Cross-border mergers frequently trigger pre-closing antitrust reviews. Such reviews are complex and can be fraught with risk. With more than 90 countries now having obligatory premerger filing requirements, different substantive and procedural regimes can make a multijurisdictional transaction an expensive and time-consuming process.
It is common these days, in both developed and emerging market economies, to have merger control laws. Additionally, national competition authorities around the world are moving closer to a ‘‘common competition culture.” Now that doing business often means doing business globally, preparation for multijurisdictional filings should be a routine part of the overall business strategies developed by companies and their advisers. As a result, organizations involved in mergers and acquisitions need to be aware of new developments taking place in the various merger regimes around the world.
India: Merger Regulations amendments dated 23 February 2012
In February 2012, several amendments were introduced to the Competition Commission of India (Procedure in regard to the transaction of businesses relating to combinations) Regulations, 2011 (“Combination Regulations”).
The Amended Combination Regulations provide for two different notification forms; Form I (short form) and Form II (long form). The earlier version of the Combination Regulations provided that the Competition Commission of India (“CCI”) could direct the parties to file a Form II notification and the time required to file such notice would be excluded from the calculation of the time period under which the CCI is required to pass orders . One of the key amendments that has been made which will have an effect on the time required for issue of orders is that when the CCI directs the parties to file a Form II notification the time required for issue of orders will ‘commence’ only from the date of the receipt of notice in Form II. This means that the time during which the CCI was examining the same transaction filed under Form I will no longer be relevant and the clock will start again after the Form II notification. Hence the Parties will need to carefully follow the guidance provided in the
Amended Combination Regulations as to the circumstances in which the CCI advices that a Form II filing is ‘preferred’. The Amended Combination Regulations provide two instances where a Form II is preferable and these are as follows:
- where the parties to a combination are engaged in the production, supply, distribution, storage, sale or trade of similar or identical or substitutable goods/service and the combined market share of the parties to the combination is more than 15%;
- where the parties to a combination are engaged at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or trade in goods or provision of services and their individual or combined market share is more than 25%
Schedule I lists a number of circumstances which are not likely to cause an appreciable adverse effect on competition, and therefore, ‘normally’ do not require filing. Schedule I has been amended to include the following:
- Acquisitions which do not entitle the acquirer to hold 25% or more of the total shares or voting rights of the target, while not acquiring control. Previously the threshold was acquisitions where the total shares or voting rights held by the acquirer exceeded 15%.
- Acquisitions of shares and voting rights pursuant to a buy-back, and subscriptions to rights issues of shares, provided they do not lead to an acquisition of control.
- Certain intra-group mergers, in particular, intra-group mergers involving subsidiaries which are wholly-owned by the holding company or by enterprises within the same group. This appears to ‘exempt’ mergers between (i) a holding company and a directly or indirectly wholly-owned subsidiary of the same group and (ii) subsidiaries wholly-owned by the same group. The Regulations previously ‘exempted’ acquisitions of shares, voting rights or assets within the same group but did not refer to amalgamations or mergers. It is to be noted that the exemption is limited to only mergers and amalgamations of wholly owned subsidiaries amongst themselves or with their parent company.
Merger fees are also significantly increased from 50,000 rupees (approx. $1,073 / €771) to 1,000,000 rupees (approx. $21,453 / €15,412) for Form I notices and from 1,000,000 rupees (approx. $21,453 / €15,412) to 4,000,000 rupees (approx. $85,812 / €61,647) for Form II notices.
Brazil : Pre-closing filing system effective on 29 May 2012
As announced in MMF November 2011, the Brazilian Congress approved a new competition law in October 2011. Key amendments included the adoption of a mandatory pre-closing filing system, the setting up of new jurisdictional thresholds, the elimination of the former market share test and the definition of review deadlines.
The Brazilian President signed the enrolled bill on 30 November 2011 and the law was published in the Official Gazette on 1st December 2011. The transactions subject to merger review shall be reviewed by CADE within 330 (240 days + 90 days maximum extension) days. Despite the Presidential veto to the provision that disposed about the automatic approval if CADE failed to reach a conclusion within the referred term, CADE and its Federal Attorney’s Office already confirmed that the 330-day term will be respected, subject to automatic approval of the transaction.
The new law is to enter into force on 29 May 2012.
Russia: de minimis exemption for foreign-toforeign transaction
The Third Antimonopoly package entered into force on 6 and 7 January 2012. The filing thresholds have been increased for all transactions which should be notified only when global assets of either party exceeds 7 billion roubles (approx. $234 million / €171 million) or global turnover of either party exceeds 10 billion roubles (approx. $333 million / €245 million). Among the other amendments announced in MMF July 2011, the de minimis exemption concerning foreign-to-foreign transaction has been adopted. The merger control filing is now only required for overseas transactions involving companies that supplied goods to Russia, but have no subsidiaries or assets in the country, in a amount exceeding 1 billion roubles (approx. $34 million / €24,4 million) during the year preceding the date of the transaction execution.
China : Penalties now likely if transactions are closed without prior anti-monopoly approval
On 5 January 2012, Mofcom published Interim Measures for Investigating and Disposing of Suspected Concentration of Business Operators Failing to Be Notified in Accordance with law, that came into effect on 1 February 2012.
According to the Interim Measures, Mofcom may enquire into a merger where a third party reports a believed “failure to notify” situation to Mofcom, or on its own initiative. In such circumstances, Mofcom will, if it considers there is a sufficient basis to believe that the notification obligation has been infringed, notify the relevant business operators involved in the transaction of the investigation, and provide them with an opportunity to explain the failure to notify within 30 days. Within 60 days of the response, Mofcom is then required to complete its initial investigation on this issue.
If Mofcom determines that there has been an infringement of the notification obligation, the relevant business operators will be required to submit the notification documents in relation to the application within 30 days and Mofcom may impose a fine up to RMB 500,000 (approx. $77,367 / €55,580) on such business operators and order them to take relevant measures to restore the pre-transaction situation.
According to the Interim Measures, whether or not a fine or other penalty is imposed will be determined taking into account such factors as the nature, degree and duration of the infringement conduct, as well as the result of assessment on competition impact.
Mofcom may also conduct raids on the premises of the relevant business operators as part of their investigation into suspected infringements.
Germany: New Merger Control Guidelines
On 29 April 2012, the Federal Cartel Office adopted new Merger Control Guidelines (“Guidelines”). The new Guidelines replace a previous document containing principles on the assessment of market power from 2000. The Guidelines reflect the growing importance of economic concepts and an overall assessment of the market situation for merger investigations (see Client Alert of 2 April 2012). As the Guidelines are based on the current merger control practice of the Federal Cartel Office, they are not expected to bring about any changes.
In parallel, amendments to the Act Against Restraints of Competition are on their way (see MMF Update November 2011). The Federal Cabinet passed a draft law on 28 April 2012. Changes include the introduction of the “significant impediment of effective competition”-test (SIEC-Test) to German merger control. The SIEC-Test would replace the dominance test, i.e. whether or not the merger will create or reinforce a dominant market position. The Guidelines are however based on the assessment of concentrations pursuant to the dominance test. They are going to be reviewed once the SIEC-Test has been implemented and relevant case law is available. Nonetheless, it seems that the introduction if the SIEC-Test would not substantially change the practice of the Federal Cartel Office. In the authorities’ view, the assessment of market dominance would still be an important element of the SIEC-Test.”
US. The Federal Trade Commission has released the annual jurisdictional adjustments for pre-merger notification filings (effective 27 February 2012):
- the transaction size test is increased from $66 million to $68.2 million (approx. €49 million); and
- the size of the parties test now requires one party to the merger to have at least $136.4 million (approx. €98 million) in total assets or annual net sales (instead of 131.9), and the other $13.6 million (approx. €9.8 million) (instead of 13.2); however, transactions valued more than $272.8 million (approx. €196 million) (instead of 263.8) are not subject to this test and are to be filed unless exempt.
Canada. New Canadian merger control thresholds came into effect on 11 February 2012. A merger has now to be notified to the competition authority when:
- the value of the assets in Canada or the annual gross revenue from sales in or from Canada of the target exceeds C$77 million (approx. €56 million) (“transaction size test”) ; and
- the parties have aggregate assets in Canada or annual gross revenue from sales in or from Canada exceeding C$400 million (approx. €291 million) (“size of the parties test”).
Slovakia. A new law came into effect on 1 January 2012. It notably replaces the former dominance test by a substantive impediment of effective competition test and reduces the timeframe for phase I review from 60 to 25 working days. The thresholds are also amended to focus more closely on transactions likely to have an impact in Slovakia:
- the turnover in Slovakia of at least two parties to the mergers exceeded €14 million each (approx. $19.5 million) and the aggregate turnover in Slovakia of all parties exceeds €46 million (approx. $64 million) (“Test 1”); or
- the turnover in Slovakia of at least one of the merging parties exceeds €14 million (approx. $19.5 million) and the worldwide turnover of the other exceeds €46 million (approx. $64 million) (“Test 2”).
Hungary. The Hungarian Merger Guidelines have been amended in January 2012, notably in order to introduce a simplified merger control process and a formal pre-notification system. Indeed, transactions with limited overlaps, either horizontal (parties’ combined market share inferior to 15%) or vertical (combined market shares inferior to 20%), qualify for a simplified and accelerated procedure. A pre-notification procedure has also been officially introduced in Hungary, allowing the companies involved in a merger to discuss the operation with the competition authority before any formal filing.