An extract from The Public Competition Enforcement Review, Edition 13

Merger review

i Significant casesThe ICA approves an acquisition in the Italian banking sector with conditions

On 14 July 2020, the ICA approved the acquisition of UBI Banca – Unione di Banche Italiane S.p.A. (UBI) by Intesa SanPaolo S.p.A. (ISP).47

On 17 February 2020, ISP announced a voluntary public exchange offer for the entire share capital of UBI. On the same date, ISP entered into two separate agreements, respectively: with BPER bank (BPER), pursuant to which BPER would purchase from ISP a going concern comprising, among other things, more than 500 bank branches previously owned by UBI; and with Unipol, pursuant to which Unipol would purchase from ISP certain assets relating to the insurance sector previously owned by UBI.

On 17 February 2020, ISP notified the concentration to the ICA, which opened an in-depth investigation, since the proposed concentration would significantly undermine competition in certain Italian regions.

The ICA expressed its concerns at a 'general level', noting that in Italy there are two main banking groups: ISP and UniCredit. UBI is a smaller group, which, according to the ICA, has nonetheless the potential to become a 'pooling hub' for smaller banks in the near future, creating a third group that could compete with ISP and UniCredit. For this reason, the ICA held that the proposed concentration could strengthen ISP by disrupting the competitive symmetry between ISP and Unicredit.

Furthermore, during the investigation, UBI and Unicredit claimed that UBI could be defined as a maverick firm, especially because of its decentralised structure, its technological and innovative component, as well as its strong local presence. Nonetheless, the ICA found that UBI could not be considered a new entrant with a strong innovative force and disruptive capacity compared to the existing market structure, since UBI was instead a traditional operator in the banking sector.

After carrying out an in-depth market investigation, the ICA found that the proposed concentration could create or strengthen a dominant position in:

  1. the markets for consumer deposit and loans to both small and medium-sized households and enterprises;
  2. the markets for asset management and investment funds; and
  3. the market for distribution of life insurance products, due to their regional dimension and the lack of competitors.

Nonetheless, the ICA found that the measures proposed by ISP (the sale of 500 bank branches and of certain assets) were appropriate to remove the competitive concerns arising from the merger under review, and for these reasons it approved the concentration, on the condition that ISP would implement the proposed measures.

ii Trends, developments and strategiesThe ICA fines several gas operators at national level for failure to notify a concentration

On 15 September 2020, the ICA imposed total fines of approximately €150,000 on Acea, Mediterranea and Alma48 for failure to notify their acquisition of joint control over Pescara Distribuzione49 before implementing the transaction, in violation of Article 16(1) of Italian Law No. 287/90.50

On 18 May 2020, the parties notified two transactions to the ICA, namely: (1) the acquisition of joint control over Pescara Distribuzione (first acquisition), pursuant to a preliminary purchase and sale agreement signed by the parties on 11 October 2018 and executed on 18 March 2019; and (2) the acquisition of joint control over Alto Sangro Distribuzione51 (second acquisition), pursuant to a preliminary agreement signed by the parties on 10 March 10, 2020.

In the parties' view, the two transactions were interdependent within the meaning of Article 5(2) of EU Regulation No. 139/2004 (the EU Merger Regulation)52 as they were part of Acea's expansion project in the distribution of natural gas in central Italy (and in Abruzzo in particular). Moreover, they did not violate the obligation of prior notification as they notified the first acquisition before the closing of the second acquisition.

The ICA took the opposite view, noting that the first acquisition was an above-threshold transaction and, therefore, should have been notified before its closing, as required by Italian Law No. 287/90. Moreover, even if they had been part of one and the same concentration, they should have been notified before the closing of the first acquisition, rather than the closing of the second acquisition. It reasoned that this conclusion was consistent with Article 5(2) of the EU Merger Regulation, which is aimed at capturing various sub-threshold transactions and parallel agreements that are spread over time by parties with a view to eluding merger control.

The Council of State overturns TAR Lazio judgment that quashed ICA decision that imposed commitments on Sky after withdrawal of notification

In a ruling published on 19 November 2020, the Council of State declared inadmissible an appeal for revocation lodged by Sky,53 and confirmed its decision dated 4 June 202054 (i.e., a judgment curiously issued in a simplified form in which the Council of State overturned a TAR Lazio judgment that had quashed an ICA decision concerning the acquisition of sole control of R2 by Sky).

On 20 May 2019, the ICA issued its decision on the acquisition of sole control of R2 by Sky.55

Sky is a television operator active in the provision of pay-TV services, offered both via satellite and via digital terrestrial television (DTT). Mediaset Premium (MP) is an undertaking active in the market for the production of content, which is generally transmitted in the pay-TV market. MP wholly owns R2, a company that provides technical and administrative platform services for broadcasting by means of DTT.

In November 2018, Sky notified the ICA of its acquisition of sole control over R2 and completed the transaction before the ICA's clearance. Because the ICA decided to open an in-depth investigation, the parties withdrew the notification and tried to restore the previous competitive conditions. R2 was demerged from Sky and returned under the control of MP.

Nonetheless, the ICA took the view that the demerger did not fully restore the situation existing before the transaction, and therefore it imposed on Sky a set of behavioural remedies for the duration of three years.

Furthermore, in its decision, the ICA adopted a broad definition of 'concentration'. Its assessment was not limited to the acquisition of R2 by Sky, but also covered a set of agreements signed in 2018 between Sky and MP. In these agreements, MP assigned to Sky some DTT transmission capacity for its pay-TV services and provided a licence allowing Sky to include MP's channels and TV shows in its pay-TV offerings via satellite, DTT and internet. According to the ICA, these contractual arrangements would have survived the abandonment of the notified transaction and had already had the effect of causing MP's exit from the market and a significant increase in Sky's customers.

On 5 March 2020, the TAR Lazio annulled the ICA's decision and, consequently, the measures imposed on Sky.56 The ruling was based both on procedural and substantive grounds. In referring to the procedural grounds of appeal, the TAR Lazio found that the ICA violated Sky's right of defence, given that there was a substantial difference between the transaction to which the statement of objections referred and the transaction on which the decision was based, following the demerger. As regards the substantive grounds, the TAR Lazio upheld Sky's pleas according to which – after R2 was demerged from Sky and returned under the control of MP – the ICA could not have found that there was a reportable concentration between Sky and MP. According to the TAR Lazio, the DTT sub-licence did not grant Sky any exclusivity and its duration was too short to result in a lasting change in control of the undertakings concerned and in the structure of the market.

Unlike the TAR Lazio, with an unprecedented decision issued in simplified form and without warning after the initial hearing on interim measures, the Council of State examined very briefly the procedural grounds of appeal that Sky had previously submitted before the TAR Lazio. In particular, the Council of State held that the ICA decision was compliant with Article 18(3) of Law No. 287 of 10 October 1990, according to which, if the concentration has already been implemented before the decision, the ICA can impose the measures that are necessary to restore effective competition. According to the Council of State, when Sky received the statement of objections, it was in the position to know that the ICA could impose the necessary measures to restore effective competition in its final decision.

The Council of State focused rather on the substantive issues. In particular, the Council of State held that the TAR Lazio erred in finding that: the DTT sub-licence did not grant Sky any exclusivity; and the duration of that sub-licence was too short to result in a lasting change in the companies' control and in the structure of the market.

Furthermore, the Council of State agreed with the ICA's finding that, even though the parties had withdrawn the notification of the transaction, they had failed to show the re-establishment of the previous status quo. The court reasoned that the grant of the DTT sub-licence and the acquisition of control over R2 (even though for a limited period of time) had irreversibly altered the competitive dynamics in the affected market , also in light of fact that the acquisition of control over R2 allowed Sky to request a technological change to R2 smart card reader settings to remove the 'pairing', which prevented them from being used with smart cards other than R2s. The Council of State concluded that this allowed Sky to strengthen its dominant position in the market for pay-TV services.

Finally, on 19 November 2020, the Council of State rejected Sky's application for revision of its decision issued on 4 June 2020. The Council of State stated that an application for revision can be upheld only when an apparent and objective error of fact occurs. In the present case Sky submitted complex pleas that – by their very nature – were considered by the Council of State as incompatible with this kind of error. In addition to that, in the Council of State's opinion, its previous judgment had thoroughly examined all the pleas that were crucial to the decision, while the pleas that were not examined in full were nonetheless expressly acknowledged by the court. Therefore, the Council of State concluded that Sky's application for revision was inadmissible.

iii Outlook

On 23 March 2020, the ICA updated the filing thresholds for the Italian merger control regime, which remain extraordinarily high. Currently, a filing is not required unless (1) the aggregate Italian turnover in the last financial year of all involved undertakings exceeds €504 million and (2) the Italian turnover in the last financial year of each of at least two of those undertakings exceeds €31 million.

Since the two thresholds are cumulative – and the first threshold is very rarely met – the ICA's ability to review proposed transactions continues to be very limited. Only 27 concentrations were notified in the first half of 2020, and the ICA carried out an in-depth review in just two cases. By comparison, more than 400 transactions a year were notified before 2013, when a filing was required for any transaction meeting either of the two turnover thresholds.