The Competition Agency has rarely experienced the level of media attention and associated professional curiosity that it has had recently, following two merger control proceedings which recently ended.(1) The proceeding in which the agency decided to clear conditionally HT's(2) acquisition of control over Optima in pre-bankruptcy settlement proceedings is novel not only with regard to the means of acquiring control (for further details please see "Pre-bankruptcy settlements as new means of acquiring control"), but also in terms of the scope of accepted remedies.
During the assessment of the concentration between HT and Optima, the agency accepted the 'failing firm' argument,(3) concluding that competition would be negatively affected to the same extent in the absence of the merger.
Even though it had accepted this legal standard, the agency cleared the concentration subject to the fulfilment of comprehensive behavioural remedies intended to eliminate the expected negative effects of the concentration, which would primarily affect fixed electronic communication services in Croatia. The concentration was framed by the extensive set of behavioural remedies and, more importantly, a novelty in Croatian case law: a time limitation covering an entire clearance decision.
The duration of the concentration between HT and Optima is limited(4) to a period of four years, after which approval of such arrangement shall be automatically revoked, without the possibility of extension. This legal mechanism was created to alleviate the structurally negative effects of the concentration, while creating space for a company in difficulties and its creditors to safeguard their positions and financial standings on the market. At the end of the third year after the clearance, HT must start selling its shareholding in Optima and will also have the right to sell other shares in the company.(5) If the shares are not sold by the expiry of the four-year period, HT shall transfer its controlling rights to a third party.
Under Article 22 of the Competition Act (Official Gazette 79/09 and 80/13) parties, and consequently the agency, are in no way limited when tailoring remedies in order to eliminate the negative effects of a proposed concentration. Thus, the time limitation strikes a balance between the pitfalls of pre-bankruptcy proceedings and the general crisis in the Croatian electronic communications sector.
The remedies set out in this decision are focused on safeguarding Optima's economic (and technological) position during the four-year period by maintaining its relative strength in the markets. Thus, HT agreed that it shall ensure active management, which should prevent a situation in which Optima's assets would be minimised. This particularly refers to Optima's customer base portfolio and infrastructure network, which should remain attractive enough for the potential sale process to succeed.
Several of the accepted remedies, which will be monitored by the trustee, aims to ensure the autonomy of Optima's business operations during the concentration, encompassing the following:
- There is a prohibition on both parties to the concentration performing duties – for example, HT members of the Optima management board cannot at the same time be members of HT's management or supervisory board, including all HT affiliated companies. Moreover, at least one of the members appointed to the management board in Optima must have no previous connection with HT.
- Special rules that prevent information exchange between the parties will be implemented – for example, HT must establish corporate mechanisms between the companies (so-called 'Chinese walls').
- HT must refrain from utilising or engaging Optima's assets – for example, HT must:
- not offer employment to key Optima employees;
- protect the confidentiality of Optima's user databases; and
- refrain from taking any action that would restrict Optima's current sales activity.
- During the four-year period, HT will not give Optima preferential treatment in terms of providing wholesale services compared to other operators present in the relevant market; and
- HT will refrain from acquiring control in other pre-bankruptcy proceedings over other telecommunications operators.
Finally, the agency has found a clever way to maintain a balance between the undertakings' exit from the market and the negative effects that arise in a post-merger structure. Therefore, the concentration is permitted for only a limited time, during which all parties should resolve their problems – that is, HT should find a way to sell its shares in Optima for a suitable price (it is reasonable to assume that it will be set against the initial claim), while Optima should remain a sufficiently attractive target at the end of the expiration of the four-year period. This is a challenging task for all parties involved.
For further information on this topic please contact Gabriele Wahl Cesarec or Mislav Bradvica at Wahl Cesarec & Partners in cooperation with Schoenherr by telephone (+385 1 4813 244), fax (+385 1 4813 073) or email (firstname.lastname@example.org or email@example.com). The Schoenherr website can be accessed at www.schoenherr.eu.
(1) After lengthy proceedings, the agency rendered decisions within one week (between March 19 and 24 2014) in the HT/Optima and Agrokor/Mercator merger cases. Both published decisions clearly show that the agency is well equipped to engage in lengthy procedures and finetuning of the proposed remedies in merger control proceedings.
(3) The agency concluded that it could be reasonably estimated that in the absence of a merger, Optima's assets would, for the most part, inevitably exit the market, bearing in mind that alternative operators in the eventual liquidation proceedings would be unable to acquire them or make a return in another way in a relatively short period of time – and thus maintain competition in the relevant market with less anti-competitive effects than those which would be created by implementation of the concentration.
(4) HT acquired control on the basis of the shareholder agreement concluded between HT and ZABA Bank, after both converted receivables into shares in the pre-bankruptcy proceeding. The clearance decision implies that under the shareholder agreement, HT has voting rights in Optima. After the expiry of the four-year period, the shareholder agreement shall be terminated and control shall be transferred automatically to ZABA Bank.