The Slovenian merger control rules are set out in the Prevention of Restriction of Competition Act. The act entered into force on April 26 2008, replacing the 1999 act of the same name. The new act sets out substantive and procedural rules governing merger control; in terms of the latter, the act is supplemented by the General Administrative Procedure Act. The contents of the compulsory merger notification form - a questionnaire to which all merger notifications to the Competition Protection Office (CPO) must adhere - are set out in a government regulation.
The principal jurisdiction for control over mergers under the Prevention of Restriction of Competition Act lies with the CPO.(1) The CPO is an administrative body under the supervision of the Ministry of Economy. It is headed by a general director and employs 25 persons - mainly economists and lawyers. The CPO is internally organised into two divisions:
the division for economic analysis; and
the section for legal and investigative operations, which in turn contains an internal subdivision for investigative actions.
An amendment to the act aimed at restructuring the CPO into an independent agency has recently been passed by Parliament and the agency is scheduled to commence operation on January 1 2012.
Definition of a 'concentration'
With respect to concentrations, the act covers legal mergers, acquisitions and full-function joint ventures. More specifically, a 'concentration' occurs when:
- two or more previously independent undertakings merge;
- one or more persons already controlling at least one undertaking acquire - whether by purchase of shares, securities or assets, by contract or by any other means, direct or indirect - control of the whole or part of one or more other undertakings; or
- two or more undertakings create a joint venture that performs on a lasting basis all the functions of an autonomous economic entity.
Concept of control
Under the act, 'control' constitutes by rights, contracts or any other means that (either separately or in combination, and with regard to the facts or law involved) confer the possibility of exercising decisive influence over an undertaking, in particular by way of:
- ownership of the entire capital or of a capital interest;
- ownership of, or the right to use, all or part of the assets of an undertaking; or
- the right or contract that confers decisive influence on the voting or decisions of the bodies of an undertaking.
De facto and de iure control
Control typically results from the acquisition of a majority of the voting rights (ie, 50% plus one share), but can also be acquired via a minority shareholding on either a de iure basis (eg, a minority shareholding with special rights) or a de facto basis (holding a majority at a shareholders' meeting). Exercising decisive influence on an undertaking does not require 'visible' influence on the management of the company. For example, ownership of shares in a company that - in and of itself - allows a shareholder to achieve the passing of a resolution at a 'typical' shareholders' general assembly (in terms of shareholder presence) could suffice in order to establish the existence of sole control.
Joint control arises in situations where two or more undertakings - by virtue of shareholdings or contractual arrangements - can block strategic decisions of the target and therefore must reach a consensus on such decisions.
Two or more minority shareholders 'acting in concert' may also constitute joint control within the meaning of the act. In the absence of a formal shareholders' agreement, the CPO may take into account other circumstances (eg, the voting history or common interests pursued by shareholders) in order to establish whether the shareholders are or have been acting in concert.
A joint venture that was created by two or more undertakings and that performs, on a lasting basis, all functions of an autonomous economic entity (full-function joint venture) is defined as a 'concentration' within the meaning of the act.
Under the act, the establishment of a joint venture that aims to perform a concerted action of undertakings will be assessed in light of the prohibition on cartels. Should the CPO find that the following conditions for the exemption of restrictive agreements from prohibition are not met, the CPO will not approve such a concentration. These conditions include the improved production or distribution of goods and the promotion of technical and economic progress while allowing consumers a fair share of the resulting benefit, without:
imposing restrictions that are not indispensable to the attainment of these objectives; and
allowing such undertakings to eliminate competition in respect of a substantial part of the products or services covered by the agreement.
A concentration must be notified to the CPO if the parties thereto meet the following jurisdictional thresholds:
- The combined aggregate annual turnover of all undertakings concerned (including undertakings belonging to the same group) exceeded €35 million before tax on the Slovenian market in the business year preceding the concentration; and
- the annual turnover of the target (including undertakings belonging to the same group) exceeded €1 million on the Slovenian market in the preceding business year; or
- in the event of creation of a joint venture, the annual turnover of at least two participating undertakings (including undertakings belonging to the same groups) exceeded €1 million on the Slovenian market in the preceding business year.
For the purposes of turnover calculation, net revenues from the sale of products and services between group undertakings will be disregarded. For concentrations by acquisition, the turnover generated by the seller (ie, entities upstream of the target) will also be disregarded.
If a concentration does not meet the above thresholds, but the market share of the undertakings concerned exceeds 60% in Slovenia, Article 42.3 of the act provides for an implied obligation that the undertakings concerned must inform the CPO of the concentration (but not submit a formal notification). In such an event the CPO may request that a notification of the concentration occur within 15 days of it having been informed by the undertakings or having learned of the concentration from market sources. In either case the transaction must be suspended until clearance is obtained from the CPO. In spite of the ambiguous wording of the respective provision, the generally accepted interpretation is that no penalty may be incurred for the failure of undertakings to inform the CPO of a transaction falling within the scope of Article 42.3 of the act.
The notification obligation also applies in the absence of a substantive overlap.
If the relevant thresholds are met, notification to the CPO is mandatory. The only exception to the filing obligation applies to banks, insurance companies, savings institutions or other financial undertakings whose regular activities include trading securities on their own behalf or on behalf of others. No notification is required if such an institution acquires an equity interest in an undertaking for the purpose of resale, provided that:
it does not exercise voting rights stemming from such equity interest in order to affect the competitive actions of the undertaking in question; or
it exercises such voting rights only in the interest of arranging for the sale of such equity interest. Such sale must be made within one year of acquisition of the equity interest.
The one-year period may be extended by the CPO at the request of the acquiring undertaking, if it can demonstrate that the sale could not be properly executed within the prescribed period.
The participants to a notifiable concentration are obliged to submit notification to the CPO no later than 30 calendar days after the conclusion of:
a binding agreement,
the announcement of a public takeover bid; or
the acquisition of a controlling interest.
The 30-day deadline runs from the date on which the first of these events occurs.
The act provides only for the latest date by which the filing must be completed. However, the CPO has established a practice that notification can also be filed before the parties execute a binding agreement (eg, if execution of the agreement is still subject to internal (corporate) or external approval), provided that the undertakings concerned demonstrate a serious intent to enter into the planned transaction and disclose to the CPO all milestones of the envisaged transaction. However, even if clearance is obtained, the CPO may withdraw or amend it if the relevant facts existing at the time of completion of the pre-notified merger differ substantially from those existing at the time of the initial clearance.
The filing fee amounts to €2,000 and must be paid to the CPO by way of a bank transfer at the time of filing.
Merger notification form
The notification must be submitted on a merger notification form - a questionnaire prescribed by the Decree Defining the Contents and Elements Required for the Notification Form for the Concentration of Undertakings (passed in 2009). The scope of information requested by the merger notification form is exhaustive. It closely mirrors the EU Merger Regulation's Form CO and includes:
- certified copies of the documents or the draft documents bringing about the planned concentration;
- a list of members of the management board, major shareholders or interest holders in the undertakings that have participated or are planning to participate in the concentration;
- the audited accounting statements of the participants in the concentration for at least the preceding three tax years - where a participant is not obliged to keep audited accounting statements, regular accounting statements are to be submitted;
- a report on any form of participation in a concentration of undertakings in Slovenia in the last three years;
- a list of controlled undertakings and subsidiaries;
- a list of controlling undertakings;
- data on the market shares of the participants in the transaction;
- data on all relevant product or service markets in which the parties to the concentration operate (including their size, past and future development, structure of demand and supply, and market access);
- data on main customers, suppliers and competitors; and
- data on the expected economic consequences of the concentration.
The parties to the notification may ask the CPO for a waiver with regard to some of the requested information in the merger notification form; however, in practice, such a waiver will not necessarily be granted by the CPO.
The notification must be submitted in the Slovenian language. This also applies for any documentation attached to the notification (eg, annual reports or Companies Register excerpts). Where such documents were not drawn up in the Slovenian language, the notification must include an official translation into Slovenian. However, the CPO usually waives this requirement in respect of English language documents; moreover, instead of being forced to translate entire documents (eg, entire annual reports), the parties commonly agree with the CPO as to which parts of such documents are not vital for the assessment and need not be translated.
Phases of the review
Following the submission of a completed merger notification to the CPO, the CPO will instigate the so-called 'Phase I' procedure, in order to establish whether the proposed concentration gives rise to serious doubts as to its compatibility with the act. Depending on the outcome of this preliminary test, the CPO will either issue a non-opposition decision or initiate in-depth (Phase II) proceedings.
Phase I proceedings
Either of the possible Phase I decisions (ie, non-opposition or initiation of Phase II proceedings) must legally be taken within 25 working days of filing of the merger notification. However, this deadline starts running only once the filing has been deemed complete by the CPO. Given the exhaustive nature of the prescribed merger notification form, requests by the CPO for supplementation of the filing (thus extending the deadline) are not uncommon and, in practice, can significantly impact on the transaction timetable (especially in borderline cases). Moreover, the statutory (25 working day) time limit is of an instructive nature only - its expiry does not result in automatic clearance.
Phase II proceedings
Should the CPO decide to initiate Phase II proceedings, it is bound to issue a final decision within 60 days of opening Phase II proceedings. This 60-day period is again only instructive in nature and the CPO will sometimes take longer to issue the Phase II decision; no automatic clearance is presumed when the deadline for the decision expires. If the CPO does not issue a Phase II decision in time, the parties may file a lawsuit with the Supreme Court demanding the CPO to issue such a decision.
In general, the CPO issues its decision in merger proceedings without an oral hearing.
The wording of the act prohibits only the 'exercise' of rights deriving from a concentration prior to a final clearance decision. It is therefore argued (in practice) that mere completion of a notifiable concentration (ie, the transfer or acquisition of title to shares or assets of the target, without exercising any rights deriving from such concentration) prior to clearance by the CPO is not prohibited per se. However, to date, the CPO's practice has not yet established a definitive answer in this regard and therefore the possibility that the CPO might adopt a different position cannot be excluded.
In any event, the suspension clause (ie, the prohibition against exercising the rights acquired by way of a notifiable concentration prior to clearance) can be waived by the CPO upon request by the acquiring undertaking. In order for the CPO to approve the request, the acquirer msut demonstrate that early implementation of (and exercise of certain rights arising from) the concentration is pivotal for maintaining the value of the investment or the performance of services of general interest. The CPO is obliged to decide on such a request within 15 working days.
Penalties for failure to notify - 'gun-jumping'
Failure to notify a concentration that meets the Slovenian jurisdictional thresholds may entail a penalty of up to 10% of the turnover that the undertaking (along with other undertakings of the same group) achieved in the past business year. In addition, a fine of between €5,000 and €10,000 may be levied on the responsible person of such undertaking or a responsible independent contractor. If the nature of the offence is deemed to be particularly serious, given the amount of resulting damages or the amount of unlawfully acquired pecuniary benefits, the undertaking's responsible person may be fined up to €30,000.
The exercising of any rights arising from a notifiable concentration (eg, a vote at the shareholders' meeting, or the appointment or recall of existing management) prior to clearance by the CPO will incur monetary fines (described in the above paragraph) and be deemed null and void.
Moreover, if such a non-notified merger resulted in the creation or strengthening of a dominant position, or in a severe restriction of effective competition (ie, if the merger would have to be prohibited if notified), the CPO may order a de-merger of undertakings, de-merger of assets, sale of interest or other appropriate measures with a view to reversing the effect of the non-notified merger.
Lastly, according to the Slovenian criminal legislation, undertakings that have implemented a concentration in breach of the act, where such concentration results in substantial economic benefit for the infringing undertakings or causes grave harm to other undertakings, may be penalised ny, among other things:
expropriation of assets;
termination of legal personality;
prohibition from participation in public procurement proceedings; or
trading with financial instruments on organised markets.
The person responsible within the infringing undertakings will face imprisonment of between six months and five years.
Theory of harm
The act prohibits concentrations that:
"substantially restrict effective competition in the territory of the Republic of Slovenia or a significant part thereof, especially as a result of creation or strengthening of a dominant position".
When assessing notifiable concentrations, the CPO therefore employs a combination of two tests:
- the significant lessening of competition test; and
- the dominance test.
However, in principle, the CPO need not prove the existence of dominance in order to prohibit a concentration - a concentration with a substantially restrictive effect on competition may be deemed incompatible with the act even in the absence of dominance.
The concept of the negative impact on effective competition test (the general benchmark for the assessment of concentrations) closely follows EU Regulation 139/2004 (and is broadly similar to the US antitrust doctrine detailed in Section 7 of the Clayton Act). In principle, the purpose of the test is the identification of adverse effects on competition that may be caused by excessive concentration of market power.
In making its assessments, the CPO generally follows the principles laid out in the European Commission's guidelines on the assessment of horizontal and non-horizontal mergers. The CPO thus generally focuses on the so-called 'non-coordinated' effects - most notably, on horizontal and vertical effects of a merger in question. To a lesser extent, the CPO focuses on conglomerate and non-coordinated effects.
The effects of concentrations are analysed on the relevant product and geographic market. However, a high market share does not always give rise to competition concerns, as the CPO appraises market share together with other competition parameters, such as the choice available to suppliers and users and the openness of the market for new entrants.
Due to the small geographical market size of Slovenia, the CPO has approved mergers that resulted in very high national market shares (eg, more than 80%), where parties to the merger could demonstrate that the relevant geographic market was broader; by the same token, as a rule, the CPO puts a lot of emphasis on the definition of the relevant (cross-border) geographic market.
Phase I proceedings end with the CPO issuing a decision either:
declaring that the notified transaction is not subject to the act;
declaring that the notified concentration does not give rise to serious doubts as to its compatibility with the rules on competition; or
finding that the notified concentration gives rise to serious doubts as to its compatibility with the rules on competition and initiation of Phase II proceedings.
Phase II proceedings may end in one of the following ways:
Unconditional clearance - if the CPO finds that a concentration is not incompatible with the act, it will issue a decision declaring the concentration compatible with the rules on competition.
Conditional clearance - the CPO may impose additional obligations and conditions intended to ensure that the concentration complies with the act.
Prohibition of the merger - if the CPO finds that the concentration is incompatible with the act, it will issue a decision declaring the concentration incompatible with competition rules. In its decision, the CPO may impose measures with a view to eliminating the effects of the prohibited concentration that have already occurred (eg, de-merger of undertakings, de-merger of assets, sale of interests, sale of securities or other appropriate measures).
If the undertakings concerned fail to comply with the CPO's decision within the specified deadline, the CPO may impose fines of up to 10% of the turnover of the infringing undertaking (along with other undertakings belonging to the same group) in the preceding business year. A fine of between €5,000 and €10,000 may be levied on the responsible person of such undertakings or a responsible independent contractor. If the nature of the offence is deemed to be particularly serious, given the amount of resulting damages or the amount of unlawfully acquired pecuniary benefits, the undertaking's responsible person may be fined up to €30,000.
Final decisions of the CPO in merger control procedures (as well as some procedural decisions) may be challenged before the Supreme Court. An appeal to the Supreme Court may pertain only to the facts and legal basis of the CPO's final merger decision (but not to fines imposed by the CPO, as detailed below). The Supreme Court may adopt any of the following decisions:
It may annul the decision of the CPO (partially or fully) and request the CPO to issue a new decision; or
It may amend or alter the CPO's decision (this is possible only if all relevant facts were fully and correctly established by the CPO, but the CPO failed correctly to apply the law, provided further that any delay on the decision would have detrimental effect for the interests of the parties involved).
The CPO's decisions on fines must be challenged separately before a regular circuit court and, under certain conditions and with substantial limitations, the decision of a circuit court may be further appealed to the second instance higher court.
For further information on this topic please contact Vid Kobe at Schönherr Slovenia in cooperation with Filipov Petrovic Jeraj in partnerji op doo by telephone (+386 1 2000 980), fax (+386 1 4260 711) or email (firstname.lastname@example.org).