In December 2014 the Bosnian and Herzegovinian Competition Authority reviewed non-compete obligations between parties to a merger. The decision could have significant implications on future practice.
The authority reviewed a merger between Porsche and ASA based on transaction agreements which contained, among other things, non-compete obligations for the seller of the target business. After reviewing the obligations, the authority directed the parties to:
- remove the non-compete provisions from the transactional agreements;
- conclude separate agreements on the non-compete obligations; and
- file an individual exemption request for the separate agreements.
Once the parties had proceeded according to the authority's instructions, the concentration was cleared unconditionally. However, the non-compete obligations now contained in separate agreements were considered to be severe restrictions of competition that could not be individually exempt. Therefore, the authority adopted a decision refusing individual exemptions.
Pursuant to the rendered clearance, it appears that the authority did not assess the non-compete provisions ancillary restraints (ie, restraint directly related to and necessary for the implementation of the transaction). Although applicable laws in Bosnia and Herzegovina do not provide specifically for this concept, the authority could have acted in line with the applicable EU notice and tested whether the non-compete obligations were directly related or necessary to the implementation of the concentration. Should this have been the case, no individual exemption would have been necessary, as the clearance itself would have covered the restriction.
Further, neither the individual exemption decision nor the clearance indicated whether any efforts were made to negotiate a less restrictive non-compete provision which could be covered by the clearance. Instead, the authority instructed the parties to file for exemption of provisions in a separate procedure. Ultimately, the authority could even have opted to issue a conditional clearance, requiring the parties to amend the agreement so that it contained a less severe restriction of competition.
This development signals an unwelcome twist in the authority's practice. Although the exact scope of the agreed non-compete obligations is unknown, the authority's approach in this case is concerning. Non-compete obligations are typical in M&A agreements and, although reviewing some of them outside of merger review proceedings may be warranted in exceptional cases, it is worrying that the non-compete obligations in this case were prohibited outright rather than modified to comply with applicable rules. The decision could therefore set a precedent which could negatively affect all future reviews of non-compete obligations in a merger-control context.
For further information on this topic please contact Srdjana Petronijevic at Moravcevic Vojnovic i Partneri in cooperation with Schoenherr by telephone (+381 11 320 26 00) or email (email@example.com). The Moravcevic Vojnovic i Partneri website can be accessed atwww.schoenherr.rs.
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