The recently signed strategic partnership between two major Italian general contractors, Impregilo Group and Salini Group, both of which specialise in constructing infrastructures and industrial buildings using advanced engineering techniques and processes, has drawn the attention of the Italian Competition Authority (ICA). An investigation pursuant to Article 101 TFEU alleging that the partnership may amount to an anticompetitive agreement consisting of a joint definition of strategy to participate in public tenders relevant to both companies, is under way. This article considers the potential antitrust implications of such strategic partnerships in all sectors.
The circumstances prompting the ICA investigation are peculiar to a certain extent in that Salini is also the major shareholder of Impregilo, but it is not able to exercise control over the same for antitrust purposes. The ICA’s interest in the implications of this partnership was triggered by the merger control filing submitted by Salini which was considered to be unnecessary due to the fact that Salini participation to Impregilo share capital was insufficient to confer decisive control over the company for antitrust and merger control purposes. Considering the two companies as truly independent, despite having received a merger control filing submitting an assumed acquisition of Impregilo by Salini, the ICA has taken the initiative to closely examine the so called “commercial and organisational collaboration” between them. The investigation is, however, also taking place against the backdrop of a complaint by the other major shareholder of Impregilo that such an arrangement conceals an attempt by Salini to acquire Impregilo, which is listed on the Milan stock exchange, without complying with the statutory obligation to launch a public tender offer required under Italian law.
Notwithstanding the specific facts of this case, the terms and conditions of a publically disclosed strategic partnership arrangement which is entered into by competitors in most business sectors, including those in the industrial engineering sector, should be carefully scoped as they might, in principle, attract antitrust scrutiny.
Whist declaring willingness to respect each other’s autonomy, the parties committed to adopt such a shared single commercial strategy that, when disclosing the content and objectives of the partnership, the ICA suspected a market and client sharing arrangement lying behind the strategic partnership. In order to pursue the target of creating a National Champion general contractor, the agreement envisages a joint commercial strategy in any country where one or both parties have worked, using the joint track record of both parties’ capabilities for the purpose of participation in tenders for the construction of larger projects, setting a team of integrated resources and benefiting from synergies in procurement.
The core of the strategic partnership is a procedure for continuing cooperation in identifying projects of potential reciprocal interest and in participating in tenders, applying a principle of equal division (“50/50”) of the benefits and expenses associated with selected projects. The responsibility to define the joint commercial and industrial synergies is entrusted to a Committee for the Strategic Agreement, composed by two directors named by each party and by the respective Chief Financial Officers. The basic principle shared by the parties is the interest and commitment in presenting a single offer to the client, unless one of them decides not to pursue a certain selected project and provided that this decision is founded on industrial and financial reasons.
In essence, the rationale behind the strategic agreement may appear common to a number of partnerships and cooperation arrangements in the industrial engineering sector having regard to its main objectives: enhancing the strong geographical and sectorial complementarity between the two companies, increasing the rate of success in tenders, diversifying risk, building critical mass, doubling the scale and increasing the ease of access to credit due to the larger size and the perception of lower risk by the credit institutions.
The official statement made by the parties that the partnership does not constitute assignment, transfer or license of intellectual property rights, and does not prevent each of them from operating autonomously has not avoided the antitrust scrutiny; collaboration among competitors is always viewed with distrust by competition agencies. However, R&D arrangements or specialisation agreements may benefit from a block exemption from the application of antitrust provisions, and some other forms of cooperation, such as joint production and joint purchasing, might also be regarded as not leading to anticompetitive effects as long as certain safe harbours in terms of market shares held by the parties are satisfied.
Market and customer sharing is, nonetheless, a harsh restriction of competition from the standpoint of an antitrust authority; the ICA is particularly strict when assessing the collaboration of companies participating in tenders, on the assumption that this is only justified in very limited cases in which each of the companies would not objectively satisfy the requirements of the tender on its own. The concern raised against such collaboration is collusion in relation to the outcome and award of the tender, as well as the illicit exchange of sensitive information among companies which are independent and supposed to act autonomously on the market.
Amongst others, industrial engineering companies willing to combine efforts and achieve synergies through partnerships with their competitors should be aware that terms, conditions and objectives of such partnerships should be carefully framed to avoid attracting the concern of an antitrust authority.