Merger Controls First Edition - J Sagar Associates

Boyanov & Co. Bulgaria
The CPC’s assessment of the merger was challenged before the Supreme Administrative Court by a major competitor
over allegations that it failed to take into account Lidl’s imminent expansion into Bulgaria, and also that it failed to
adjust market share data based on turnover, by reference to commercial space, but relied on data that the Decision
itself recognised may be distorted in some areas. The Supreme Administrative Court, in Judgment No. 11012/2011,
rejected all the arguments and upheld the Commission’s assessment of the relevant market and the methodology of its
analysis. In particular the court confirmed that the Commission was correct to use national average consumption data
to estimate the total size of the market, even though this data was likely to underestimate consumption in more affluent
areas, and overestimate consumption in less developed residential areas, since the hypothetical differences in
consumption would not yield a different result in terms of the existence or lack of dominance. The court further
confirmed that turnover was the real measure of market power. Finally the judgment underlined that the Commission
had done a prognostic analysis taking into account Lidl’s imminent expansion into Bulgaria, but that when assessing
a merger the competition authority’s analysis was limited to the effects that the merger itself would bring about in the
structure of the market, and not to the effects of other factors that would materialise even in the absence of the merger,
such as one of the parties’ organic expansion plans. The judgment was not appealed and has come into effect.
2010 also saw the biggest media merger in Bulgaria – the USD 400 million acquisition of bTV, the leading national
free-to-air television channel, by CME. In its Decision No. 385/08.04.2010, on Case KZK-177/2010, the CPC
authorised the acquisition on account of the fact that while the transaction would strengthen the existing dominant
position of the target in the television market, it would not result in a significant impediment to effective competition.
The concentration resulted in the local combination of CME’s existing free-to-air and pay-TV channels with those of
Balkan News Corporation, including bTV. The CPC found that the distinction between free-to-air and pay-TV channels,
in terms of their business model, was blurred in Bulgaria, since both of them derived revenues from advertising.
Advertising revenues was the principle basis on which the authority reviewed the market and held that viewer share
was only a secondary informative criterion, that had an interplay with advertising through the “currency” of gross
rating points (GRPs), which was the “commodity” purchased by advertisers to ensure the reach of their advertising.
The authority discounted publicly available data on gross advertising revenue, and conducted its own market study in
respect of net advertising revenue, which it considered the more reliable measure of the parties’ market power. As a
result, it held that the target’s share of advertising revenue was in excess of 58%, however, taking into account CME’s
pre-existing minor share of slightly more than 1%, the transaction would not bring about a tangible change in the
structure of the market. It also held that the combined group would continue to be subject to the significant competitive
pressure of the second biggest operator in Bulgaria – MTG.
Key economic appraisal techniques applied
The CPC’s assessment of mergers, including its officially published Methodology, remains largely focused on market
definition and market share analysis. Nonetheless, the CPC has always underlined that market shares are only the
starting point of the analysis and a number of other factors, in particular the structure of the market and the nature and
key driving forces of competition in it, may be decisive in respect of its final conclusions as regards the effects of the
merger. In this respect, the increasingly sophisticated analysis that the Bulgarian competition authority employs,
particularly in complex cases, drives it more and more towards more modern merger assessment techniques that
increasingly move away from the focus on delineating markets and estimating shares, towards a more global view of
the sources and effects of competition.
Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation
In accordance with the PCA, the CPC may impose remedies, directly related to the implementation of the concentration,
which are necessary to maintain effective competition and mitigate the negative impact of a concentration on the
affected market.
In a phase 1 (accelerated) proceeding, remedies can be offered only by the notifying party, where they are called
“changes” to the concentration. Presumably, such remedies may also be offered with the notification itself. If accepted
by the Commission, they can be attached as conditions and obligations to the clearance decision following phase 1
review.
If the review of the merger extends into a phase 2 proceeding, the CPC may, on its own discretion, impose conditions
and obligations attached to its clearance decision. While no strict procedure exists, the practice of the Commission
shows that even though it is not required by law to discuss proposed remedies, it does so in the interest of finding a
workable solution to competition concerns. Such remedies may also be proposed by the notifying party and accepted
by the Commission.
It should be underlined that the imposition of remedies is not linked directly to the merger test – creation or
strengthening of dominant position –, which would significantly impede effective competition. This has made it
possible for the Commission to impose remedies even in cases which do not lead to the creation or strengthening of
dominance, but which for various other reasons, could reduce effective competition (see Decision No. 63/25.03.2004
Global Legal Insights ­ Merger Control First Edition
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