Legislation and jurisdiction

Relevant legislation and regulators

What is the relevant legislation and who enforces it?

The most important legislative act is Act LVII of 1996 on the Prohibition of Unfair and Restrictive Market Practices (the Competition Act). The other major source of law is Act CL of 2016 on the General Public Administration Procedures, which (together with the special rules in the Competition Act) sets out the basic procedural rules for administrative proceedings (including merger review). The rules of the judicial review of merger control decisions are defined by Act I of 2017 on the Code of Administrative Litigation.

Hungarian merger control rules are enforced by the Hungarian Competition Authority (GVH), an autonomous public administrative authority that reports directly and only to Parliament. The Competition Council is the independent decision-making unit of the GVH.

Notices and communications by the GVH are also significant sources of merger control rules. GVH updated the notices applicable to merger review in 2018, including the notice clarifying the rules related to the initiation of merger control proceedings and the notice on imposing conditions and obligations for clearance.

Scope of legislation

What kinds of mergers are caught?

The following transactions are caught by the Hungarian merger rules:

  • acquisition of sole or joint control over the whole or a part of previously independent undertakings;
  • merger of two or more previously independent undertakings; and
  • creation of a full-function joint venture.

What types of joint ventures are caught?

Similar to the European Union, full-function joint ventures are subject to merger control review.

Is there a definition of ‘control’ and are minority and other interests less than control caught?

Control is defined as:

  • acquisition of over 50 per cent of voting rights in the target;
  • the power to appoint, elect or dismiss the majority of the executive officers of the target; and
  • the ability to exert decisive influence over the decisions of the target (either by the virtue of contractual arrangements or de facto).

Minority and other interests less than control do not trigger the obligation to report the merger to the GVH.

Thresholds, triggers and approvals

What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?

The parties are obliged to report the merger to the GVH if:

  • the combined Hungarian net turnover of all parties (ie, the acquirer or acquirers and the target) exceeds 15 billion forints; and
  • the individual Hungarian net turnover of each of at least two parties exceeds 1 billion forints.

Turnover of subsidiaries jointly controlled by one of the parties and a third party must be allocated on a per capita basis according to the number of entities exercising joint control. For the purposes of the second limb of the test (ie, the 1 billion forints threshold), consecutive transactions by the same parties within two years preceding the date of the transaction must be taken into account, provided that such transactions were not subject to prior merger control notification. Intra-group revenues and the turnover of the seller’s group must be excluded.

Specific rules apply to the calculation of thresholds for mergers including insurance companies, credit institutions, financial enterprises or investment companies, which are largely in line with those set out in the EU’s Jurisdictional Notice.

The GVH may also decide to investigate mergers that fall below filing thresholds (within six months following their implementation), if: (i) it is not obvious that the concentration does not significantly reduce competition in the relevant market; and (ii) the combined net group turnover of all parties exceeded 5 billion forints in the previous financial year.

Mergers that meet the EU merger control filing thresholds will be assessed by the Commission in line with the ‘one-stop-shop’ principle.

Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

Filing is mandatory in the case of mergers that reach the jurisdictional thresholds.

A special ‘public interest exemption’ exists under the Hungarian competition regime, which permits the government to qualify a merger as ‘strategic’ and exempt it from the merger control filing requirement. The government can do so if the merger carries national strategic interests, such as it is needed to protect workplaces or to assure security of supply.

Another exception is temporary (less than one year) acquisition of control by an insurance, investment or financial institution, if such acquisition is made with a view to resell, and the exercise of control during the interim period does not exceed what is absolutely necessary. The one-year period may be extended once, by an additional year, at the request of the acquirer.

Filing is voluntary in the case of mergers that do not reach the jurisdictional thresholds, but may be subject to the GVH’s investigation (see question 5 for such mergers). However, in that case, sanctions cannot be applied for closing before clearance.

Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?

Yes, foreign-to-foreign mergers are subject to Hungarian merger control review if they meet the local merger control filing thresholds.

Are there also rules on foreign investment, special sectors or other relevant approvals?

There are no special rules regarding foreign investments; however, there are special sectors where the approval of other authorities is necessary in addition to merger review by the GVH. For instance, approval is needed from the National Bank for the merger of financial institutions. Also, the approval of the Hungarian Energy and Public Utility Regulatory Authority is required for the merger of electricity and natural gas utility companies operating under licences issued by the same authority. The approval of the Media Council is required for certain transactions involving media companies: if such approval is not obtained prior to the merger notification, the GVH suspends its merger review proceeding until the position statement of the Media Council is obtained. These approvals, however, with the exception of that of the Media Council, have no direct effect on the proceedings of the GVH and the GVH may conclude the merger review proceeding independently from the results of the investigations of these authorities.

Notification and clearance timetable

Filing formalities

What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?

There is no deadline for filing, but the merger cannot be implemented prior to clearance by the GVH (see questions 11 and 18).

There are no specific sanctions for not filing per se, but sanctions apply for closing before clearance (see question 12).

Which parties are responsible for filing and are filing fees required?

Typically, the acquirer, but in the case of a merger or joint venture, each of the parties are responsible for filing.

Fast-track review fees amount to 1 million forints. If further investigation is required and a Phase I review is opened, an additional 3 million forints must be paid, and in the case of a Phase II review being also opened, an additional 12 million forints must be paid.

What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?

Non-problematic concentrations can be cleared in a fast-track proceeding. The waiting period of the fast-track review is eight days and there have been cases where clearance was granted overnight. Fast-track review is available for non-problematic mergers and it is recommended that the parties engage in pre-notification discussions and submit a final and complete filing form in the course of such discussions for review and comments by the GVH.

If the investigation enters into Phase I, the waiting period is 30 days, while Phase II lasts an additional three months. The GVH may extend its review by a maximum of 20 days in Phase I, and two months in Phase II. The GVH may also stop the clock until information requests are complied with. If the GVH fails to issue its decision within the applicable waiting period, its approval is deemed to be granted.

The implementation of the transaction has to be suspended prior to acknowledgement or clearance (see question 12).

Pre-clearance closing

What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?

The GHV may impose daily fines for closing before clearance. Fines can range between 50,000 and 200,000 forints per day for each day starting from the date of signing (or other triggering event, as specified) until the initiation of the GVH’s merger review process. This sanction was relatively recently introduced to the Competition Act, but there have already been cases in which the GVH imposed fines for closing before clearance.

Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?

Yes, sanctions described in question 12 also apply to foreign-to-foreign mergers.

What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?

The acquirer may apply for a GVH permission to exercise control prior to clearance. Such a request must be made in a reasoned submission and can be granted in exceptional cases only, in particular if control is required to maintain the value of the target’s business.

Public takeovers

Are there any special merger control rules applicable to public takeover bids?

No.

Documentation

What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?

Since the introduction of fast-track proceedings into the Hungarian merger regime (see question 18) the merger filing became considerably shorter. Currently, it consists of five main chapters and is 20 pages long and only requires information on the transaction, the parties and the relevant markets. If the merger cannot be cleared in a fast-track proceeding and further investigation is required, the GVH will issue targeted requests for information regarding the relevant markets and the competitive effects of the transaction.

The transaction agreement (SPA) and the annual financial reports of the parties shall be annexed to the filing form, together with proof of payment of the filing fee.

The filing form may be downloaded from the GVH website (www.gvh.hu) and is available in both Hungarian and English, but must be submitted in Hungarian. Supporting documents drawn up in English may be submitted in the original language, but the GVH may require the submission of a Hungarian summary or a Hungarian translation. If the documents are drawn up in languages other than English, the Hungarian translation of the parts of the documents relevant to support the data and information provided in the notification form must also be attached.

Investigation phases and timetable

What are the typical steps and different phases of the investigation?

Pre-notification

The first (informal) step in the notification process is the confidential pre-notification discussions with the GVH (see question 18).

Notification stage

In straightforward, non-problematic cases the GVH closes the procedure and acknowledges the transaction within eight days of receipt of the notification by the issuance of an administrative certificate (fast-track procedure). If this is not the case, the GVH opens the investigation phase.

Investigation stage

In the case of transactions that require more thorough investigation, the procedure of the GVH is divided into two stages: an investigation stage by the case handlers and the decision-making stage by the Competition Council. The investigation stage is completed when the case handlers submit their investigation report to the Competition Council summarising their main findings in the case.

Decision-making stage

Formal decision-making is made by the Competition Council based on the investigation report and their own review and assessment.

Phase I and Phase II

After obtaining the agreement of the Competition Council, the case handlers will open a Phase II investigation in complex cases. In Phase II, extra time is added to the notification timetable both to the investigation (case handlers) and the decision-making (Competition Council) stage (see question 18 for length of Phase I and Phase II).

What is the statutory timetable for clearance? Can it be speeded up?

It is advisable to engage in pre-notification discussions with the GVH as these discussions can help to accelerate the GVH’s decision-making (by reducing the risk and scope of information requests) and can result in obtaining clearance in a fast-track procedure (see question 11). Pre-notification discussions are confidential and typically last approximately two weeks. The GVH recommends that parties request the initiation of pre-notification discussions at least two weeks before they intend to report the merger.

In straightforward cases where the absence of competition concerns is clear, the GVH acknowledges the transaction by the issuance of an administrative certificate within eight days of the date the merger was reported. The administrative certificate is normally less than a page long and only contains a brief description of the transaction. The Phase I waiting period is 30 days, while Phase II lasts an additional three months. The GVH may extend its review by a maximum of 20 days in Phase I, and two months in Phase II. The GVH may also stop the clock until information requests are complied with. If the GVH fails to issue its decision within the applicable waiting period, its approval is deemed to be granted.

In 2018, the majority, namely 86 per cent of the GVH’s merger decisions were simplified decisions and in 10 cases the decisions were made within one day following the receipt of the notification.

Substantive assessment

Substantive test

What is the substantive test for clearance?

The GVH uses the significant impediment to effective competition (SIEC) test for its assessment of mergers and will clear transactions that do not result in a SIEC, particularly by creating or intensifying a dominant position on the relevant market.

Is there a special substantive test for joint ventures?

There is no special substantive test for joint ventures.

Theories of harm

What are the ‘theories of harm’ that the authorities will investigate?

The GVH assesses unilateral and coordinated effects in horizontal, vertical and conglomerate mergers including portfolio effects, by weighing pro and anticompetitive aspects, in particular:

  • structure and characteristics of the relevant markets;
  • actual and potential competitive pressure;
  • presumed competitive effects;
  • sourcing and sale opportunities;
  • costs, risks and conditions of market entry and exit;
  • market position and business strategy of the parties; and
  • effects on suppliers and other partners.
Non-competition issues

To what extent are non-competition issues relevant in the review process?

The GVH’s assessment centres around competitive aspects and it is not expected that the GVH would consider non-competition issues in its review. The only exception is mergers involving media companies, where the GVH must take into account the view of the Media Council that focuses its review on maintaining media pluralism.

Economic efficiencies

To what extent does the authority take into account economic efficiencies in the review process?

The GVH takes into account economic efficiencies. In practice, efficiencies are expected to be specific to the transaction and to bring along quantifiable consumer benefit (the sooner the benefits are predicted to arise, the larger weight they carry in the assessment).

Remedies and ancillary restraints

Regulatory powers

What powers do the authorities have to prohibit or otherwise interfere with a transaction?

The GVH may prohibit transactions or impose structural or behavioural remedies.

Remedies and conditions

Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?

Yes. If a transaction’s projected anticompetitive effects can be prevented by imposing structural or behavioural remedies, the GVH can clear the merger subject to appropriate remedies. Usually, the GVH prefers structural remedies because of their ease of monitoring.

What are the basic conditions and timing issues applicable to a divestment or other remedy?

Timing and conditions are imposed on a case-by-case basis. However, all remedies have to comply with some basic requirements: they must be capable of removing competition concerns, must be proposed by the parties, and be exact, consistent and verifiable. Commitments are normally subject to market testing and the GVH also holds hearings to discuss proposed remedies.

What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?

We are not aware of any truly foreign-to-foreign mergers (where the parties have no Hungarian subsidiaries, manufacturing facilities or other presence) where the GVH imposed remedies on the parties.

Ancillary restrictions

In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?

By virtue of law, all ancillary restraints necessary for the implementation of a concentration are covered by the GVH’s clearance decision. However, this does not mean that all restrictions labelled in an SPA as ‘ancillary’ would be automatically approved by the GVH when issuing its merger clearance decision. Instead, the GVH’s practice is not to assess the conformity of ancillary restraints with the relevant requirements during its merger review and its clearance decisions are silent on the issue. It is, therefore, the parties’ responsibility to self-assess such restraints (prior to filing) and the GVH retains the right to open an independent investigation to assess any ancillary restraint even after the merger is cleared and closed.

Involvement of other parties or authorities

Third-party involvement and rights

Are customers and competitors involved in the review process and what rights do complainants have?

Yes, customers and competitors can have their voice heard in the merger review process. The GVH can send information requests to any group of third parties whose views are relevant to the assessment of the merger. In complex cases, the GVH conducts an in-depth market testing exercise involving competitors, consumers and other parties affected by the transaction. In addition, third parties can also (at their own initiative) submit comments on an ongoing procedure (see question 30 on how third parties can learn of an ongoing merger review).

Anyone can submit a complaint to the GVH when suspecting the breach of competition rules, including merger-related infringements, such as closing without clearance or gun jumping. Complainants’ status slightly defers on the basis of whether they used the GVH’s complaint form when submitting their complaint, as complainants using the official form have more procedural rights than those submitting an ‘informal’ complaint (see some details below). The GVH must decide within two months from receipt of a formal complaint (which deadline may be extended with two additional months) whether to open an investigation on the basis of information revealed during its review of the complaint. After the complaint review process is closed, complainants can access and review the GVH file. In case of an informal complaint, the GVH has more flexibility, as it has no obligation to formally decide on whether or not to open an investigation based on an informal complaint.

Publicity and confidentiality

What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?

First, after submission of the merger control filing form, the GVH publishes on its website a brief overview of the transaction containing basic information on the contemplated transaction, except if the concentration is accepted for confidental treatment, in which case no publication is made until the concentration is implemented. This summary is copied from a section of the filing form, so the parties can influence the level of detail that goes into it. Second, third parties can request access to merger files, but as a general rule are granted access only after the final and non-appealable conclusion of the merger case. Prior to that, access to merger files is only possible if the third party can demonstrate that such access is necessary to enforce a statutory right or to meet an obligation arising from law or from an administrative decision. In any event, third parties may only have access to non-confidential versions of the relevant documents. Third, the GVH may hold hearings in any competition case (including mergers). The default rule is that such hearings are public, unless the GVH decides to hold a closed hearing because of the need to discuss sensitive information. Finally, the GVH’s final decision is published on the GVH’s website. All sensitive and confidential information is removed from the public version of the GVH decision prior to publication on its website.

The GVH is very attentive to protecting commercially sensitive or private data throughout the process.

Cross-border regulatory cooperation

Do the authorities cooperate with antitrust authorities in other jurisdictions?

The GVH is a member of the European Competition Network that consists of the national competition authorities of EU member states and the European Commission. It is also a member of the European Association of Competition Authorities, which consists of national competition authorities of the member states of the EU and the EFTA (except for Switzerland), as well as the European Commission and the EFTA Surveillance Authority. The GVH is also member of the International Competition Network.

There is a lively cooperation between the GVH and the OECD, which (among others) manifests in the OECD-GVH Regional Centre for Competition in Budapest (since 2005). The Centre promotes the development of competition policy in the south-east, east and central European regions.

Finally, the GVH has bilateral cooperation agreements with a number of non-EU competition authorities, including the Chinese, Ukrainian, Moldovan, Albanian, Serbian, Russian and Taiwanese authorities.

Judicial review

Available avenues

What are the opportunities for appeal or judicial review?

The decision of the GVH is subject to judicial review, which may be launched within 30 days of receipt of the GVH’s decision. The first instance court decision may be subject to appeal to a higher court.

The GVH’s decision is rarely challenged successfully. The most recent merger case that was remanded and referred back for reconsideration dates back to 2012.

Time frame

What is the usual time frame for appeal or judicial review?

Court review takes approximately two years (including both first and second instance review) on average, but it is not uncommon for the review process to last even longer.

Enforcement practice and future developments

Enforcement record

What is the recent enforcement record and what are the current enforcement concerns of the authorities?

The GVH closed 62 merger control proceedings in 2018, from which 53 were simplified procedures, six procedures have been closed in Phase I and three in Phase II. Further, in 2018, the GVH closed three merger related follow-up procedures, two procedures for violation of the standstill obligation and one where the GVH revoked its earlier approval because of false information provided in the notification (see question 36). In 2018, the GVH continued to impose penalties for closing before clearance.

Reform proposals

Are there current proposals to change the legislation?

The background legislation changed recently, as the Act CL of 2016 on the Common Rules of Administrative Procedures and Act I of 2017 on the Code of Administrative Litigation Procedures entered into force on 1 January 2018. The Competition Act has been amended with the same effect, to accommodate the change to the background legislation; therefore, comprehensive legislation change is not expected in the coming period.

Update and trends

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?

The GVH remains sensitive and vigilant to any false information provided in the merger control procedure. In case Vj/31/2018 DIGI-Invitel, the GVH revoked its decision approving the transaction and imposed a fine of 90 million forints for submitting false information in the notification. In the same case, the GVH used a dawn raid as a tool of investigation for the first time in a national merger control case.

Another trend is for the GVH to investigate mergers not satisfying the mandatory filing thresholds, but meeting the 5 billion forints combined turnover threshold. In the first such case (case VJ/49/2017 DIGI-Greencom), however, the GVH terminated the procedure for lack of sufficient information to determine whether the concentration could significantly decrease competition, which is the other limb of the alternative merger control test.

The GVH continues to actively monitor gun jumping and is ready to impose fines for violating the standstill obligation (see, for example, case Vj/44/2017 BTL Group).

In 2018, the Hungarian government continued to rely on the exemption from under the merger control scrutiny by the GVH, as could be witnessed, for example, in case B/961-11/2018 KESMA, where the Decree of the Hungarian government qualified the acquisition of a number of media companies by Közép-Európai és Média Alapítvány (Central European Press and Media Foundation, KESMA).