Notification and clearance timetable

Filing formalities

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

The Act and CMCR 2016 lay down that pre-merger clearances have to be filed as soon as an agreement in principle for the merger takes place, or a non-binding letter of intent to proceed with the merger is signed.

Section 11(12) of the Act sets out that sanctions can be imposed where parties have consummated a merger without complying with the pre-merger clearance procedure. Sanctions include the CCP’s power to undo a merger or prohibit it altogether. However, this can only be done after issuance of a show-cause notice and opportunity of a hearing at the end of the Phase II review (if any). Penalties under the Act also include fines of up to 75 million Pakistani rupees or up to 10 per cent of the annual turnover of the undertaking or entity involved.

While the CCP has imposed heavy penalties in cases involving abuse of dominant position or prohibited agreements, it has never imposed a penalty for non-compliance with merger control provisions. In practice, where undertakings file for clearance with any delay, they also file an application for lenient treatment (note, not leniency) and condoning of the delay. These have up until 2014 been routinely granted.

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

Parties to the merger are equally responsible for the filing, although in practice the parties usually decide between themselves who should file the application. In the case of an acquisition of shares or assets, the acquiring party must be the notifying party to the merger application in accordance with section 11(2) of the Act. The party filing the application is supposed to issue a notice of filing to all other parties to the merger, with a copy of such notice to the CCP, stating that the application will be or has been made.

Filing fees are required and vary with turnover of parties to the merger or value of assets under management (the latter in case of AMCs). The minimum filing fee is 300,000 Pakistani rupees and depending upon the turnover of the parties to the transaction, can go up to 2.25 million Pakistani rupees.

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

The CCP is bound under the Act and CMCR 2016 to decide pre-merger applications within a specified number of days. Initial filing begins in the Phase I review. No objection in 30 working days means, as per the law, that the CCP has no objection to the merger. Normally, the CCP will issue a clearance within 30 working days. If the CCP wants to take the merger application to a Phase II review, it shall take this decision within 30 working days of filing and communicate this to the parties. However, a Phase II review has only been initiated in eight cases since the CCP’s inception in 2007.

If and when a Phase II review is initiated by the CCP (and this happens very rarely) the CCP then has another 90 working days within which to conduct an extended review. If no decision is made within 90 working days of starting of the Phase II review, then as per the law the CCP shall be deemed to have had no objection and the proposed merger shall be deemed cleared.

Because the scheme of the law is that clearance has to be obtained before consummation of the merger, the CCP expects parties not to complete or implement the transaction until clearance has been granted. However, if the filing is late or if the parties satisfy the CCP that the matter will not go beyond a Phase I review, the transaction does not have to be suspended. If the parties have already completed the merger, it is good practice to place on record an application requesting the condoning of the delay without imposition of any penalties.

Where, after a Phase II review, the CCP wants to prohibit or undo a merger, it shall issue a notice after an inquiry report. Thereafter, a hearing is held (normally within 15 working days of the issuance of the notice) and, after a quasi-judicial proceeding, a final order is passed.

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 sanctions applicable to closing before clearance will essentially be the same as sanctions for not filing. Closing or non-filing will both violate section 11(12) of the Act which, read with sections 38 and 31 of the Act, provides for the penalties mentioned above. However, as explained above, the CCP has never applied sanctions since its inception in 2007 for non-filing or closing before clearance. When it comes to mergers, its focus has been ensuring awareness and implementation of the law rather than its enforcement with penalties.

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

There are no examples of sanctions having been applied in foreign-to-foreign mergers.

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

The law envisages asking for pre-merger clearance before closing. However, in practice the CCP has always condoned delays as long as parties seek clearance for the merger and give sufficient reasons with a request for condoning of the delay.

In practice, the CCP’s mergers department takes the position that there is no bar to a ‘hold-separate’ arrangement. However, this facilitative approach is different from the letter of the law, which requires pre-merger clearance. The safest way would be to notify the CCP of the merger and ensure requisite filing with the commitment that, until final clearance is given, the parties will put in place a ‘hold-separate’ arrangement.

Public takeovers

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

Under the competition law regime, there are no special merger control rules applicable to public takeover bids. Generally, public takeovers are regulated by the SECP and the Pakistan Stock Exchange. The Securities Act, 2015 (Securities Act) and the Listed Companies (Substantial Acquisition of Voting Shares and Take-Overs) Regulations 2008 (Take-Over Regulations) prescribe a separate procedure for offers to acquire shares of a public listed company. The Securities Act is a piece of federal legislation and repeals the previous Listed Companies (Substantial Acquisition of Voting Shares and Take-Overs) Ordinance 2002 (Repealed Take-Over Ordinance) which related to the substantial acquisition of voting shares and takeovers of listed companies. The Securities Act along with the Take-Over Regulations, made under the Repealed Take-Over Ordinance and validated by the Securities Act, regulate takeovers. This supplements and does not exclude the Act and CMCR 2016.

The Securities Act does not apply to, inter alia, mergers under any law for the time being in force except in cases of acquisition of voting shares in a listed company. The Securities Act prescribes thresholds regarding the aggregate percentage of shareholding to be acquired in a listed company, which if met, trigger disclosure requirements or obligations of making a public offer of the acquisition of voting shares, as the case may be.

Advice should be sought from local law firms on ensuring compliance with provisions of this law, where it is applicable.

If the thresholds are met, the CCP clears public takeover bids following the Act and CMCR 2016.

Documentation

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

Significant details go into preparation of a filing and local legal practitioners specialise in this field. The repealed CMCR 2007 carried a form (appearing in its Schedule) that was to be filled out along with supporting evidence. Although the CMCR 2016 refers to a form, the same has not been annexed to the CMCR 2016. Instead the official CCP website (www.cc.gov.pk) provides two forms (a short form and a long form) that must be filled out along with supporting evidence for purposes of a filing. While the long form can be used for all transactions, the short form may only be used for acquisition of shares on the capital markets, conglomerate mergers, or group re-structuring. The short form is a relatively new addition and, as there is still uncertainty regarding its applicability, in practice preference is given to the long form.

The long form is an 11-page document and the information that needs to go into a filing includes (but is not limited to):

  • an executive summary of the notified merger specifying (i) parties to the merger; (ii) the nature of the merger; (iii) the area of activities of the parties to the merger; (iv) the relevant product and geographic markets in which the merger is likely to have an impact; and (v) the excepted time frame for completion of various stages of the merger;
  • corporate information about the parties and their holding and subsidiary companies;
  • details of the transaction and consideration involved;
  • nature of the merger and the markets on which it will have an impact;
  • copies of all relevant agreements, analyses, reports provided to board of directors of relevant companies;
  • market shares (pre- and post-merger) along with details of sales, production, volumes as the case may be;
  • relevant market studies and anticipated changes in the market post-merger;
  • explanation of the relevant market (product-wise as well as geographical);
  • copies of business plans for the current year and the preceding five years;
  • cooperative effects of any joint ventures and justifications; and
  • any ancillary restraints being imposed or anticipated and their necessity.

On the other hand, the short form is a two-page document and the information that needs to be provided includes (but is not limited to):

  • corporate information about the parties and their holding and subsidiary companies;
  • nature and detail of the transaction;
  • relevant market studies and anticipated changes in the market post-merger;
  • explanation of the relevant market (product-wise as well as geographical); and
  • any ancillary restraints being imposed or anticipated and their necessity.

Furnishing false or misleading information or impeding the work of the CCP carries a penalty of up to 1 million Pakistani rupees.

Investigation phases and timetable

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

The statutory timetable for clearance is 30 working days for a Phase I review. This 30-working-day period begins from the date of filing the pre-merger clearance application. Most applications, unless they raise serious concerns, receive clearance within 30 working days of filing. Except for rare cases, most mergers are granted clearance after a Phase I review - within 30 working days. If a Phase II review begins in the wake of serious competition-related concerns, the time period (once the Phase II review begins) is 90 working days within which the CCP will make a decision. In practice, a decision is usually made within two to two-and-a-half months. The time frame also depends on how quickly parties respond to any queries by the CCP. Two worrying instances of slight delays in recent years involve applications by GlaxoSmithKline plc and Novartis AG. In GlaxoSmithKline’s case, the Phase II review began on 13 November 2014. Final clearance was given through an order dated 20 February 2015 - slightly longer than the statutory period of 90 working days. And in the case of application by Novartis AG, the clearance was sought through an application on 29 August 2014 but the final approval after a Phase II review was given on 9 February 2015. However, these two cases represent the exception rather than the rule.

Failure to make a decision within the relevant 30- or 90-working-day period has been deemed by law to mean that the CCP has no objection to the merger.

The only way of speeding up this process is to file a formal application before the CCP to expedite the process. Arrangements should also be made with lawyers to follow it up on the administrative side with the CCP.

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

The law prescribes a 30-working-day period for clearance of all Phase I applications. Most transactions are cleared in Phase I. The law specifically says that if the CCP does not raise any objection to a transaction within 30 working days of it being notified, then the transaction is deemed cleared. In practice, the CCP says that this 30-working-day period only begins to run from the time a complete application is submitted. This means that, in many cases, when you file an application before the CCP, it will usually write back to you within a week or two and demand more information. Once you furnish that, the CCP will say that the time is now running. There is no set timeline for how long it takes for a decision. In most cases, a decision is given within four weeks from the time of initial filing. In other cases, it has taken until six weeks, since the CCP cites an initially incomplete application. Very few cases involving mergers actually result in a formal investigation or inquiry, as most cases are cleared after a Phase I review. The inquiry or investigation for a Phase I review is largely informal in the sense that no formal reports are compiled and only final clearances are issued. Lawyers and representatives routinely meet officers of the CCP’s mergers department to explain their transactions after filing of formal clearance applications - although such meetings are not mandatory or necessary in each case. In the event the CCP feels the need for a detailed formal investigation or inquiry, the process involves the following steps:

  • appointment of inquiry officers by the CCP through a written authorisation;
  • gathering of preliminary information by an inquiry team - this information may have come into the possession of the inquiry team as a result of its independent efforts or by virtue of the CCP’s general powers to call on undertakings to furnish information on matters that may have an adverse impact on competition;
  • interviews with representatives of relevant undertakings. However, this is not a mandatory step, as the CCP interprets the law as not requiring any right of hearing at the investigation or inquiry stage. This view, it is submitted, is consistent with the letter and spirit of the law. However, at times the CCP will of its own accord interview representatives of relevant undertakings; and
  • once the inquiry is complete, the inquiry officers will make a recommendation - either for issuance of a show-cause notice and initiation of proceedings or closing the file because of insufficient evidence.

No penalty has been imposed by the CCP since its inception in 2007 on parties to a merger transaction.

The investigation procedure outlined herein would generally only take place if a third party files a formal complaint regarding the merger or if the CCP intends to proceed against merger parties for not notifying a merger that meets the thresholds.