuously ranked<br />

as highly recommended by Chambers Europe, IFLR 1000, Legal 500, PLC and other recognised<br />

international legal directories.<br />

Mariya Nizhnik<br />

Tel: +38 044 581 7777 / Email: nizhnik@vkp.kiev.ua<br />

Mariya Nizhnik is a counsellor with the Antitrust and Competition Practice of Vasil Kisil & Partners.<br />

Ms Nizhnik focuses on general corporate and competition matters. <strong>Merger</strong>s and acquisitions, commercial<br />

agreements (such as joint ventures, distribution and licensing arrangements, development activities, or<br />

strategic alliances), abuse of dominance or other competition investigations are her key areas of<br />

competition practice. Ms Nizhnik has gained extensive experience through advising the firm’s foreign<br />

and domestic clients on private and/or government competition issues in a number of global M&A<br />

transactions. Ukrainian Law Firms, a Handbook for Foreign Clients named her one of the best lawyers<br />

practicing the antitrust law and commercial law. In 2009 Legal 500 recommended Mariya Nizhnik for<br />

her professional qualities. Mariya is co-chair of the Legal Committee of the American Chamber of<br />

Commerce in Ukraine, a member the Non-Commercial Association “Promotion of Competition<br />

Development in CIS” and a member of Ukrainian Bar Association.<br />

Vasil Kisil & Partners<br />

17/52A Bogdana Khmelnytskogo St., Kyiv 01030, Ukraine<br />

Tel: +38 044 581 7777 / Fax: +38 044 581 7770 / URL: http://www.kisilandpartners.com<br />

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United Kingdom<br />

Overview of merger control activity during the last 12 months<br />

Number of OFT merger decisions<br />

Nigel Parr & Mat Hughes<br />

Ashurst LLP<br />

In the year ending 31 March 2011, the UK’s first stage merger authority, the Office of Fair Trading (“the OFT”) reported<br />

that it had published a total of 73 merger decisions, which is about the same number of decisions as in the two preceding<br />

years (72 in 2009/10 and 80 in 2008/9). However, this is about a third of the level of merger decisions published by the<br />

OFT in the peak year of 2005/6 (210 decisions).<br />

<strong>First</strong> stage outcomes<br />

Of the 73 cases decided by the OFT in 2010/11, 14 mergers were found not to qualify for investigation (19 per cent) and<br />

43 mergers were cleared unconditionally (58 per cent). As regards the remainder, 8 mergers were referred to the<br />

Competition Commission (“the CC”) (11 per cent) for a second stage merger review, 4 were cleared by the OFT subject<br />

to undertakings in lieu of reference (5 per cent) and 4 were potentially problematic but were cleared unconditionally by<br />

the OFT using the de minimis exception (5 per cent).<br />

Considering the three years ending 31 March 2011, a similar picture emerges. 15 per cent of mergers were found by the<br />

OFT not to qualify for investigation and 62 per cent of mergers were cleared unconditionally. As regards the remainder,<br />

10 per cent were referred to the CC, 7 per cent were cleared subject to undertakings in lieu of reference and 7 per cent<br />

were cleared by applying the de minimis exception. Since 2007, the de minimis exception has been applied 18 times.<br />

The increased use of the de minimis exception in recent years is discussed in more detail under the section on “New<br />

developments in jurisdictional assessment or procedure” below.<br />

It is also notable that despite having a voluntary regime where parties are free to decide not to notify their transactions,<br />

the OFT frequently concludes that a merger does not qualify for investigation. These cases are probably explained in part<br />

by the UK jurisdictional thresholds (particularly the share of supply threshold – see further Chapter 48 of The International<br />

Comparative Legal Guide to: <strong>Merger</strong> Control 2011 (The ICLG to: <strong>Merger</strong> Control 2011) not being “bright line” thresholds<br />

which are simple to apply, and partly by the caution of some parties (or their advisers) in desiring the legal certainty of the<br />

OFT’s conclusion on a case.<br />

Second stage outcomes<br />

Two general points can be noted as regards the CC’s decisions over the three years ending 31 March 2011. The first point<br />

is that, of the 20 merger references made by the OFT during this time period, just under two-thirds related to completed<br />

mergers (13) and just over one-third related to anticipated mergers (7). However, all except for one of the anticipated<br />

mergers were abandoned by the parties following reference to the CC. Accordingly, almost all recent CC reports relate to<br />

completed mergers. Against this background, it is perhaps not surprising that the UK government is consulting on whether<br />

pre-completion merger filings should be made mandatory in the UK (see further the section on “Reform proposals” below).<br />

Secondly, of the 12 merger inquiries that were completed by the CC in the 3 years ending 31 March 2011, 7 resulted in<br />

unconditional clearances (58 per cent) and adverse findings were reached in 5 cases (42 per cent). This is similar to the<br />

position over a longer time. Of the 57 second stage inquiries conducted by the CC under the Enterprise Act 2002 (all<br />

concluded from February 2004 onwards), 31 were unconditionally cleared (54 per cent) and adverse findings (requiring<br />

remedies or outright prohibition) were reached in 26 cases (46 per cent).<br />

New developments in jurisdictional assessment or procedure<br />

There have been a couple of significant developments in policy and procedure in UK merger control in the recent past.<br />

<strong>First</strong>, the OFT has responded to criticism that its first stage procedures are too detailed and onerous for transactions which<br />

the parties accept will inevitably require an in-depth second stage review by the CC. A “fast track” reference procedure<br />

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was introduced for such mergers in the OFT’s guidelines “<strong>Merger</strong>s: jurisdictional and procedural guidance” (OFT 527)<br />

issued in June 2009. The fast track process will generally be available only where competition concerns could not be<br />

cured by first stage remedies (typically, divestment of the part(s) of the target business which create competition concerns).<br />

By definition, the parties will need to accept that the test for second stage reference to the CC is met, and the OFT will<br />

require clear evidence that the test is met at an early stage of its investigation – the OFT’s preference would be to establish<br />

whether the case is a suitable candidate for fast tracking at the pre-notification discussion stage. Third party consultation<br />

in relation to the case will still be required, which necessitates a certain amount of time for the OFT’s first stage<br />

investigation. However, the OFT estimates that a fast track reference could be made in around 10-15 working days.<br />

To date, there has been one example of a fast track reference. It concerned a proposed merger between two major UK<br />

travel agency businesses which was referred back to the UK under Article 9 of the EU <strong>Merger</strong> Regulation (“EUMR”) (see<br />

Chapter 16 of The ICLG to: <strong>Merger</strong> Control 2011 for details of EUMR legislation and procedure). The fast track reference<br />

was made by the OFT 12 working days after jurisdiction was passed back to the UK, with the OFT itself estimating that<br />

the duration of its first stage procedure had been reduced by around six weeks. Although this option is expected to be<br />

suitable in only a handful of cases, it represents a significant development and will enhance the efficiency of the regime<br />

considerably for those parties which accept the complexity of the competition issues in their case and the inevitability of<br />

a second stage investigation.<br />

The second major procedural development in the UK concerns the OFT’s discretion not to refer a merger which has prima<br />

facie met the test for reference to the CC. In brief, under UK merger control law, the OFT is under a legal duty to refer a<br />

merger to the CC for an in-depth second stage review where it believes that there is a realistic prospect that a merger will<br />

result (or, for completed mergers, has resulted) in a substantial lessening of competition. However, a reference can be<br />

avoided in the following circumstances:<br />

• first, the parties can offer first stage remedies, known as “undertakings in lieu of reference”, which remove the<br />

competition concerns in a clear-cut manner. As noted above, first stage remedies typically involve divestment of<br />

part(s) of one of the merging businesses to eliminate competition concerns; and<br />

• secondly, the OFT has a discretion not to refer the merger where: (a) the markets under consideration are too small<br />

to warrant reference (the “de minimis” exception); (b) the merger is not sufficiently advanced or is insufficiently<br />

likely to occur; or (c) relevant customer benefits (or “efficiencies”) generated by the merger can be shown to<br />

outweigh the adverse competitive effects of the transaction.<br />

These provisions are not new but historically were interpreted narrowly and were rarely even discussed in the OFT’s<br />

merger assessments. In 2007 the OFT overhauled its interpretation of the provisions (in particular by increasing the upper<br />

threshold for markets that are too small to warrant reference from £400,000 to £10 million, whilst introducing a much<br />

greater emphasis on the importance of case-by-case evaluation of whether application of the exception was appropriate).<br />

Since then, their use has greatly increased. In December 2010, the OFT published updated guidelines on its approach to<br />

undertakings in lieu and on how it applies its discretion not to refer a merger to the CC: see “<strong>Merger</strong>s: Exceptions to the<br />

duty to refer and undertakings in lieu” (OFT 1122). As the statistics under the section above on “Overview of merger<br />

control activity during the last 12 months” show, the de minimis exception is now regularly used by the OFT and it is clear<br />

from the more recent cases that the analysis is now much more case-specific and flexible.<br />

It should be noted that where undertakings in lieu are available, these will be accepted in preference to applying the de minimis<br />

exception – the cost of a reference is avoided in both scenarios, but undertakings in lieu also protect consumers by removing<br />

the competition concerns. Another key point is that the exceptions are applied to the whole merger, or not at all. Thus the<br />

Asda/Netto supermarkets merger, which involved competition concerns in 47 local markets, did not satisfy the customer<br />

benefits exception because it could not be shown that the general customer benefits from the merger would outweigh the<br />

competition concerns in each of the 47 problem markets. Similarly, in mergers which affect multiple markets, it is not possible<br />

to deal with some markets by using the de minimis exception, and others using undertakings in lieu.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The approach to the assessment of the competitive effects of mergers in the UK at both the first and second stages of<br />

merger control is set out in the joint <strong>Merger</strong> Assessment Guidelines published in September 2010 by the OFT and CC (the<br />

“UK Guidelines”) (OFT 1254 / CC 2). There is, unsurprisingly, a substantial degree of similarity between the UK<br />

Guidelines and the European Commission’s horizontal and non-horizontal merger guidelines (together, the EU Guidelines),<br />

and also the US Department of Justice’s and Federal Trade Commission’s joint horizontal merger guidelines of August<br />

2010 (the US Guidelines). An analysis of the UK Guidelines, including comparison with the US and EU Guidelines is<br />

contained in Mat Hughes’ and David Wirth’s paper “The Economics of Horizontal <strong>Merger</strong>s – recent lessons in avoiding<br />

surprises” (see Chapter 1 of The ICLG to: <strong>Merger</strong> Control 2011).<br />

More specifically, the mergers considered by the OFT and those referred to the CC cover a wide range of industry sectors.<br />

The geographical focus of cases dealt with by the UK authorities is, of course, primarily on mergers which raise national<br />

or local competition issues. This arises naturally from the combination of the UK jurisdictional thresholds, which are<br />

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based on UK business activity and the interplay with the EUMR jurisdictional mechanisms. Very broadly, the EUMR<br />

includes a measure of flexibility regarding the application of the jurisdictional thresholds with the aim that a merger should<br />

be considered by the best placed authority within the EU: the European Commission will typically focus on cases which<br />

potentially affect several Member States, and the Member States will focus on cases which affect markets within their<br />

national boundaries (see further Chapter 16 of The ICLG to: <strong>Merger</strong> Control 2011).<br />

Two industry sectors which have received particular attention in the UK recently are retailing mergers and media mergers.<br />

Retailing mergers<br />

Both the OFT and CC have considered a number of mergers in the retail sector in recent years, with retailing in this context<br />

being defined broadly to include both retailers selling goods (e.g. supermarkets, plumbing and heating suppliers, and sports<br />

goods retailers) and outlets providing services (e.g. betting shops, funeral parlours, sports clubs, and private hospitals).<br />

Reflecting the depth of experience developed through these cases, in March 2011 the CC and OFT published a<br />

“Commentary on retail mergers” (“the Commentary”) (OFT 1305 / CC 2 com 2).<br />

As considered in Chapter 1 of The ICLG to: <strong>Merger</strong> Control 2011, retailing mergers raise a number of specific issues,<br />

particularly as regards:<br />

• their effects on local competition where there are relatively few other local retailers nearby which, in turn, requires<br />

a consideration of local product and geographical market definition. This might involve analysis of both the extent<br />

to which different categories of retailers compete with one another (such as the degree of competition between<br />

specialist retailers and those which sell a wide range of goods; internet and physical retailers; and large and small<br />

retail outlets) and the distances/journey times consumers are willing to travel between stores; and<br />

• the extent to which retailers compete locally and/or nationally. Retailer competition may be purely on price or may<br />

be multi-dimensional covering price, quality, range and service (collectively “PQRS”). Some aspects of<br />

competition may predominantly occur at the local level and others at the national level.<br />

These matters are considered in some detail in the Commentary. The section on “Key economic appraisal techniques applied”<br />

below considers the techniques which may be applied to assess whether a merger may lead to a deterioration in PQRS.<br />

Identifying catchment areas is a key initial stage of the assessment of retailing mergers, first, to identify local overlaps<br />

between the parties’ businesses and, secondly, to identify other local rivals, with a view to pinpointing those localities in<br />

which competition issues may arise and where further analysis is consequently required.<br />

Catchment areas are based on how far customers are prepared to travel. The Commentary indicates that information on<br />

that point and on the competitive dynamics between local stores can be gleaned from a variety of sources. These include:<br />

address data from loyalty card schemes and other customer databases; consumer surveys; company research on competitors;<br />

and the working assumptions of the businesses themselves about their stores’ catchment areas. In many cases the UK<br />

authorities have calculated catchment areas based on the area covering around 80 per cent of a store’s revenues. The<br />

assessment might also consider evidence of the impact of new store openings and which stores in the locality were affected;<br />

and evidence as to the effects of entry to or exit from the market on firms’ sales or prices or other aspects of their competitive<br />

offering.<br />

The distance that consumers travel is often measured as a journey time. The boundaries of the area they could reach in a<br />

given time from a particular point is referred to as an “isochrone” and can be shown on a map. Isochrone maps are typically<br />

software-generated and take into account the different average travelling speeds along roads in the area.<br />

The outcome of such analyses must be interpreted with care. Any technique which involves drawing a clear boundary<br />

and only analysing competition within that boundary can be misleading – retailers just outside the boundary may<br />

nevertheless exercise an important competitive restraint, while some competitors within the boundary may be much closer<br />

rivals than others.<br />

A further issue is where to centre the catchment area (e.g. 15 minutes drive time from where?), since a change to the centre<br />

of the catchment area could have a dramatic impact on which competitors are included. It is usually sensible to analyse<br />

catchment areas based on each of the merging stores since each of the stores may face a different number of local<br />

competitors within their catchment area. It may also be sensible to consider whether stores which are in different catchment<br />

areas nevertheless compete with one another as they both serve a population centre located between them.<br />

There is no fixed rule as to the level of local concentration at which competition concerns may arise (and the Commentary<br />

does not suggest otherwise). In many retail merger cases, the UK authorities have, as a first stage filter, applied a<br />

presumption as to the circumstances in which competition concerns would arise based on the number of independent<br />

competitors, or “fascias”, in the areas where the merger will lead to a loss of competition. The appropriate number of<br />

fascias will depend on the particular characteristics of the market in question. The UK Guidelines observe that retail<br />

mergers that reduce the number of competitors from five to four are not usually of concern. In the 2003 Safeway case,<br />

the CC concluded that areas where the number of independent supermarket fascias would reduce from four to three would<br />

be assumed to give rise to serious competition concerns, absent evidence to the contrary. In its 2006 Boots/Alliance<br />

UniChem decision, the OFT concluded that only a reduction in the number of pharmacy fascias from at least three to two<br />

within a one mile radius would raise competition issues. This last case reflected the conclusion that competition between<br />

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pharmacies is limited (for example, there is no price competition at all regarding prescription-only medicines which are<br />

sold at a universal single fixed price set by the National Health Service).<br />

The UK authorities have generally focused on the number of competing fascias, rather than the number of outlets or some<br />

measure of local market shares. This is appropriate where the number of fascias is more likely to provide a good measure<br />

of the extent of rivalry between local firms and consumer switching. For example, a consumer switching from supermarket<br />

A may not be twice as likely to switch to supermarket B, rather than supermarket C, just because B has two outlets in the<br />

relevant locality and C only has one. This approach is not appropriate, however, where branding is not important in<br />

customer choice. For example, in its 2006 CWS/Fairways decision relating to funeral businesses, the OFT concluded that<br />

fascia count was not an appropriate measure, given that branding was not a strong feature of the funeral industry and that<br />

consumers were unlikely to be aware as to whether differently named businesses were part of the same group. Market<br />

shares were therefore used.<br />

Media sector mergers<br />

Media sector mergers are another area where the UK authorities will potentially take a close look, in this case based on<br />

specific legislative provisions. Political involvement in merger control decisions is very rare in the UK. However, in<br />

specified areas, the UK government (typically the Secretary of State for Culture, Olympics, Media and Sport as regards<br />

media mergers, and Secretary of State for Business, Innovation and Skills as regards defence mergers and mergers affecting<br />

financial stability), can still elect to be involved. In such “public interest” cases, the final decisions on whether to refer<br />

the merger for a second stage investigation, and the outcome of the second stage review, may be transferred to the Secretary<br />

of State where he so chooses. Moreover, scrutiny of the merger will be based not only on an analysis of its impact on<br />

competition but also on any wider public interest concerns. These provisions currently apply to three sectors, namely<br />

defence, media mergers and the financial stability of the UK economy. More details of these provisions are set out in<br />

Chapter 48 of The ICLG to: <strong>Merger</strong> Control 2011.<br />

The public interest provisions have been used for all three sectors. Defence mergers tend to be reviewed for any adverse<br />

impact on national security (for example, where one or both of the merging businesses is in possession of confidential<br />

information about UK military interests, or where there is a concern to keep relevant manufacturing facilities within UK<br />

territory), and are typically dealt with by obtaining first stage commitments from the parties. The financial stability<br />

provision has been used once, to clear the emergency purchase of one major British retail bank (on the verge of collapse)<br />

by another, at the height of the financial crisis (Lloyds/HBOS (2008)). The media mergers provision has not been exercised<br />

in relation to all media sector mergers, but has been used on two occasions to date to consider significant mergers which<br />

have raised media ownership and/or plurality issues.<br />

The first such case was the 2007 acquisition of a minority stake in ITV by British Sky Broadcasting (“BSkyB”). ITV is<br />

the largest free-to-air commercial UK broadcaster (the other major free-to-air broadcaster, the BBC, is state funded) and<br />

BSkyB is a major UK satellite broadcaster and by far the largest provider of pay-TV in the UK. The Secretary of State<br />

activated the public interest provisions and took over the decision-making role in the case, in order to consider any media<br />

plurality issues. The concept of media plurality is defined as “the need, in relation to every different audience in the United<br />

Kingdom or in a particular area or locality of the United Kingdom, for there to be a sufficient plurality of persons with<br />

control of the media enterprises serving that audience”. The CC considered both competition and media plurality. It<br />

advised that even on the basis of a minority stake, BSkyB could be expected to influence ITV’s offering so as to reduce<br />

the degree of rivalry which it represented vis-à-vis BSkyB and concluded that the merger would result in a substantial loss<br />

of competition in the all-TV market. It also noted that the motivation for the minority stake purchase was to deter or<br />

prevent the acquisition of ITV by a third party and its revitalisation as a competitive constraint to BSkyB. However, the<br />

CC did not identify any media plurality issues (a conclusion which went against the first stage assessment of the specialist<br />

communications sector regulator, Ofcom, and the subsequent review by the Competition Appeal Tribunal), and this<br />

conclusion was upheld by the Court of Appeal. The Secretary of State agreed with the CC’s conclusions and required<br />

BSkyB to sell its minority stake down to no more than 7.5 per cent.<br />

In 2010, public interest provisions were used in relation to News Corporation’s (“NewsCorp”) proposed increase of its<br />

stake in BSkyB from a minority 39.14 per cent of the shares to full ownership. The merger triggered the EUMR thresholds,<br />

so the competition aspects of the deal were considered (and unconditionally cleared) by the European Commission.<br />

However, the UK took jurisdiction under Article 21(4) of the EUMR to consider the wider public interest issues raised by<br />

the proposed merger, specifically, media plurality issues. NewsCorp is a global media business whose interests include<br />

newspapers, satellite and cable television broadcasting and digital media around the world. In the UK, it owns a number<br />

of major daily and weekly national newspaper titles in addition to its 39.14 per cent stake in BSkyB. BSkyB in turn owns<br />

the largest UK satellite broadcasting platform and is the largest UK supplier of pay-TV, as well as producing a number of<br />

TV channels and content under the “Sky” brand. BSkyB’s channels include Sky News, which produces news and current<br />

affairs for all the Sky channels and also sells news and current affairs content to other broadcasters.<br />

In this case, Ofcom investigated the first stage public interest media plurality issues and reported to the Secretary of State<br />

that following the merger, “there may not be a sufficient plurality of persons with control of media enterprises providing<br />

news and current affairs to UK-wide cross-media audiences”. The concerns arose out of the combination of NewsCorp’s<br />

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important UK national newspaper titles with Sky News, BSkyB’s wholesale and retail news provider. Concerns were<br />

identified that this would result in a loss of plurality as the second and fourth largest news providers came together. Rather<br />

than refer the merger to the CC (as Ofcom had recommended) the Secretary of State concluded, following discussions<br />

with NewsCorp, that undertakings in lieu of reference could be used, requiring BSkyB to separate out Sky News from the<br />

merger so that NewsCorp would continue to have only a minority stake of 39 per cent in it, with other provisions to ensure<br />

the editorial independence and integrity of Sky News. Ultimately, this merger was abandoned.<br />

Many media sector mergers are assessed simply on competition grounds, but transactions involving the larger players<br />

and/or consolidation of the more important news sources in the UK may well merit additional scrutiny and government<br />

involvement in the clearance process, to ensure that the public interest is protected.<br />

Key economic appraisal techniques applied<br />

The UK Guidelines provide a good overview of the range of economic techniques applied by the OFT and the CC, and<br />

these are considered further in Chapter 1 of The ICLG to: <strong>Merger</strong> Control 2011 on “The Economics of Horizontal <strong>Merger</strong>s<br />

– recent lessons in avoiding surprises”. The Commentary on retail mergers provides further guidance in the specific<br />

context of retailing mergers.<br />

De-emphasising market definition<br />

One of the key points to note as regards the UK Guidelines is that there has been a shift away from concentrating the<br />

competition analysis on market definition and market shares towards more directly considering the degree of rivalry<br />

between firms, including identifying which businesses are the closest competitors. This is particularly an issue in<br />

“differentiated” markets. Differentiated markets arise where there are tangible differences in products or services, or<br />

according to the locations in which they are available (unlike, for example, internationally traded commodities).<br />

Differentiation is a key feature of many markets due to differences in firms’:<br />

• products/services (characteristics, quality, branding and so on); and/or<br />

• geographical proximity (which impacts on firms’ competitiveness due to transport costs or if customers prefer to<br />

buy from local suppliers).<br />

In differentiated markets, the significance of a merger will not necessarily be reflected by market shares as some firms<br />

may be much closer rivals than others, whilst at the same time it would be wrong to disregard rivalry from those firms<br />

whose products are less close substitutes.<br />

Instead, there is an increasing tendency for market definition questions to be re-focused on whether a merger between<br />

rivals creates upward pricing pressure or reduces rivalry in other dimensions.<br />

Theoretical measures of upward pricing pressure<br />

One particular theoretical measure, Upward Pricing Pressure (“UPP”), has been advanced by Farrell and Shapiro (2010).<br />

(Joseph Farrell is Director of the Bureau of Economics at the Federal Trade Commission, and Carl Shapiro is the Deputy<br />

Assistant Attorney General for Economics at the Antitrust division of the US Department of Justice.)<br />

The intuition underpinning measures assessing upward pricing pressure is that following a merger between competitors:<br />

• each merging firm may have an incentive to raise its price post-merger, because it would recapture through its<br />

merging partner some of the sales it would have lost pre-merger as a consequence of price increases. The “diversion<br />

ratio” refers to the percentage of sales lost by one firm which are won by another – the higher this ratio is between<br />

two firms, the “closer” these firms are as competitors; and<br />

• the value of these recaptured sales is evaluated by multiplying the diversion ratio between the merging firms’<br />

products by the gross profit margin on the merging partner’s product (i.e. the increase in contribution to fixed costs<br />

and profits from winning the additional sales). The higher the diversion ratios between the parties and their gross<br />

profit margins, the greater the value of recaptured sales.<br />

Farrell and Shapiro propose a simple test of upward pricing pressure, which has been referred to as the gross upward<br />

pricing pressure index (“GUPPI”), which is simply based on the value of recaptured sales. They argue that the greater the<br />

value of recaptured sales, the greater the incentive of the merging parties to raise prices post-merger will tend to be, all<br />

other things being equal and in the absence of other competitive constraints.<br />

The first UK case which applied this methodology was the CC’s 2010 report on the Zipcar/Streetcar merger. In that case,<br />

the CC estimated that diversion ratios between the parties’ services were 22-24% based on a survey of consumers which<br />

asked if one party’s car service was no longer in operation, what alternatives would the individual being surveyed consider.<br />

Using these estimates and for a range of estimated gross margins, the CC concluded that “..absent entry or the threat of<br />

entry .. the main parties would have at least a moderate incentive to increase prices post-merger”. Nevertheless, the CC<br />

concluded that new market entry would be likely, expected to be timely and on a scale sufficient to prevent a substantial<br />

lessening of competition. The market was expected to continue to grow rapidly and there were two other credible entrants<br />

with well-developed plans to enter the car club market in the UK.<br />

Unfortunately, the CC was silent as to what it meant by “a moderate incentive to increase prices”. This is important<br />

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because the methodology outlined above would always generate some positive incentive to increase prices if the merging<br />

parties are competitors (otherwise the diversion ratios between them would be zero) and if they earn positive gross margins<br />

(which is necessary for their long term viability as they will otherwise not cover their fixed costs and generate profits).<br />

One approach to this issue of thresholds would be to presume some incremental cost savings (an “efficiency credit”) which<br />

would offset the pressure that would otherwise exist to increase prices. The CC applied no such “credit”.<br />

An alternative approach would be to seek to use GUPPI to estimate price increases. However, this requires assumptions<br />

to be made as to:<br />

• the shape of the demand curve, which determines how consumer price sensitivity varies with price. With “linear”<br />

demand (which simply means that there is a straight line relationship between price and sales volumes), price<br />

elasticity of demand increases with price. As a consequence, with linear demand, as price increases, customers<br />

become more price sensitive and sales volumes fall to a proportionately greater degree. This will translate into<br />

significantly lower estimates of post-merger price increases than if, for example, the demand for products were to<br />

exhibit constant elasticity of demand (i.e. isoelastic demand), because in this latter scenario consumers do not<br />

become more price sensitive as price increases; and<br />

• the nature of competition between firms (for example, whether they compete on prices or volumes, and what<br />

assumptions are made as to how competitors respond to price or output changes by the parties).<br />

Another approach, based on a paper by Shapiro (1996), seeks to estimate illustrative price rises (“IPR”), also based on<br />

additional assumptions as to the shape of the demand curve and the nature of competition. The IPR methodology was<br />

first used by CC in Somerfield/Morrisons (2005), and has since been applied in a range of mergers in the UK (particularly<br />

in the retail sector). In Somerfield/Morrisons, the CC only applied this methodology to identify problematic local overlaps<br />

where the diversion ratio was 14.3 per cent or more and only had concerns where illustrative price increases were 5 per<br />

cent or more. The 14.3 per cent diversion ratio threshold was adopted on the basis that if two undifferentiated firms, each<br />

with a 12.5 per cent market share, were to merge, this would not normally be problematic. For such firms, the diversion<br />

ratio would be 14.3 per cent (12.5 per cent/87.5 per cent = 14.3 per cent).<br />

Key drivers of the results and measurement<br />

UPP and IPR raise a number of common issues, with both of these methodologies being described by some observers as<br />

a “light” form of full merger simulation.<br />

The first point to note is that under both of these methodologies, mergers may be found to lead to anti-competitive unilateral<br />

effects even where:<br />

• the parties may not be close rivals. For example, a diversion ratio of say 25 per cent between the parties may be<br />

viewed as significant, but it still means that if one party increases prices pre-merger, 75 per cent of its sales would<br />

be lost to suppliers other than the merging parties; and<br />

• the businesses have relatively low gross margins. The higher the gross margin, the greater the amount of profit<br />

recaptured as a result of diversion between two competitors.<br />

This naturally leads to questions of measurement.<br />

In the UK, diversion ratios have most often been derived from surveys and studies into the impact of market entry and<br />

exit. The OFT and CC have jointly published guidance on “Good practice in the design and presentation of consumer<br />

survey evidence in merger inquiries” in March 2011 (OFT 1230 / CC 2 com 1). The survey evidence paper states that<br />

answers to questions as to consumers’ responses to outlets closing are “regarded as providing reliable information about<br />

closeness of competition, particularly in the first phase of a merger inquiry”. However, diversion ratios derived from<br />

such surveys may not be particularly reliable for the following reasons:<br />

• in a wide range of UK cases, the survey question asked of customers related to their switching choice if the store<br />

was closed or one of the parties ceased to operate, which forces all consumers to switch. However, the diversion<br />

ratios for all consumers and “marginal” consumers (i.e. those who would switch in response to a small deterioration<br />

in a supplier’s offering) may be different and vary according to whether there is a small deterioration in price,<br />

quality, range or service. However, authorities may need to conduct very large surveys in order to obtain a<br />

sufficiently large sample of consumers switching away if the question is based on a small deterioration in PQRS<br />

rather than store closure. In addition, questions about responses to outlet closure may be easier for consumers to<br />

understand than questions based on a small deterioration in PQRS;<br />

• surveys of individual stores have typically been based on the responses of a relatively small number of people (in<br />

Somerfield/Morrisons, 100 or less), with the consequence that the responses may not always be sufficiently reliable.<br />

The statistical uncertainty can be captured by calculating a “confidence interval” around any point estimate,<br />

indicating that the researcher can be 95 per cent confident that the actual answer lies with a certain range. The OFT<br />

and CC paper on survey evidence notes that “A confidence interval is especially relevant when an estimate derived<br />

from consumer survey research is critical to assessing a theory of harm or is used as a basis for subsequent<br />

calculations”; and<br />

• consumers’ stated responses may differ from how they would actually respond in practice.<br />

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In Somerfield/Morrisons (2005), the CC acknowledged that there were some uncertainties but nevertheless proceeded to<br />

rely on the survey results. In some cases, better evidence may be available; for example, actual events, such as store<br />

openings, expansions or closures, or bidding data, may provide useful information on actual diversion ratios.<br />

The Commentary on retail mergers also notes that “a degree of judgement can be required to establish the right level of<br />

margins”. In particular, the key issue to be explored is the extent to which costs would fall if there were to be a deterioration<br />

in PQRS, which in turn requires a consideration of matters such as the time period over which costs may be variable<br />

(which may be different according to whether prices or some element of QRS varies), and the extent to which accounting<br />

information provides a good measure of variable costs. Such uncertainties led the CC to consider a range of estimates of<br />

gross margins in Zipcar/Streetcar (2010).<br />

Broader issues: breadth of application/incompleteness and empirical support<br />

UPP has been subject to substantial discussion by economists, with one key issue being whether it provides a reliable<br />

indicator of mergers which are likely to have appreciable anti-competitive effects.<br />

This leads on to a fundamental point about competitive effects analysis. Doane et al (2010) have commented that: “Any<br />

model used to predict the effects of a merger must fit the facts of the industry in the sense that the model explains past<br />

market outcomes reasonably well.”<br />

This comment correctly warns that caution should be applied in relying on theoretical measures of anti-competitive effects<br />

without having close regard to evidence as to how the market in question operates in practice.<br />

In this regard, it is very striking that the CC reached unconditional clearance decisions in Sports Direct/JJB (2010) (relating to<br />

sports and leisure clothing and footwear) and NBYT/Julian Graves (2009) (relating to the retailing of nuts, seeds and dried<br />

fruit). In these cases, the CC attached considerable weight to empirical analysis of actual factual observations about outlets’<br />

PQRS in competitive and monopoly local markets, rather than theoretical modelling. For example, in Sports Direct/JJB, for<br />

market definition purposes, the CC used estimated diversion ratios and gross margins to indicate that it would be profitable for<br />

a hypothetical monopoly retailer to increase prices by 5 per cent. Nevertheless, a key element of the CC’s clearance decision<br />

as regards local competition was based on the CC’s finding that there was no evidence pre-merger of Sports Direct varying<br />

any element of PQRS in response to local competition. Moreover, the merger would increase only slightly the number of local<br />

monopolies held by Sports Direct and the CC therefore did not consider that the merger would appreciably increase Sports<br />

Direct’s incentives to adjust its competitive offering in response to local competition.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

The UK authorities, in line with many other jurisdictions, take a fairly strict approach to first stage remedies. They must<br />

be “clear cut” solutions to the competition concerns, which in practice typically means a structural remedy, usually a<br />

divestment of one of the overlapping businesses which has generated the competition concerns. As regards second stage<br />

remedies, the UK authorities have more scope to be creative, and behavioural remedies or a combination of structural and<br />

behavioural remedies are possible, although structural remedies are preferred. More details of the process of giving<br />

remedies to the UK authorities are set out in Chapter 48 of The ICLG to: <strong>Merger</strong> Control 2011.<br />

There is also a well developed process in the UK for the review of remedies at a later point in time. Some remedies remain<br />

in place for many years (there are many examples of undertakings given in the early 1990s which are still in force). These<br />

include not only behavioural remedies but also quasi-structural remedies such as long term supply commitments or<br />

intellectual property licensing etc. and on-going commitments by business A not to purchase business B (implementing a<br />

merger prohibition decision). Remedies can become inappropriate over time for a number of reasons:<br />

• first, market conditions may change so that, for example, a prohibition on business A from purchasing business B<br />

becomes unnecessary, as the competitive impact of such a merger would now be much less contentious. This was the<br />

case in the mid 1990s, when P&O Ferries was released from undertakings prohibiting co-operation and co-ordination<br />

with other ferry operators in the English Channel (the stretch of sea between the UK and France), in order to enter into<br />

a joint venture arrangement with Stena Lines for services between Dover and Calais. A major change in market<br />

structure had taken place, namely the introduction of the Eurotunnel rail services through the Channel Tunnel;<br />

• secondly, over time it can become clear that the undertakings themselves are having a stifling effect. For example,<br />

the CC recently made variations to undertakings given by the Centrica group in 2003 following its acquisition of<br />

gas storage facilities. The variations were considered necessary (inter alia) to increase flexibility within the terms<br />

of the undertakings in order to increase the scope for product innovation by Centrica. A further example concerns<br />

undertakings given by the UK broadcaster ITV in 2003 in relation to the terms on which advertising time on its<br />

main commercial channel (ITV1) was sold. In 2010, the CC concluded that the remedies were hampering the<br />

introduction of high definition (HD) channels and “time shifted” versions of the ITV1 channel (i.e. the same content<br />

broadcast an hour later (+1)). The remedies were therefore varied so that the definition of the “ITV1 channel” now<br />

also encompasses an ITV1+1 channel and an ITV1 HD channel;<br />

• thirdly, market changes can mean that price mechanisms become overly onerous or oblige the business to charge<br />

economically unsustainable prices. This has happened in relation to a number of transport mergers. Undertakings<br />

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were given by <strong>First</strong>Group plc in 2004 (when it acquired the Scotrail rail franchise) to prevent it from altering the<br />

service levels and fares on specific bus routes around Edinburgh and Glasgow. The scope of these undertakings was<br />

reduced in 2010 when <strong>First</strong>Group demonstrated that many of those routes were now loss-making due to reduced<br />

passenger numbers and/or increased operating costs. The loss-making routes were either removed from the scope of<br />

the undertakings, or changes to the routes were permitted. Similarly, price cap undertakings given in 2002 by <strong>First</strong>Bus<br />

in relation to its acquisition of another Scottish bus operator were amended by the CC because the original price cap<br />

mechanism was based on a GB-wide index which was no longer appropriate. In the intervening period, the Scottish<br />

government had taken over responsibility for a previously GB-wide bus grant and was now paying at a different level<br />

to the England and Wales version of the grant. As a result, the price cap was constraining <strong>First</strong>Bus to price increases<br />

which were below cost increases. The price cap mechanism was therefore amended to incorporate an appropriate<br />

Scottish index; and<br />

• finally, undertakings may require adjustment to reflect changes in the legal environment. The Centrica undertakings<br />

discussed above also required amendment to ensure that they complied with the requirements of the EU Third<br />

Internal Energy Market package.<br />

It is very important for the parties which have given undertakings that review and amendment is possible. These processes<br />

are essential to ensure that the undertakings do not themselves begin to distort competition over time. Detailed reviews<br />

will be undertaken by the OFT but the final decision is taken by the CC. Parties to undertakings may make a request to<br />

the OFT for variation or termination of undertakings but the OFT is also under a general statutory duty to keep undertakings<br />

under review and so can launch a formal review of undertakings on its own initiative. However, it must also be noted that<br />

the OFT applies its overarching “prioritisation” criteria to undertaking reviews and so may refuse to consider a request for<br />

variation or termination if it considers that its limited resources would be better deployed on other tasks.<br />

Reform proposals<br />

In early 2011, the UK government published a major consultation document which raises for discussion major reforms to<br />

many aspects of the UK competition regime, with a view to any resulting changes coming into effect in 2013.<br />

One of the most significant proposals, stated to be the preference of the government, is to merge the OFT and CC into a single<br />

body, with the current working title of the Competition and Markets Authority (CMA). However, there is considerable debate<br />

about how such a combined body would be structured. Much of the debate reflects the current UK institutional separation of<br />

first stage merger reviews (undertaken by the OFT) and the more detailed second stage investigations (undertaken by the CC),<br />

which is seen as a source of robustness and quality of decision-making, which eliminates the risk of confirmation bias. As<br />

noted above, in the 3 years ending 31 March 2011, 58 per cent of mergers referred to the CC were cleared unconditionally, and<br />

in the year ending 31 March 2011, all referred mergers were cleared unconditionally. At this stage, it is difficult to predict the<br />

outcome as regards the structure of the new body, although it does appear likely that if the proposals are adopted, a group of<br />

“independent” second stage decision-makers in merger cases will be retained.<br />

The UK was one of the first jurisdictions in Europe to have merger control legislation and it has always rested on a<br />

presumption that merger activity is positive for the economy. Intervention should therefore only take place where it is<br />

clear that a particular merger can be expected to have significant adverse effects. This presumption underlies the voluntary<br />

nature of the UK regime, with no obligation to notify, and no obligation to wait for clearance before completing the merger.<br />

This approach was retained through subsequent legislative overhauls in 1973 and 2002 and remains a fundamental and<br />

distinguishing characteristic of UK merger control to the present day. It results in a regime where no notification costs or<br />

transactional delays are imposed on the parties to innocuous, issue-free mergers of whatever scale. In more contentious<br />

mergers, the UK regime allows the parties to negotiate who will bear the competition risk (put at its simplest, the risk of<br />

prohibition of an uncompleted merger falls on the seller, and the risk of prohibition of a completed merger falls on the<br />

purchaser, whilst in practice parties often negotiate detailed risk-sharing mechanisms). Refinancing and debt/equity<br />

adjustments which do not change the competitive impact of the merger can be done without the delays inherent in merger<br />

notification or clearance.<br />

However, over the last few years, most second stage mergers reviewed by the CC have been completed mergers, some of<br />

which were prohibited and proved difficult to unwind. A former Chairman of the CC, Peter Freeman, started to debate publicly<br />

(first in a speech in December 2004) whether a system of compulsory notification would be preferable (without, at that stage,<br />

expressing any firm view himself in favour or against). By 2008 (in a speech in May 2008), and after further difficulties in<br />

dealing with the parties to completed mergers, he was in favour of moving to a compulsory regime.<br />

The UK is, in 2011, very unusual in having a voluntary regime. The vast majority of EU merger regimes are heavily<br />

inspired by the EUMR approach of mandatory notification and clearance before completion may take place. There is a<br />

drive, at EU level, to promote soft harmonisation of merger control legislation with all Member States following the EU<br />

merger control model.<br />

The government has acknowledged these national and EU-level concerns and the current reform proposals include the<br />

possibility of moving to a compulsory notification system in the UK. Two alternatives are proposed:<br />

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(a) a fully mandatory system requiring prior notification of all mergers where the UK turnover of the target exceeds £5<br />

million and the worldwide turnover of the acquirer exceeds £100 million; or<br />

(b) a hybrid system where (a) prior notification would be compulsory for all mergers where the UK turnover of the target<br />

exceeds £70 million plus (b) the CMA would retain jurisdiction to investigate certain other mergers. There are two<br />

alternative proposals for defining this “safety net” jurisdiction of the CMA: (i) mergers where the current share of supply<br />

test is met; or (ii) mergers where the UK turnover of the target exceeds £5 million and the worldwide turnover of the<br />

acquirer exceeds £10 million.<br />

In either scenario, the very low turnover thresholds would give the UK one of the broadest jurisdictions in the world in<br />

terms of small scale mergers.<br />

It is also clear from the proposals that there is a concern that the voluntary regime results in a material number of anticompetitive<br />

mergers passing by without review. The consultation paper quotes from a 1997 report for the OFT which<br />

estimated that as many anti-competitive mergers passed “under the radar” as were reviewed and blocked or modified by<br />

the authorities. These concerns presumably underpin the very low thresholds which are put forward by the government.<br />

However, it is not our experience as practitioners that the current UK regime is allowing significant numbers of anticompetitive<br />

mergers to go undetected by the OFT. Not least, there is a natural “safety net” in that customers and/or<br />

suppliers which find a merger to be materially damaging to their interests can (and regularly do) complain about it to the<br />

OFT. In addition, many mergers will be the subject of competitor complaints. Moreover, the combination of compulsory<br />

notification in most other EU jurisdictions and the communications networks between the EU competition authorities<br />

mean that the OFT will often learn about a merger via notifications made to its EU counterparts. In our view, the concern<br />

that anti-competitive mergers regularly evade UK merger control has been materially overstated and is skewing the reform<br />

proposals. It is very hard to believe that there are at least as many uncompetitive mergers which pass undetected as the<br />

number which are remedied by the OFT/CC.<br />

The introduction of a compulsory notification system in the UK (including the hybrid option) would increase costs for the<br />

competition authorities, having to rubber stamp a large number of innocuous mergers each year, and would impose onerous<br />

costs in terms of legal advice and management time on businesses seeking to implement neutral or even pro-competitive<br />

mergers. There is little appetite for such a change amongst UK competition lawyers and the OFT has responded to the<br />

government that it does not support the introduction of a mandatory regime. Interestingly, the CC, whose former Chairman<br />

led the calls for introduction of a mandatory regime, has not responded to the government clearly in support but has<br />

acknowledged that there are mixed views amongst its members and notes that the significant disadvantages of a compulsory<br />

notification regime may not be outweighed by its merits. In particular, the CC notes the costs which a mandatory regime<br />

would impose on the parties to neutral or even pro-competitive mergers and either the additional cost to the CMA of<br />

handling many more cases, or the reduction in the level of scrutiny accorded to each merger. On balance, our expectation<br />

is that the government will accept the extensive support for the current flexible UK regime and will not introduce mandatory<br />

(or hybrid mandatory) merger control.<br />

By contrast, we expect that the government will implement its proposal to strengthen the measures which can be taken<br />

against completed mergers pending a merger control investigation. As noted above, the root of the CC’s calls for a<br />

compulsory notification regime was essentially the experience of trying to implement remedies in relation to mergers<br />

which had already been completed and where integration of the two businesses had already commenced. In such<br />

circumstances, restoring the competitive conditions that existed before the merger can be very difficult – integration may<br />

have involved plant closures, redundancies, contractual renegotiations etc., which cannot be undone.<br />

The proposals for improving the current voluntary regime were expressed as two options:<br />

• a statutory restriction on further integration from the moment when the merger control investigation commences; or<br />

• the ability of the OFT/CMA to trigger such a suspension pending negotiation of tailored “hold separate”<br />

undertakings.<br />

These proposals would appear sensible. The OFT has expressed a concern that a mandatory standstill could operate as a<br />

disincentive from notifying until integration of the merging businesses had reached the point at which unscrambling would<br />

be very difficult – which would undermine the purpose of the reform. There is also no obvious need for imposing a<br />

statutory restriction on integration as regards mergers which clearly raise no issues.<br />

Whilst the introduction of stronger measures for the CMA to freeze integration of the merging businesses pending the<br />

merger inquiry will be burdensome for parties whose mergers have completed, this would be a much more limited reform<br />

than the introduction of mandatory prior notification, and a much more limited inroad into the presumption that merger<br />

activity is positive.<br />

Finally, the government has proposed that the competition enforcement regime should be self-financing. For merger<br />

control, where fees of between £30,000 and £90,000 are already payable (see further Chapter 48 of The ICLG to: <strong>Merger</strong><br />

Control 2011), this potentially translates into very significant increases in merger fees. Whether a mandatory notification<br />

regime is introduced has significant consequences in relation to fees. Inevitably, a voluntary regime means fewer<br />

notifications, and the cost of the enforcement process would be split between fewer cases. The government proposes<br />

increased merger fees potentially of up to £220,000 for mergers where the target has UK turnover in excess of £120 million.<br />

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By contrast, if a mandatory regime were introduced, the proposed fee levels would be much lower. A flat rate is proposed<br />

of £7,500 per merger; alternatively various options for a banded structure are on the table, but in each case even the highest<br />

fee would be below the current minimum fee of £30,000.<br />

The possibility of a maximum merger fee for a voluntary regime of £220,000 is alarming. It is extremely high compared<br />

to other jurisdictions: in the US, the highest level of fee is $280,000 (about £180,000) whilst the EU charges nothing at all<br />

for merger control. There is, moreover, a serious issue about the appropriateness of seeking to recover the full cost of<br />

merger control from the parties themselves, particularly given that merger control is designed to protect the public interest.<br />

It seems appropriate that at least some of the cost should be borne by tax payers who, as consumers, are the ultimate<br />

beneficiaries of merger control enforcement.<br />

As mentioned at the beginning of this section, no actual changes to the UK regime are expected until 2013. The government<br />

appears to have an open mind about the majority of the proposals and very little is expressed as a preferred proposal. That<br />

said, the breadth of the proposals is such that we consider it inevitable that there will be some significant changes. Our<br />

own view is that the changes should be incremental modifications to address specific issues within the existing,<br />

internationally respected merger regime and not wholesale change.<br />

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Nigel Parr<br />

Tel: +44 20 7638 1111 / Email: nigel.parr@ashurst.com<br />

Nigel Parr is a partner and head of Ashurst’s pan-European EU & Competition law department. He has<br />

been a partner since 1994. He specialises in all aspects of EU and competition law, particularly merger<br />

control, abuse of dominance and cartel investigations, together with the effect of competition law on<br />

intellectual property rights. He has extensive experience in dealing with the European Commission, the<br />

UK Office of Fair Trading, Competition Commission and Competition Appeal Tribunal and anti-trust<br />

authorities in other jurisdictions. He has acted in relation to more than 40 second stage Competition<br />

Commission inquiries in relation to both mergers and wider market investigations. He is co-author of<br />

Parr, Finbow and Hughes, “UK <strong>Merger</strong> Control: Law and Practice”, which is the leading practitioners’<br />

text book on UK merger control.<br />

Mat Hughes<br />

Tel: +44 20 7638 1111 / Email: mat.hughes@ashurst.com<br />

Mat Hughes is Chief Economist in Ashurst’s EU & Competition department. He is an industrial<br />

economist, and formerly worked as an economist at the UK Office of Fair Trading. Mat advises on the<br />

economic analysis of regulatory risk under UK and EU competition law and specialist utility regulation;<br />

defences in relation to clients’ mergers and acquisitions and allegations of anti-competitive practices and<br />

agreements; making submissions and complaints to regulators; and the design/development of<br />

competition law compliance programmes.<br />

He joins Nigel Parr and Roger Finbow in co-authoring the second edition of “UK <strong>Merger</strong> Control, Law<br />

and Practice”, the leading practitioners’ text book on UK merger control and was co-author with David<br />

Wirth and Emily Clark of the “Analysis of economic models for the calculation of damages”, which<br />

formed part of the “Study on the conditions of claims for damages in case of infringement of EC<br />

competition rules”, a major review of the extent of private enforcement of competition law across the<br />

European Union, which Ashurst prepared for the European Commission.<br />

Ashurst LLP<br />

Broadwalk House, 5 Appold Street, London EC2A 2HA, United Kingdom<br />

Tel: +44 20 7638 1111 Fax: +44 20 7638 1112 / URL: http://www.ashurst.com<br />

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J. Mark Gidley & George L. Paul<br />

White & Case LLP<br />

Overview of merger control activity during the last 12 months<br />

Overview of US <strong>Merger</strong> Enforcement<br />

A review of the Obama administration’s merger enforcement case filings in general shows only a modest increase in<br />

merger enforcement actions over the past two years.<br />

In the United States, merger reviews are conducted by two federal agencies: the US Department of Justice Antitrust Division<br />

(“DOJ”) and the US Federal Trade Commission (“FTC”) (collectively, the “agencies”). Only one of these agencies, however,<br />

will usually review, and consider a potentially challenge to, a given transaction. Which agency will review a given transaction<br />

is discussed in more detail under “New developments in jurisdictional procedure” below. (Under certain circumstances, a<br />

proposed transaction may also be challenged by state attorneys general or private parties. This chapter, however, focuses only<br />

on federal US merger enforcement.)<br />

The agencies typically challenge mergers under Section 7 of the Clayton Act, which prohibits any transaction “where in any<br />

line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be<br />

substantially to lessen competition, or to tend to create a monopoly”. 15 U.S.C. § 18. In addition, the FTC may challenge a<br />

transaction under Section 5 of the FTC Act which in part prohibits “unfair methods of competition”. Violations of the Hart-<br />

Scott-Rodino Act (“HSR Act”), which requires prior notification to the agencies of certain proposed transactions, are discussed<br />

under “New developments in jurisdictional procedure” below.<br />

The agencies rely initially on the parties’ HSR premerger notification filings to provide them with certain basic information<br />

about a proposed transaction. (The HSR merger review process is discussed in more detail under “New developments in<br />

jurisdictional procedure” below.) Parties to a reportable transaction subject to the HSR Act may not close the transaction until<br />

the initial statutory 30-day waiting period (15 days for a cash tender offer or bankruptcy) has passed, or the reviewing antitrust<br />

agency has granted early termination of the waiting period.<br />

If the agencies require additional information to conduct their investigation, they may issue a “Second Request” for additional<br />

information and documentary material from the parties, usually at the end of the initial 30-day waiting period. Issuance of a<br />

Second Request extends the waiting period until 30 days after the parties have substantially complied with the Second Request<br />

(unless the parties negotiate a timing agreement). The 30-day period after substantial compliance with a Second Request<br />

provides the reviewing agency with the opportunity to analyse the information provided by the parties and received from<br />

others, and to take action, if necessary, before the transaction is consummated. If the reviewing agency believes that a proposed<br />

transaction violates the antitrust laws, it may seek an injunction in federal district court to prohibit consummation of the<br />

transaction. The FTC may also initiate administrative litigation before an Administrative Law Judge at the FTC.<br />

<strong>Merger</strong> Filings and Challenge Statistics<br />

In fiscal year 2010 (covering October 1, 2009 through September 30, 2010), 1,166 transactions were reported under the<br />

HSR Act, representing about a 63% increase from the 716 transactions reported in fiscal year 2009. The number of reported<br />

transactions in 2009 was down very significantly from the 1,726 transactions reported in 2008. The relatively small<br />

number of HSR filings in 2009 was likely attributable to the worldwide economic downturn in 2009.<br />

Summary of Recent DOJ and FTC <strong>Merger</strong> Activity<br />

Combined DOJ/FTC Percentage of DOJ/<br />

Transactions<br />

FTC Challenged DOJ Challenged<br />

Year<br />

Second Requests FTC Second Requests<br />

Reported<br />

Transactions* Transactions*<br />

Issued<br />

Issued<br />

2010 1,166 46 3.9% 22 19<br />

2009 716 31 4.3% 19 12<br />

2008 1,726 41 2.4% 21 16<br />

* Challenged transactions include challenges to reportable transactions and non-reportable transactions.<br />

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Second Requests<br />

In 2010, the agencies issued Second Requests in connection with 46 transactions – the DOJ issued 26 and the FTC issued<br />

20. See Hart-Scott-Rodino Annual Report, Fiscal Year 2010, available at http://www.ftc.gov/bc/hsr/introguides/guide1.pdf;<br />

US Department of Justice, Antitrust Division Workload Statistics FY 2001 - 2010, available at<br />

http://www.justice.gov/atr/public/workload-statistics.html#N_5_. Second Requests were only issued in 3.9% of all notified<br />

transactions. Overall, the percentage of transactions where Second Requests were issued decreased slightly in 2010 as<br />

compared to 2009. In 2009, the agencies issued Second Requests in 31 transactions (the DOJ issued 16; the FTC issued<br />

15), or 4.3% of notified transactions. Id. In 2008, the DOJ and FTC issued Second Requests in 41 transactions out of a<br />

total 1,726 notifications. This represents 2.4% of all transactions. See Hart-Scott-Rodino Annual Report, Fiscal Year<br />

2008, available at http://www.ftc.gov/os/2009/07/hsrreport.pdf; US Department of Justice, Antitrust Division Workload<br />

Statistics FY 2001 - 2010, available at http://www.justice.gov/atr/public/workload-statistics.html#N_5_.<br />

Challenged Transactions<br />

The number of challenged transactions increased in 2010. The agencies challenged 41 transactions, compared with 31 in<br />

2009. As an overall percentage of transactions reported, however, the challenge rate was lower in 2010 (3.5%) than in<br />

2009 (4.35%). In 2010, the DOJ challenged 19 transactions, leading to 10 consent decrees, and eight abandoned or<br />

restructured transactions. See Hart-Scott-Rodino Annual Report, Fiscal Year 2010, available at<br />

http://www.ftc.gov/bc/hsr/introguides/guide1.pdf; US Department of Justice, Antitrust Division Workload Statistics FY<br />

2001 - 2010, available at http://www.justice.gov/atr/public/workload-statistics.html#N_5_. The FTC challenged 22<br />

transactions, leading to 19 consent orders, and three transactions that were abandoned after the parties learned of the<br />

Commission’s concerns. See Hart-Scott-Rodino Annual Report, Fiscal Year 2010, available at<br />

http://www.ftc.gov/bc/hsr/introguides/guide1.pdf.<br />

By comparison, in 2009, the DOJ challenged 12 transactions, leading to seven consent decrees and five abandoned or<br />

restructured transactions. See Hart-Scott-Rodino Annual Report, Fiscal Year 2009, available at<br />

http://www.ftc.gov/os/2010/10/101001hsrreport.pdf. The FTC challenged 19 transactions, leading to ten consent orders<br />

and eight withdrawn transactions (after the FTC authorised administrative complaints for five cases). See Hart-Scott-<br />

Rodino Annual Report, Fiscal Year 2009, available at http://www.ftc.gov/os/2010/10/101001hsrreport.pdf.<br />

New developments in jurisdictional assessment or procedure<br />

The HSR Act requires that the parties involved in an acquisition of voting securities or assets that meets certain thresholds<br />

and that does not qualify for an exemption must make a pre-transaction notification filing with the Premerger Notification<br />

Office (“PNO”) of the FTC. (A copy of the form is available from the FTC website at<br />

http://www.ftc.gov/bc/hsr/hsrform.shtm.) The PNO then distributes the HSR filings to the DOJ and FTC for review,<br />

although only one of the agencies will conduct a substantive review of a proposed transaction.<br />

In July 2011, the FTC announced significant changes to the HSR premerger notification form, which will go into effect<br />

30 days from publication in the Federal Register. Antitrust practitioners anticipate that, on balance, the new rules will<br />

result in an increased burden on merging parties. The newly updated HSR form includes the following key changes:<br />

• A new HSR Item 4(d) expands the scope of business plans and other documents required to be filed. Item 4(d)<br />

documents include: confidential information memoranda (“CIM”) or similar documents (even if the CIM does not<br />

contain a competitive analysis); third party advisor studies, surveys, analyses and reports (e.g., third party<br />

documents containing competitive analysis); and synergy/efficiency documents (documents discussing cost-cutting<br />

synergies may be responsive).<br />

• HSR Item 5 will no longer require filers to report revenues for the 2002 “base year”. Filing parties must report nonmanufacturing<br />

revenues by a 6-digit NAICS code and manufacturing revenues by a 10-digit NAICS code for the<br />

most recent financial year only. The rules also modify how revenues from goods manufactured in foreign facilities<br />

and imported into the US must be listed.<br />

• Items 6(c) and 7 now require submission of additional information on the holdings of “associates” that overlap<br />

between the buyer or its assets. Now, an acquiring company must report whether its associates own at least a 5%<br />

share in either the target company or any of its industry rivals. The associate reporting requirement will likely have<br />

its greatest impact on private equity firms and other investment companies. Parties will need to identify any<br />

associates if they operate in the target industry, and provide geographic information about them in Item 7.<br />

Each year, the FTC announces changes to the HSR notification thresholds, based on the change in gross national product.<br />

The thresholds for 2011 increased slightly over last year, in contrast to 2010 when the thresholds actually decreased from<br />

those in effect in 2009.<br />

• The size-of-transaction threshold is currently US$66.0 million.<br />

• The size-of-parties threshold is currently US$13.2 million and US$131.9 million.<br />

• The size-of-parties valuation “cap” is US$263.8 million.<br />

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The annual update to the applicable thresholds and detailed rules regarding notification thresholds and filing requirements<br />

are available on the FTC website. See www.ftc.gov/bc/hsr/index.shtm.<br />

If the jurisdictional tests are met, the acquiring party must submit an HSR filing and refrain from consummating the<br />

transaction during the HSR waiting period. The statutory waiting period for transactions, other than cash tender offers, is<br />

30 calendar days. In cash tender offers, or in cases where the seller is in bankruptcy, the waiting period is 15 days.<br />

Transactions without any substantive antitrust issues are usually granted either “early termination” of the statutory waiting<br />

period (which requires notification of the early termination and identification of the parties to the transaction in the Federal<br />

Register and on the FTC website), or, if the statutory waiting period has elapsed, the parties may close the transaction.<br />

For transactions that appear to pose potential substantive antitrust issues that cannot be resolved during the waiting period,<br />

the antitrust agencies may issue a Second Request for additional information to the parties in order to conduct a more<br />

thorough investigation of the proposed transaction.<br />

During the HSR waiting period, the parties to a transaction must maintain and operate their businesses as separate entities.<br />

The antitrust agencies continue to vigorously enforce the HSR Act, including prohibiting certain behavior during the HSR<br />

waiting period. Impermissible activities by the parties to a proposed transaction during the waiting period are referred to as<br />

“gun-jumping” in violation of the HSR Act. If the parties are competitors, gun-jumping could violate Section 1 of the Sherman<br />

Act (15 U.S.C. § 1) as well. Impermissible activities by the parties to a proposed transaction include, for example: integrating<br />

operations before the waiting period has expired; controlling or influencing the competitive decision making of the other<br />

party; acting together, or representing themselves, as one firm; sharing competitively sensitive information; etc.<br />

In 2010, the DOJ settled with Smithfield Foods, Inc. and Premium Standard Farms for $900,000 allegations that Smithfield<br />

engaged in gun-jumping by exercising control over a significant segment of the business of Premium Standard before the<br />

expiration of the statutory waiting period. According to the DOJ, Premium Standard improperly provided to Smithfield,<br />

for its review and consen,t three multi-year input supply contracts. The DOJ’s complaint alleged that “[r]equiring a buyer’s<br />

approval of the seller’s ordinary course contracts can prematurely transfer operational control, violating premerger<br />

notification requirement”. Interestingly, the DOJ alleged that the parties had been in continuous violation of the HSR Act<br />

from the date on which Premium Standard first submitted its contracts to Smithfield through the expiration of the waiting<br />

period. This is the latest case in a string of gun-jumping cases, indicating the willingness of the antitrust agencies to<br />

monitor and enforce prohibitions on gun-jumping. Other noteworthy enforcement actions include United States v. Gemstar-<br />

TV Guide Int’l, Inc., No. Civ. A. 03-0198, 2003 WL 21799949 (D.D.C. July 11, 2003) (settling charges of violations of<br />

Section 1 of the Sherman Act and Section 7A of the Clayton Act due to Gemstar’s allegedly, inter alia, sharing customerspecific<br />

pricing information) and United States v. Computer Assocs. Int’l, Inc., No. Civ. A. 01-02062, 2002 WL 31961456<br />

(D.D.C. Nov. 20, 2002) (alleging violations of Section 1 of the Sherman Act and Section 7A of the Clayton Act due to,<br />

inter alia, Computer <strong>Associates</strong> prematurely taking control of the target company).<br />

In addition to enforcement of the HSR Act by the antitrust agencies, private plaintiffs may also bring an action against the<br />

merging parties for alleged gun-jumping behaviour. For example, in January 2011, in Omnicare, Inc. v. UnitedHealth<br />

Group, Inc., 629 F.3d 697 (7th Cir. 2011), the Seventh Circuit Court of Appeals found that the merging parties had not<br />

violated antitrust and consumer protection laws by sharing “generalised and averaged high-level pricing data” before<br />

consummation of the merger as part of their due diligence.<br />

Key industry sectors reviewed, and approach adopted, to market definition, barriers to entry, nature of<br />

international competition etc.<br />

The DOJ and FTC have indicated recently that the following sectors are of increased interest to them: agriculture; energy;<br />

health care; and technology. <strong>Merger</strong> developments in each of these sectors is discussed below.<br />

Agriculture. In 2010, the DOJ and US Department of Agriculture held joint workshops focusing on antitrust issues in<br />

agriculture. Over the course of the year, five workshops were held across the country exploring the impact of buyer power<br />

(i.e., monopsony power) in agricultural markets and vertical integration among food processors. According to DOJ<br />

Assistant Attorney General Christine Varney “the knowledge we gained at the workshops will aid us in indentifying and<br />

prosecuting conduct that violates the antitrust laws, and enforcement in the agricultural sector remains a priority”. Christine<br />

Varney, Joint DOJ and USDA Agriculture Workshops: Concluding Remarks (Dec. 8, 2010), available at<br />

http://www.justice.gov/atr/public/speeches/264911.pdf.<br />

In addition to the workshops, the DOJ has been active in challenging mergers in the agricultural sector. As Assistant<br />

Attorney General Varney discussed in her concluding remarks at the agriculture workshops, “[i]t is our role to enforce the<br />

antitrust laws and advocate for competition in the agricultural sector, and the stories we heard at the workshops confirmed<br />

the importance of these efforts. We are currently challenging the Dean Foods acquisition of Foremost Farms, and we<br />

stand vigilant against violations of the antitrust laws”. Id.; see United States v. Dean Foods, No. 2:10-cv-00059 (E.D.<br />

Wisc. Mar. 29, 2011) (challenging the proposed acquisition by Dean Foods of two fluid milk processing plants in<br />

Wisconsin). Also this year, the DOJ challenged George’s Food’s acquisition of a West Virginia processing plant from<br />

rival Tyson Foods. See United States v. George’s Food, LLC, No. 5:11-cv-00043 (W.D.W.Va. June 23, 2011). Notably,<br />

both transactions were valued below the HSR notification thresholds, yet the DOJ investigated and challenged both<br />

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transactions. This clearly indicates that the DOJ will continue to scrutinise agricultural mergers, even smaller consummated<br />

transactions. Agricultural companies considering a merger or acquisition should be aware of these trends and seriously<br />

consider the antitrust risks upfront, even if it is a relatively small transaction.<br />

Energy. The FTC has a long history of reviewing potentially anticompetitive conduct (including merger investigations)<br />

in the energy industry. See, e.g., FTC, Oil and Gas Industry Initiatives, available at<br />

http://www.ftc.gov/ftc/oilgas/enf_invst.htm (“From 1973 to May 2007, the FTC conducted approximately 190 oil industry<br />

investigations that resulted in at least 44 enforcement actions, including final orders, complaints issued or filed in court,<br />

and matters in which a transaction was abandoned after initiation of a Commission investigation.”). The FTC’s energy<br />

enforcement activity includes petroleum and natural gas mergers.<br />

According to the FTC, “[i]n view of the fundamental importance of oil, natural gas, and other energy resources to the<br />

overall vitality of the United States and world economy, we expect that FTC review and oversight of the oil and natural<br />

gas industries will remain a centrepiece of our work for years to come”. FTC, Report of the Federal Trade Commission<br />

on Activities in the Oil and Natural Gas Industries: Reporting Period January-June 2011 at 6, available at<br />

http://www.ftc.gov/os/2011/06/1106semiannualenergyreport.pdf.<br />

Since January 1, 2011, the FTC has received premerger filings for 48 proposed transactions in the oil and natural gas<br />

sector. Id. at 2. The FTC also monitors the industry for non-reportable transactions. Id. at 2. Noteworthy transactions<br />

challenged by the FTC this year include:<br />

• In May 2011, the FTC required Irving Oil to relinquish certain rights to terminal and pipeline assets in Maine that<br />

Irving acquired from ExxonMobil. See FTC Press Release, available at<br />

http://www.ftc.gov/opa/2011/05/exxonirving.shtm.<br />

• In February 2011, McGraw-Hill abandoned its proposed acquisition of the Oil Price Information Service (known as<br />

“OPIS” in the industry) following a non-public investigation by the FTC. See<br />

http://www.ftc.gov/os/closings/110422mcgrawletterlarson.pdf (letter from the Director of the Bureau of<br />

Competition closing the FTC investigation due to abandonment of the proposed transaction by the parties). The<br />

proposed acquisition would have combined competing providers of petroleum price gathering and reporting<br />

services.<br />

Other merger investigations by the FTC in the first half of 2011 have involved: refined petroleum product terminals and<br />

pipelines; gasoline retailing; liquefied petroleum gas (propane); natural gas liquids transportation, storage, and marketing;<br />

and natural gas gathering, processing, transportation, distribution, and retail sales. See FTC, Report of the Federal Trade<br />

Commission on Activities in the Oil and Natural Gas Industries: Reporting Period January-June 2011 at 2.<br />

The DOJ also reviews mergers in the energy sector. For example, the DOJ recently reportedly issued a Second Request<br />

in its investigation of the proposed $7.9 billion merger between Exelon and Constellation Energy. See, e.g., Electric Power<br />

Daily, Platts Energy Week (July 1, 2011), available at<br />

http://plattsenergyweektv.com/story.aspx?storyid=157023&catid=293.<br />

Health Care. Both the DOJ and FTC have closely scrutinised a variety of matters involving the health care industry.<br />

These matters have ranged from hospital, insurance, and service provider mergers to pharmaceutical patent settlements<br />

designed to resolve on-going intellectual property disputes. Some examples of recent actions include:<br />

• In March 2010, the DOJ announced its decision to challenge Blue Cross Blue Shield of Michigan in its proposed<br />

acquisition of the Physicians Health Plan of Mid-Michigan. The parties abandoned the transaction before the DOJ<br />

issued a formal challenge. See DOJ Press Release, Blue Cross Blue Shield of Michigan and Physicians Health Plan<br />

of Mid-Michigan Abandon <strong>Merger</strong> Plans (March 8,l 2010), available at<br />

http://www.justice.gov/atr/public/press_releases/2010/256259.htm.<br />

• In March 2011, the DOJ and FTC released a long-awaited proposed statement regarding accountable care<br />

organisation (“ACOs”). This statement addresses how the federal antitrust laws will apply to joint efforts among<br />

otherwise independent healthcare providers participating in ACOs. Intended to allow providers to collaborate to<br />

deliver more efficient and higher quality care to patients, these ACOs are controversial given their potential to<br />

facilitate collusion. The DOJ and FTC have indicated that they will be monitoring these collaborations for<br />

anticompetitive activity. At the same time, by supporting a rule of reason standard for ACOs, the agencies have<br />

shown a willingness to consider pro-competitive justifications for this joint activity because of the significant<br />

potential for efficiencies resulting in lower healthcare costs. Health care providers considering forming ACOs<br />

should carefully consider the guidance provided by the DOJ and FTC, and address any potential antitrust concerns<br />

with counsel when structuring these innovative arrangements.<br />

Technology. Recently, the DOJ and FTC have stepped up actions in the technology sector. These investigations and<br />

challenges are indicative of the growing scrutiny by the antitrust agencies of internet technology mergers as the US<br />

economy increasingly utilises e-commerce. Companies considering mergers in the high-tech area should expect heightened<br />

scrutiny and prepare well in advance of filing an HSR notification in order to defend against potential competitive concerns<br />

raised by the agencies. Recent examples of scrutiny in the high-tech area include:<br />

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• DOJ’s challenge of Google’s proposed acquisition of software developer ITA. United States v. Google, Inc., No.<br />

1:11-cv-00688 (D.D.C. Apr. 8, 2011). Following a DOJ merger investigation, the parties agreed to resolve the<br />

DOJ’s concerns via a consent decree containing certain conduct remedies, discussed in more detail under<br />

“Approach to remedies” below. Recent press accounts indicate that the FTC is preparing to initiate a large-scale<br />

non-merger investigation of Google’s search engine dominance and business practices. See, e.g., Thomas Catan &<br />

Amir Efrati, Feds to Launch Probe of Google, Wall Street Journal (June 24, 2011).<br />

• The DOJ’s investigation of the proposed Google/Yahoo transaction in 2008 led the parties to abandon the<br />

transaction. The DOJ also issued a Second Request concerning Microsoft’s subsequent proposal to acquire Yahoo,<br />

eventually approving the transaction in 2010. See DOJ Press Release, Statement of the Department of Justice<br />

Antitrust Division on Its Decision to Close Its Investigation of the Internet Search and Paid Search Advertising<br />

Agreement Between Microsoft Corporation and Yahoo! Inc. (Feb. 18, 2010), available at<br />

http://www.justice.gov/opa/pr/2010/February/10-at-163.html (closing DOJ investigation without action).<br />

• In 2010, the FTC investigated Google’s acquisition of AdMob, a mobile advertising company. The FTC ultimately<br />

closed its investigation, concluding that recent developments, including Apple’s stated intention to develop its own<br />

competing mobile ad network, suggested that the transaction would not substantially lessen competition. See FTC<br />

Press Release, FTC Closes its Investigation of Google AdMob Deal (May 21, 2010), available at<br />

http://www.ftc.gov/opa/2010/05/ggladmob.shtm. Google’s success demonstrates the importance of developing and<br />

demonstrating evidence of future competitive entry in the technology sector to alleviate potential competitive<br />

concerns.<br />

Key economic appraisal techniques applied<br />

Revised Horizontal <strong>Merger</strong> Guidelines (2010)<br />

Since 1968, the DOJ and FTC have published merger guidelines articulating analytical techniques, practices, and policies<br />

used by the agencies to evaluate mergers and acquisitions under the US federal antitrust laws. In August 2010, the agencies<br />

released revised Horizontal <strong>Merger</strong> Guidelines (“Guidelines”), the first major revision of the Guidelines in eighteen years.<br />

The stated goal of the guidelines is to provide transparency in order to “give businesses a better understanding of how the<br />

agencies evaluate proposed mergers” and to assist the agencies in identifying anticompetitive mergers “while avoiding<br />

unnecessary interference with mergers that either are competitively beneficial or likely will have no competitive impact<br />

on the marketplace” (http://www.ftc.gov/opa/2010/08/hmg.shtm).<br />

The revised Guidelines “are not intended to represent a change in direction for merger review policy”, and they retain the<br />

same basic analytic structure for reviewing mergers as their predecessor, the 1992 Horizontal <strong>Merger</strong> Guidelines. See,<br />

e.g., DOJ Press Release, Department of Justice and Federal Trade Commission Issue Revised Horizontal <strong>Merger</strong><br />

Guidelines (Aug. 19, 2010), available at http://www.justice.gov/atr/public/press_releases/2010/261642.htm. However,<br />

despite this touting, the Guidelines do represent a shift away from the more compartmentalised, step-by-step<br />

microeconomic analysis employed in the 1992 Guidelines. The 2010 Guidelines emphasise a more integrated approach<br />

to merger review analysis. Under the 2010 Guidelines, the agencies continue to:<br />

• evaluate product and geographic markets (id. § 4);<br />

• estimate market shares (id. § 5.2);<br />

• evaluate market concentration using the Herfindahl-Hirschman Index (“HHI”) (id. § 5.3);<br />

• assess any likely adverse unilateral (id. § 6) and/or coordinated effects (id. § 7) as a result of the merger; and<br />

• evaluate new entry (id. § 9), merger-specific efficiencies (id. § 10), and claims that, without the merger, one of the<br />

merging parties would exit the relevant market (id. § 11).<br />

However, under the revised Guidelines, the agencies may “consider any reasonably available and reliable evidence” in<br />

assessing “the central question of whether a merger may substantially lessen competition”. Id. § 2. In addition to evidence<br />

of actual lessened competition (in consummated mergers) (id. § 2.1.1), market shares and concentration in a relevant<br />

market (id. § 2.1.3), and evidence of substantial head-to-head competition (id. § 2.1.4), the agencies may also consider,<br />

among other things, “natural experiments” or patterns observed from past mergers in the industry (or analogous industries)<br />

(id. § 2.1.2), evidence of recent entry and/or exit (id. § 2.1.2), and the effect of disruptive firms, i.e., mavericks (id. § 2.1.5)<br />

in the relevant market.<br />

Importantly, the revised Guidelines also increase the market concentration levels at which the agencies will generally<br />

assume that a transaction warrants further scrutiny by the agencies. Under the revised Guidelines, there is now a rebuttable<br />

presumption that a merger is anticompetitive if the post-merger HHI is greater than 2,500, with an increase in HHI (i.e.,<br />

“delta”) greater than 200 (id. § 5.3). Conversely, a market is considered un-concentrated (i.e., within a “safe harbour”) if<br />

the post-merger HHI is below 1,500, and a transaction is presumed unlikely to lessen competition if the increase in HHI<br />

is less than 100 (id. § 5.3).<br />

Key Developments in Unilateral Effects Analysis<br />

The revised Guidelines “provide an expanded discussion of how the agencies evaluate unilateral competitive effects”.<br />

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DOJ Press Release, Department of Justice and Federal Trade Commission Issue Revised Horizontal <strong>Merger</strong> Guidelines<br />

(Aug. 19, 2010), available at http://www.justice.gov/atr/public/ press_releases/2010/261642.htm. The Guidelines include<br />

a discussion of various economic analyses that the agencies may use and consider in assessing the likely competitive effect<br />

of a proposed transaction, including a discussion of upward pricing pressure (“UPP”) and diversion ratios (Guidelines §<br />

6).<br />

Unilateral effects involve situations where merging firms have the ability, post-merger, to profitably raise price or reduce<br />

output, without the need to coordinate with other firms. In assessing unilateral effects, the agencies pay close attention to<br />

the relationship between the products of the merging firms. Under the 2010 Guidelines, for transactions involving<br />

differentiated products, the agencies now downplay market definition in favour of evidence indicating the extent to which<br />

the products of the merging firms compete directly. In analysing mergers involving differentiated products, the agencies<br />

consider the extent to which competition between the merging parties prevented one or both of the firms from profitably<br />

raising its prices unilaterally, and the extent to which such diverted sales (to the other firm) would stay within the merged<br />

firm if the parties were permitted to merge. According to the Guidelines § 6.1, “[a]dverse unilateral price effects can arise<br />

when the merger gives the merged entity an incentive to raise the price of a product previously sold by one merging firm<br />

and thereby divert sales to products previously sold by the other merging firm….”. Under the new Guidelines, the agencies<br />

measure the extent of this incentive by examining the “value of diverted sales”. Diversion analysis is a method of<br />

quantifying this substitution to other products when the merged firm’s prices increase. If a firm can capture sales and<br />

retain profits post-merger, then a post-merger price increase will be profitable.<br />

UPP analysis starts with the estimated diversion ratios and the ability of merging firms to capture sales and retain profits<br />

post-merger, and analyses the “upward pressure” on the hypothetical merged firm’s prices. Calculating upward pricing<br />

pressure requires careful econometric analysis, as reliably measuring diversion ratios can be difficult. The agencies estimate<br />

post-merger diversion ratios using evidence generated by the merging parties in the normal course of business, including<br />

sales records, pricing information, win/loss reports, customer surveys, and other information on customer switching<br />

patterns. The merger simulations and econometric models used by the agencies may differ across different industries.<br />

For example, in retail mergers, the FTC will often evaluate scanner data to assess the constraint of one merging firm on<br />

the pricing of the other. In consumer product mergers, the agencies will often look at the competitive interaction between<br />

the brands, e.g., what happens to sales of Brand X when Brand Y is being sold on a promotional pricing basis.<br />

While the agencies have utilised UPP analysis internally for years, courts have indicated that antitrust plaintiffs must still satisfy<br />

traditional market definition tests and competitive effects showings. See, e.g., City of New York v. Group Health Inc., No. 06cv-13122<br />

(RJS), 2010 WL 2132246, at *6 (S.D.N.Y. May 11, 2010) (rejecting plaintiff’s proposed UPP test alternative to market<br />

definition because of “the clear requirement that a Plaintiff allege a particular product market in which competition will be<br />

impaired” and the fact that no federal court had ever adopted the UPP test); FTC v. Lab. Corp. of Am., No. SACV 10-1873-AG<br />

(MLGx), slip op. (C.D. Cal. Feb. 22, 2011) (holding that market definition remains the first step in a merger challenge and “is<br />

also the key to the ultimate resolution … since the scope of the market will necessarily impact any analysis of the anti-competitive<br />

effects of the transaction”) (quoting United States v. SunGard Data Sys., Inc., 172 F. Supp. 2d 172, 181 (D.D.C. 2001)).<br />

Key Developments in Coordinated Effects Analysis<br />

The revised Guidelines contain an updated section on coordinated effects. Coordinated interaction involves conduct by<br />

multiple firms that will be profitable for each “only as a result of the accommodating reactions of the others” (Guidelines<br />

§ 7). <strong>Merger</strong>s that have the potential to substantially lessen competition through such coordinated interaction are subject<br />

to challenge by the reviewing agency (id. § 7). The 2010 Guidelines do not diverge substantially from the previous<br />

Guidelines on coordinated effects analysis, although the revised Guidelines include an enhanced discussion of “buyer<br />

power” as a potential influence on coordination. A large buyer, or several powerful buyers, may undermine coordination<br />

by negotiating favorable terms with suppliers, both pre- and post-merger. Although the presence of a strong buyer will<br />

likely not be dispositive in eliminating coordinated effects issues in most mergers, the presence of such buyers can<br />

significantly undermine the risk of anticompetitive harm from coordinated interaction.<br />

In assessing coordinated effects, the Guidelines provide examples of evidence that the agencies commonly evaluate when<br />

analysing coordinated effects (Guidelines § 7.2), including:<br />

• past evidence of collusion or attempted collusion in the market as evidence of vulnerability to coordinated<br />

interaction;<br />

• the number of significant competitors;<br />

• product homogeneity;<br />

• transparency of competition on both price and non-price terms, as well as evidence of regular price-monitoring;<br />

• the size and frequency of sales or contracts;<br />

• market elasticity of demand; and<br />

• characteristics of the buyers.<br />

When advising parties about a transaction that poses any of the issues above, it is prudent to being developing key<br />

arguments early and to have such arguments and supporting information ready to use with the agencies at the beginning<br />

of the merger review process. Providing the agencies with such information as to why the factors listed above are not<br />

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applicable, how the industry has changed, etc. will often help frame the antitrust issues and focus the agency analysis,<br />

which can both expedite the agency’s review of the transaction and help secure a favourable result.<br />

Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation<br />

Upon receiving HSR filings from the parties to a merger, the agencies have an initial 30-day period in which to investigate<br />

a proposed transaction. If, based on this initial investigation, the agency reviewing the transaction does not detect any<br />

substantive antitrust issues with the proposed transaction, the agency will usually either grant early termination of the<br />

waiting period or allow the waiting period to expire without taking any action (after which the parties may consummate<br />

the transaction). If, however, the agency reviewing the proposed transaction has substantive antitrust concerns, or requires<br />

additional information to conduct a more thorough investigation, the agency will usually issue a Second Request to the<br />

parties. A Second Request is essentially a cumbersome subpoena requiring a review of potentially a large volume of<br />

company documents, the drafting of responses to interrogatories, and often burdensome data requests.<br />

Once both of the parties have substantially complied with their respective Second Requests, the agency reviewing the<br />

transaction has 30 additional days (10 days in the case of a cash tender offer or bankruptcy matter), or longer if the parties<br />

and the agency so agree (usually pursuant to a so-called “timing agreement”), to continue its investigation. Typically,<br />

during the period that the parties are compiling information responsive to their Second Requests and subsequent waiting<br />

period, the parties and the agency will discuss potential remedies to resolve the agency’s concerns. At the end of this<br />

second waiting period, the agency may take no action, the parties and the agency may agree to resolve the agency’s<br />

concerns on certain terms, or the agency may sue to try to block the transaction.<br />

Parties are often under intense pressure to close a transaction as quickly as possible, for example, to preserve customers<br />

and suppliers and stem key personnel departures. Parties have utilised a number approaches to try to resolve agency<br />

antitrust concerns earlier rather than later, and prior to issuance of a Second Request, or before having to substantially<br />

comply with a burdensome Second Request.<br />

Strategies to Try to Resolve Agency Antitrust Concerns Early and Avoid a Second Request.<br />

By involving antitrust counsel in deal planning, parties can develop various strategies to try to resolve likely agency antitrust<br />

concerns early on in the merger review process, and potentially avoid issuance of a Second Request.<br />

Voluntarily Approach Agency. Thirty days may not be enough time for the parties to get the agencies comfortable with a<br />

proposed transaction, particularly complicated transactions. One approach that parties sometimes take is to voluntarily<br />

approach the agencies in advance of making their HSR filings to try to educate the agency about the proposed transaction<br />

and to try to focus the agency on key facts and circumstances that the parties believe should lead the agency not to oppose<br />

the proposed transaction or to resolve any agency concerns on terms acceptable to the parties. Even if early engagement<br />

with the agency does not resolve all potential antitrust concerns, early advocacy may significantly narrow the scope of a<br />

Second Request.<br />

Parties considering employing such a strategy, however, should first carefully consider the potential downsides to such a<br />

strategy. There are no guarantees that early involvement of agency staff attorneys reviewing a transaction will result in<br />

termination of the waiting period in the first 30 days. It may only give the agency more time to prepare to litigate to stop<br />

a proposed transaction. Furthermore, such an approach could complicate business issues between the parties. For example,<br />

if the parties have not yet signed a definitive merger agreement, agency resistance to a proposed transaction may lead to<br />

a dispute between the parties on antitrust risk and other deal terms in the merger agreement.<br />

Pull and Refile. After the parties have made their respective HSR filings and the initial statutory 30-day waiting period is<br />

coming to an end, parties seeking to resolve agency concerns prior to the issuance of a Second Request may elect to “pull<br />

and refile” their HSR filings. This re-starts the 30-day initial waiting period and delays the need for the agencies to issue<br />

a Second Request. It is common for parties to pull and refile their HSR filing if they believe that they can resolve agency<br />

concerns within the next 30 days. There is no fee to pull and refile once, although additional filing fees are incurred if<br />

parties pull and refile two or more times.<br />

Voluntary Resolution Prior to Issuance of a Second Request. Parties seeking fast resolution of agency concerns may elect<br />

to voluntarily settle with the reviewing agency via a fix-it-first, consent decree, or other method discussed immediately<br />

below.<br />

Agency Remedies Guides. The DOJ and FTC have separately issued guides discussing the types of remedies that the<br />

respective agencies will consider in resolving agency concerns with a proposed transaction.<br />

DOJ Revised Remedies Guide. In June 2011, the DOJ released an updated version of its Policy Guide to <strong>Merger</strong> Remedies<br />

(“2011 Remedies Guide”) to “reflect[] the changes in the merger landscape and the lessons the division has learned”.<br />

DOJ, Antitrust Division Policy Guide to <strong>Merger</strong> Remedies (June 2011), available at<br />

http://www.justice.gov/atr/public/guidelines/272350.pdf. This replaces the DOJ’s 2004 Remedies Guide (DOJ, Antitrust<br />

Division Policy Guide to <strong>Merger</strong> Remedies (Oct. 2004), available at<br />

http://www.justice.gov/atr/public/guidelines/205108.htm). The 2011 Remedies Guide provides parties contemplating a<br />

merger with potential new opportunities and challenges. By officially accepting conduct remedies in certain circumstances,<br />

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the DOJ has opened the door to more innovative remedies that may help a company avoid more significant or disruptive<br />

structural remedies. At the same time, merging parties may now face monitoring and compliance costs long after a<br />

transaction has closed.<br />

Structural remedies were preferred in the 2004 Remedies Guide. Structural remedies involve the sale of physical or intellectual<br />

property assets by the merging firms to ensure that a proposed transaction will not substantially lessen competition in the<br />

relevant market(s). The DOJ has generally preferred that structural divestitures include the sale of assets that were existing<br />

business entities with a proven capacity to be an effective, long-term competitor in the market. As the 2004 Remedies Guide<br />

made clear, the DOJ favoured structural remedies “because they are relatively clean and certain, and generally avoid costly<br />

government entanglement in the market”. Id. at III.A. On the other hand, the 2004 Remedies Guide disfavoured conduct<br />

remedies, which involve legal obligations that limit the merged entity’s post-consummation business conduct, describing them<br />

as “more difficult to craft, more cumbersome and costly to administer, and easier than a structural remedy to circumvent”. Id.<br />

The 2011 Remedies Guide eliminates the stated preference for structural remedies; now structural remedies may be used<br />

in some situations and conduct remedies may be more appropriate in others. According to the 2011 Remedies Guide,<br />

structural remedies (e.g., divestiture of physical plants or divestiture of intangibles such as patents) are generally more<br />

appropriate to address horizontal concerns, and conduct remedies are generally more appropriate to address vertical<br />

concerns. However, the 2011 Remedies Guide indicates that neither of these remedies is exclusive. Indeed, the 2011<br />

Remedies Guide embraces “hybrid remedies” – a combination of structural and conduct remedies – where warranted under<br />

the circumstances.<br />

The 2011 Remedies Guide also provides a detailed description of the type of conduct remedies that the DOJ has considered<br />

in resolving competitive issues, including:<br />

• Firewall Provisions: Limit the degree to which competitively-sensitive information may be shared within a firm<br />

(2011 Remedies Guide at 13).<br />

• Non-Discrimination Provisions:<br />

competitors (id. at 14).<br />

Require that the merged firm deal on equal terms with others, typically<br />

• Mandatory Licensing Provisions: Assure that the merged firm will license key technology or other assets on fair<br />

and reasonable terms to competitors (id. at 15).<br />

• Transparency Provisions: Require that the merged firm provide information to regulatory authorities that it would<br />

not otherwise be required to disclose (id. at 16).<br />

• Anti-Retaliation Provisions: Prevent the merged firm from retaliating against customers or others for either<br />

entering into agreements with the merged firm’s competitors or providing information to the DOJ (id. at 16).<br />

• Prohibitions on Certain Contracting Practices:<br />

restrictive or exclusive contracts (id. at 17).<br />

Generally restrict the merged firm from entering into certain<br />

• Other Types of Conduct Remedies: The 2011 Remedies Guide emphasises that the DOJ is open to other proposed<br />

conduct remedies, including, for example, provisions requiring notice of otherwise non-reportable transactions and<br />

supply contracts (id. at 17).<br />

Recent DOJ merger enforcement actions reflect the DOJ’s increased acceptance of conduct and hybrid remedies. For<br />

example:<br />

• In United States v. Comcast, the DOJ approved a proposed joint venture between cable service provider Comcast<br />

and entertainment content provider NBC, subject to the parties licensing programming to online and on-demand<br />

video distributors and certain conduct relief. United States v. Comcast, No. 1:11-cv-00106 (D.D.C. June 29, 2011).<br />

• In United States v. Google, the DOJ approved Google’s proposed acquisition of software developer ITA, subject to<br />

a number of commitments to ensure ongoing access for current ITA licensees and to ensure that new entrants could<br />

obtain the same software on fair, reasonable, and non-discriminatory terms. United States v. Google, Inc., No. 1:11cv-00688<br />

(D.D.C. Apr. 8, 2011).<br />

• In United States v. Ticketmaster Entertainment, the DOJ approved a proposed merger between Ticketmaster, the<br />

nation’s largest ticketing service, and Live Nation, the country’s largest concert promoter, subject to, among other<br />

things, Ticketmaster’s agreement to license its ticketing software to a competitor and to comply with 10-year antiretaliation<br />

provisions that prohibit anticompetitive bundling. United States v. Ticketmaster Entertainment, Inc., No.<br />

1:10-cv-00139 (D.C.C. July 30, 2010).<br />

Because conduct remedies require more monitoring than structural remedies, the 2011 Remedies Guide has concentrated<br />

the authority to evaluate and oversee all DOJ remedies in the DOJ Antitrust Division’s Office of the General Counsel.<br />

The Office of the General Counsel will advise on remedy negotiations, as well as directly oversee the litigation sections’<br />

continuing review of decree compliance and violations. In this respect, the DOJ’s Office of the General Counsel will<br />

function similarly to the FTC’s Compliance Division, which negotiates and enforces consent decrees, perhaps a reflection<br />

of the FTC background of Assistant Attorney General Varney and her staff.<br />

The 2011 Remedies Guide also indicate a change from the 2004 Remedies Guide regarding the use of “crown jewel”<br />

provisions. In general, a consent order must identify all of the assets necessary for a purchaser to effectively preserve<br />

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competition. The 2011 Remedies Guide states that if an acceptable purchaser cannot be found for the package, the parties<br />

may have to include additional valuable assets (i.e., “crown jewels”), beyond those overlap assets needed to be divested<br />

to ensure continued effective competition, in order to increase the likelihood that a third-party purchaser will emerge. See<br />

2011 DOJ Remedies Guide at 24-25. This stands in contrast to the 2004 Remedies Guide which “strongly disfavours” the<br />

use of crown jewel provisions. See 2004 Remedies Guide at IV.H.<br />

FTC Remedies Guides. The FTC Bureau of Competition has published two merger remedies guides: (1) Statement of the<br />

Federal Trade Commission’s Bureau of Competition on Negotiating <strong>Merger</strong> Remedies (Apr. 2, 2003), available at<br />

http://www.ftc.gov/bc/bestpractices/bestpractices030401.shtm, and (2) Frequently Asked Questions About <strong>Merger</strong> Consent<br />

Order Provisions, available at www.ftc.gov/bc/mergerfaq.htm. Although these guides focus primarily on remedies<br />

involving asset divestitures, recent FTC actions indicate that the FTC will also use conduct remedies to resolve competitive<br />

concerns raised by a proposed transaction. For example, last year the FTC agreed to accept conduct remedies to resolve<br />

concerns regarding PepsiCo’s proposed acquisition of its two largest independent bottlers and distributors. In the Matter<br />

of PepsiCo, Inc., FTC File No. 091 0133 (FTC agreeing to accept a firewall restricting PepsiCo’s access to the confidential<br />

business information that the bottlers and distributors receive from PepsiCo’s competitors, such as Dr Pepper/Seven Up),<br />

available at http://www.ftc.gov/os/caselist/0910133/index.shtm.<br />

The DOJ’s 2011 <strong>Merger</strong> Remedies diverge from the 2003 FTC Guide in that the DOJ indicates that in some cases an<br />

upfront buyer may be appropriate (although not required). The FTC however, generally requires an upfront buyer before<br />

the FTC will accept a consent agreement. This requires the purchaser to engage in a time-consuming process of identifying<br />

a divestiture buyer and negotiating and executing an agreement before presenting the buyer to the FTC. The FTC staff<br />

will then review the proposed package.<br />

Fix-It-<strong>First</strong> Remedies. The DOJ explicitly recognises that mergers raising potential antitrust issues may under certain<br />

circumstances be resolved via a “fix-it-first” remedy – a structural solution (as opposed to conduct or hybrid remedies)<br />

that allows the parties to close a transaction without a formal complaint or consent order. See 2011 DOJ Remedies Guide<br />

at 22-23. The DOJ must be satisfied that the fix-it-first remedy will effectively preserve competition. Id. Fix-it-first<br />

remedies, where possible, allow faster, more flexible remedies with no reporting or compliance obligations postconsummation.<br />

The FTC does not have a formal policy on fix-it-first remedies. In rare instances, parties to a proposed<br />

transaction have sold off overlapping assets at which point the FTC decided that no additional relief was needed, without<br />

requiring a formal order.<br />

Key policy developments<br />

There have been a number of noteworthy key policy developments affecting mergers recently, including the revision of<br />

the DOJ and FTC Horizontal <strong>Merger</strong> Guidelines, an increase in agency reviews and challenges of non-reportable or<br />

consummated transactions, an increase in agency use of information gathered during merger investigations to open other<br />

investigations, an increase in the use of behavioural and hybrid remedies by the agencies, and an increase in cooperation<br />

in international merger enforcement. These key developments are discussed in turn, below.<br />

Revised Horizontal <strong>Merger</strong> Guidelines.<br />

As noted in section 4 above, the DOJ and FTC last year issued revised Horizontal <strong>Merger</strong> Guidelines, the first major<br />

revision of the Guidelines since 1992. The revised Guidelines are particularly noteworthy in that they provide a more<br />

detailed discussion of the economic tests and analyses that the agencies may use in assessing a proposed transaction, as<br />

well as an upward revision of the Herfindahl Hirschman Index (“HHI”) market concentration thresholds. For a more<br />

detailed discussion of these changes, see the section under “Key economic appraisal techniques applied”.<br />

The revised Guidelines also provide an expanded discussion of potential competitive issues relating to, among other things:<br />

• targeted customers, i.e., price discrimination (Guidelines § 3);<br />

• unilateral effects (id. § 6);<br />

• coordinated effects (id. § 7);<br />

• the significance of power buyers (id. § 8);<br />

• mergers of competing buyers, i.e., potential monopsony concerns (id. § 12); and<br />

• partial acquisitions (id. § 13).<br />

Increased review and challenge of small non-reportable transactions.<br />

As noted above, the HSR Act only requires that transactions meeting certain notification thresholds be reported to the<br />

antitrust agencies. However, under Section 7 of the Clayton Act, the agencies can review and challenge transactions that<br />

are not reportable (i.e., that fall below the notification thresholds), including consummated transactions. During the Obama<br />

Administration, there has been a trend for the DOJ and FTC to investigate and challenge smaller non-reportable<br />

transactions. The agencies have challenged consummated mergers in a variety of industries, including transactions with<br />

relatively low deal values. For example:<br />

• The DOJ recently sued to unwind the $3 million purchase of a Virginia chicken processing facility. United States<br />

v. George’s Foods, LLC et al., No. 5:11-cv-00043-gec (W.D. Va. May 10, 2011) available at<br />

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http://www.justice.gov/atr/cases/f270900/270983.pdf;<br />

• the FTC recently sued to block the $29 million purchase of a company that produces education marketing databases.<br />

In the Matter of The Dunn & Bradstreet Corp., FTC Docket No. 9342 (May 7, 2010), available at<br />

http://www.ftc.gov/os/adjpro/d9342/100507dunbradstreetcmpt.pdf; and<br />

• the DOJ (and certain State Attorneys General) challenged and required divestitures in a $5 million consummated<br />

merger involving voting equipment. United States v. Election Sys. And Software, Inc., No. 1:10-cv-00380 (D.D.C.<br />

Mar. 8, 2010) available at http://www.justice.gov/atr/cases/ess.htm.<br />

The DOJ and FTC in the first two years of the Obama Administration have challenged more non-reportable mergers than<br />

during the first seven years of the Bush Administration. These challenges involved a wide range of industries, including<br />

dairy processing, chemicals, pharmaceuticals, medical products and devices, and educational marketing, in addition to<br />

those noted above.<br />

Depending on the circumstances, parties to smaller non-reportable transactions who want greater transparency into the<br />

enforcement intentions of the agencies may elect to bring a proposed transaction to the attention of the agencies. Parties<br />

considering such an approach, however, should be aware this strategy could present its own risks, including the possibility<br />

of a lengthy investigation not governed by statutory deadlines during which the parties would not realise the benefits of<br />

any contemplated synergies and efficiencies. Regardless whether the parties to a smaller non-reportable transaction<br />

approach the agencies prior to consummating their transaction, the parties should assess the antitrust risks and costs<br />

associated with defending any transaction raising substantive antitrust issues against a potential agency investigation and<br />

litigation, including the possibility of “unscrambling the eggs” if the transaction has been consummated and the operations<br />

of the parties have integrated.<br />

Increased use of information gathered during merger investigations to open other investigations.<br />

If a merger investigation progresses beyond the initial HSR waiting period, the parties are likely to receive a Second<br />

Request. A Second Request generally requires the parties to produce significant volumes of business documents and other<br />

information to facilitate an investigation of the transaction by the antitrust authorities. The HSR Act exempts most materials<br />

obtained during merger review from disclosure under the Freedom of Information Act and generally prohibits their public<br />

disclosure except “as may be relevant to any administrative or judicial action or proceeding”. 15 U.S.C. § 18a(h). Similarly,<br />

information provided pursuant to a Civil Investigative Demand, while generally exempt from public disclosure, may be<br />

shared by the DOJ with the FTC, and may be used for “official use in connection with court cases, grand juries, or a federal<br />

administrative or regulatory proceeding in which the DOJ is involved”. DOJ Antitrust Division Manual (4th ed. 2008) at<br />

III-66. Consequently, the agencies may refer information or documents to each other for ancillary investigations. For<br />

example, the FTC may refer possible criminal violations of the antitrust laws, gleaned from business documents received<br />

pursuant to a merger investigation, to the DOJ. In recent years, information gathered during merger investigations (and<br />

other investigations) has been used to open civil and criminal investigations of other potential antitrust violations. Thus,<br />

it is important that a company consider its potential exposure for previous antitrust violations when contemplating a merger<br />

of its own or complaining about a proposed transaction to the agencies.<br />

Increased use of behavioural and hybrid remedies.<br />

In response to a number of recent vertical mergers seeking to take advantage of vertical synergies and efficiencies, the<br />

DOJ and FTC have increasingly entered into consent decrees with merging parties that include “behavioural” or “conduct”<br />

remedies, ranging from licensing provisions to reporting obligations. In mergers that raise both vertical and horizontal<br />

concerns, the agencies have instituted hybrid remedies that include both behavioural remedies and traditional structural<br />

remedies, such as divestiture. For example, in the Ticketmaster/Live Nation merger, combining the largest ticketing<br />

company and a major promoter and venue owner, the hybrid remedy approved by the DOJ required the divestiture of<br />

certain ticketing assets, an agreement by the parties to license ticketing software, and compliance with 10-year antiretaliation<br />

provision prohibiting anticompetitive bundling. The use of these remedies is covered extensively under<br />

“Approach to remedies” above, in the discussion of the DOJ’s Revised Remedies Guidelines.<br />

Increasing international collaboration.<br />

The burdens and complexities of multi-jurisdictional merger review and notification continue to create major concerns<br />

and costs for companies around the world. Competition enforcement agencies worldwide are making efforts to address<br />

these concerns. For example, the International Competition Network (“ICN”) is working to harmonise merger review<br />

procedures and practices. The ICN’s purpose is to provide support for competition agencies in crafting enforcement<br />

regimes and assisting with the development of strong competition cultures. See, e.g., Memorandum on the Establishment<br />

and Operation of the International Competition Network, at 1, available at<br />

http://www.internationalcompetitionnetwork.org/media/library/mou.pdf. The growth of the ICN and its efforts at<br />

convergence in merger review continue to create opportunities for reducing the burden on parties faced with multijurisdictional<br />

review of cross-border transactions. There is a risk, however, that with increased convergence, there are<br />

more opportunities for competition agencies to review cross-border transactions, increasing the burden of multijurisdictional<br />

review on the merging parties. See J. Mark Gidley & George L. Paul, Worldwide <strong>Merger</strong> Notification<br />

Requirements (2008).<br />

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Since 2010, for example, the DOJ has conducted reviews of mergers in collaboration with:<br />

• the Canadian Competition Bureau (Ticketmaster/Live Nation);<br />

• the European Commission (Cisco/Tandberg);<br />

• the German Federal Cartel Office (CPTN/Novell); and<br />

• the antitrust authorities of Mexico, the United Kingdom, and South Africa (Alberto Culver/Unilever), among others.<br />

Furthermore, the US continues to lay the foundation for cooperation with countries with emerging antitrust frameworks,<br />

entering into memorandums of understanding with the Russian competition authority in 2009 and with China’s antitrust<br />

agencies in the summer of 2011. In addition, the US is in discussions with India about entering into a similar agreement.<br />

Reform proposals<br />

Streamlined Clearance Mechanism<br />

Traditionally, if both the DOJ and FTC want to review a given transaction, the matter is assigned through a liaison process,<br />

and one of the two agencies is granted the investigation. This process is known as “clearance”. Clearance is not an issue with<br />

most mergers. The agencies over time have respectively developed significant experience with certain industries and familiarity<br />

with certain companies. As a result, it is often fairly easy to predict which agency will review a given transaction. (For example,<br />

transactions in the steel industry are usually reviewed by the DOJ and transactions in the pharmaceutical industry are usually<br />

reviewed by the FTC.) If there is a clearance battle, however, the parties to a transaction can become caught in the middle of<br />

a bureaucratic turf war. For the parties to the transaction, a clearance battle can result in a potentially significant delay of up<br />

to 30 days before the companies even know which agency will review their transaction, and this delay can significantly adversely<br />

affect the ability of the companies to try to resolve substantive competitive issues before the agency reviewing the merger must<br />

issue a Second Request (or otherwise let the transaction close).<br />

There have been, and continue to be, discussions about a streamlined clearance mechanism to ensure timely resolution of<br />

potential clearance battles. In 2002, then-FTC Commissioner Timothy Muris and DOJ Assistant Attorney General Charles<br />

James attempted to streamline the merger clearance process by dividing jurisdiction over mergers by industry. The 2002<br />

Accord was ill-fated; a few months after announcing the agreement, it was abandoned, largely attributed to political<br />

pressure from Congress. Almost a decade later, antitrust practitioners and their clients still face uncertainty, particularly<br />

in new and evolving industries. On one extreme, some practitioners have advocated moving all merger review authority<br />

to the DOJ, and thereby circumventing any merger clearance battles. As a practical matter, it seems unlikely that such a<br />

proposal would succeed, due at least in part to likely political opposition. A less extreme approach would be to revisit a<br />

division of responsibility between the DOJ and FTC by industry and experience through a formal notice-and-comment<br />

rulemaking process.<br />

Reforms to the FTC Part III Litigation Process<br />

Many antitrust practitioners believe that the same transaction reviewed by the DOJ and FTC could well result in different<br />

outcomes. A major reason for this – in addition to differences in the substantive analysis of the agencies and potentially<br />

differing standards required for injunctive relief in federal court, and different processes and requirements for obtaining<br />

consent decrees – is the practice of FTC to bring administrative litigation to determine the legality of a proposed transaction,<br />

sometimes at the same time that the FTC is bringing a challenge in federal court. See, e.g., FTC v. Inova (E.D. Va. 2008).<br />

Such administrative litigation, referred to as Part III proceedings, commonly takes significantly longer than federal litigation<br />

seeking to enjoin a proposed transaction. See, e.g., J. Thomas Rosch, Reflections on Procedure at the Federal Trade<br />

Commission, ABA Antitrust Masters Course IV (Sept. 25, 2008) at 3 (“The average part 3 proceeding in the last 10 years<br />

has lasted 33.5 months from complaint through Commission decision (which may then be appealed to the federal appellate<br />

courts). That compares with the average federal court antitrust case, which lasted 24 months from complaint through<br />

district court judgment (which may then be appealed to the federal appellate courts).”). As a result, the timeline of a<br />

merger reviewed and challenged by the DOJ is often significantly shorter than by the FTC.<br />

Thus, parties to a merger challenged by the FTC may not only be faced with litigation on two separate fronts (federal<br />

court injunctive action and administrative litigation) for the same proposed transaction, but also face the specter that even<br />

if they succeed in federal court, the proposed transaction could be found to be unlawful many months or even years later<br />

by the FTC. See, e.g., J. Thomas Rosch, A Peek Inside: One Commissioner’s Perspective on the Commission’s Roles as<br />

Prosecutor and Judge, NERA 2008 Antitrust & Trade Regulation Seminar (July 3, 2008) at 13-14 (“the Commission has<br />

arguably abdicated its judicial responsibilities and has instead allowed federal district courts to usurp them” as a result of<br />

the FTC’s policy of not pursuing plenary administrative proceedings following the denial of a preliminary injunction by<br />

a federal district judge). The uncertainty of such a result, potentially years down the line, can be tremendously unnerving<br />

to merging firms. This heightened anxiety and risk has been enhanced by recent FTC actions such as the FTC’s opposition<br />

in Inova to file contemporaneous federal court and administrative challenges.<br />

In 2001 and in 2009, the FTC purported to streamline its timelines for a Part III administrative proceeding. This change<br />

may result in tighter timelines for the parties, but even at a minimum, under the FTC’s new streamlined rules, Part III<br />

proceedings can result in an additional delay of up to three months or longer. See FTC v. Laboratory Corporation of<br />

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America, Case No. SACV 10-1873 AG, slip op. at 105, (C.D. Ca. Feb. 22, 2011) (stating that the FTC’s Part III<br />

proceedings are too slow to afford a timely resolution for the parties, and noting that “[w]hile the FTC rules were changed<br />

about two years ago in part to speed up the administrative process … that process remains a long, drawn-out ordeal. Each<br />

of the FTC’s post-consummation merger challenges over the past ten years has lasted at least two years and one lasted<br />

over seven years”). Parties facing a merger review by the FTC will also likely be forced to expend additional resources<br />

to simultaneously litigate an administrative proceeding before an administrative law judge at the FTC in addition to the<br />

federal court challenge over the same transaction.<br />

Suggested reforms include amending the FTC Act to abolish Part III litigation altogether, in an effort to converge the FTC<br />

with the DOJ’s enforcement powers. For example, the Antitrust Modernization Commission suggested that all FTC merger<br />

challenges be tried in the federal district courts instead of in Part III proceedings. See, e.g., J. Thomas Rosch, Reflections<br />

on Procedure at the Federal Trade Commission, ABA Masters Course IV (Sept. 25, 2008) at 4 (citing ANTITRUST<br />

MODERNIZATION COMMISION, REPORT AND RECOMMENDATIONS, Ch. II.A at 131 (April 2007)).<br />

Recently, momentum may be shifting in favour of considering a legislative solution to address the differences between<br />

DOJ and FTC merger reviews. Departing DOJ Assistant Attorney General Christine Varney, in a recent address, urged<br />

the US Congress to address the problem of “potentially substantively different legal standards” at the DOJ and FTC.<br />

Jacqueline Bell, Varney Defends Record, Counters <strong>Merger</strong> Review Critics, Competition Law 360 (July 12, 2011). Without<br />

recommending specific proposals, Varney stated: “I don’t think we want to foster a system where the result of your merger<br />

… depends on which agency it’s in front of. I would recommend to the Congress that they start to think about how to<br />

rationalize that.” Id.<br />

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J. Mark Gidley<br />

Tel: +1 202 626 2609 / Email: mgidley@whitecase.com<br />

Mark Gidley heads White & Case’s Global Antitrust/Competition Practice with his work focusing on<br />

mergers, acquisitions, and cartel cases, typically with a transnational focus, including work involving<br />

the European, Canadian, Korean, and Japanese authorities. He served in antitrust-related positions within<br />

the US Department of Justice from 1990 to 1993, serving as Deputy Assistant Attorney General for<br />

Regulatory Affairs, 1991-92, and Acting Assistant Attorney General for the Antitrust Division, 1992-<br />

93. In addition to his mergers and acquisitions work, recent victories include representing Stolt-Nielsen<br />

in a landmark win upholding the enforceability of its amnesty contract with the Antitrust Division after<br />

a three-week criminal trial recognised by The National Law Journal as a leading defence trial victory in<br />

2008. His trial work also includes the first US trial victory involving antitrust claims against brandedgeneric<br />

pharmaceutical settlements, defending the Schering-Plough/Upsher-Smith settlement, and on<br />

the appeal against the FTC in the Eleventh Circuit (2005). In 2010, he won the first-ever dismissal of<br />

an FTC “reverse payment” suit in the AndroGel® case, which The Financial Times selected as one of<br />

2010’s Most Innovative US legal matters.<br />

George L. Paul<br />

Tel: +1 202 626 3656 / Email: gpaul@whitecase.com<br />

George Paul is an antitrust lawyer with White & Case’s Global Antitrust/Competition Practice, advising<br />

clients on a range of international competition issues, including litigation, merger clearances, and criminal<br />

defence, often involving multiple competition agencies across the globe. Mr. Paul has significant<br />

experience in antitrust counselling and litigation arising from US and cross-border mergers and joint<br />

ventures. He regularly advises clients on merger control filings for cross-border transactions and<br />

coordinates their HSR and international filings efforts. Mr. Paul regularly counsels companies and<br />

individuals on criminal antitrust matters before enforcement agencies from around the world as well,<br />

including the US Department of Justice, EU, Australia, Japan, Canada, Korea, New Zealand, and South<br />

Africa. He works closely with the Firm’s international offices in defending global clients in criminal<br />

antitrust grand jury investigations in the United States and has advised clients facing global cartel<br />

investigations. He has handled complex antitrust issues for numerous companies in a variety of<br />

industries, such as retailing, paper and pulp, mining services, petrochemicals, consumer products and<br />

electronics.<br />

White & Case LLP<br />

701 Thirteenth Street NW, Washington, DC 2000, USA<br />

Tel: +1 202 626 3600 / Fax: +1 202 639 9355 / URL: http://www.whitecase.com<br />

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NOTES<br />

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NOTES<br />

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NOTES<br />

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