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Trends and climate
How would you describe the current merger control climate, including any trends in particular industry sectors?
Merger control continues to be the most heavily criticised area of Ukrainian competition law, for two reasons:
- comparatively low notification thresholds without proper local nexus requirements; and
- an overly formalistic review procedure.
There have been no major developments in merger control legislation over the last two years; the enforcement practices of the Anti-monopoly Committee (AMC) remain conservative, although recent months have seen a shift to a more business-friendly approach. On a positive note, the AMC and the Ukrainian Parliament are under pressure from international non-governmental organisations and Ukrainian and international businesses to improve merger control; appreciable changes are expected to occur in the near future.
The AMC has started applying a broader perspective for the market definition when analysing the effects of a transaction. This is a positive trend, as only a few years ago it seemed unwilling to accept a market definition larger than Ukraine, even though the competition law does not exclude this scenario. The AMC has become more open to looking into regional European markets and even the worldwide market. However, its present approach seems to lack consistency, most likely because it has yet to accumulate sufficient expertise in the analysis of such broader markets. As in other areas where local practice remains underdeveloped, the AMC tends to look to the practice of the European Commission as useful guidance.
In 2014 the AMC applied remedies in a few cases, focusing on the natural gas, agricultural equipment and pharmaceutical sectors. As is evident from its enforcement practices, there is an evolving tendency to apply remedies in industries where the AMC regards the position of customers as most vulnerable (eg, pharmaceuticals), and where at least one party has an appreciable market share. In several instances the AMC applied behavioural remedies (eg, to refrain from anti-competitive practices) as a precaution in situations where just one of the parties had a strong position in the market and the transaction had no foreseeable effect in Ukraine.
Are there are any proposals to reform or amend the existing merger control regime?
Threshold revision appears to be key to reforming the merger control regime, as parties to multinational transactions often need to file deals that lack any reasonable local nexus (at present it suffices for one party to the transaction to have at least €1 million in Ukrainian assets/turnover to formally trigger the thresholds). However, discussions in this area have recently become more complex. An increase in thresholds alone may be insufficient to improve the regime – implementation practices also need updating. Further, Ukraine’s Association Agreement with the European Union will, among other things, oblige Ukraine to align its merger control rules with the EU regime. This has made notification thresholds a vital topic for discussion.
Further, reform will be required as regards the following issues:
- definition of the target group composition. At present, the target must disclose detailed information about the sellers, even though the controlling link to such sellers may be lost after close. This often places a significant burden on the notifying parties;
- calculation of the target assets/turnover. As with the above, at present the assets/turnover of the controlling sellers must be counted, even though the controlling link to such parties may be lost after close;
- clarity on sole/joint control issues. The current merger control regime does not clearly differentiate between sole and joint control, which often causes uncertainty as regards turnover allocation and qualification in change of control cases;
- treatment of horizontal mergers. The Association Agreement requires the adoption of the document explaining the principles used in the assessment of horizontal mergers. Other guidelines may be required to achieve uniform application of merger control rules – for example, on the definition of control and effects on competition and the calculation of thresholds;
- introduction of an accelerated and simplified review procedure; and
- ancillary restraints. At present, ancillary restraints such as non-compete obligations accompanying a merger are often formally treated as anti-competitive concerted practices requiring separate clearance.
Publication of decisions
A new draft law ensuring the transparency of the Anti-monopoly Committee (AMC) adds procedural detail to the rules on the submission and handling of confidential information. Sensitive information should be specifically marked as such at submission. Filing parties will also be asked to provide the AMC with a non-confidential version of such data.
Further, the AMC will be required to display on its website:
- basic information on its resolutions to initiate an in-depth review in merger and concerted practices cases and full versions of its decisions on mergers; and
- concerted practices notifications in cases of violation of competition laws and unfair competition cases.
Calculation of fines
Another recent draft law requires the AMC to draft a methodology on the calculation of fines to be imposed for violations of competition law. The draft aims to establish a transparent and predictable policy on the issue. At present, the law lacks guidelines on which criteria should be taken into account. Further, such criteria cannot be derived from AMC practice either, as decisions are not published (and even if they were, such decisions do not normally include the calculations made in determining fines – only the final amount). The methodology itself has not yet been drafted; thus, it may take some time for the document to become effective. This amendment is in line with the Association Agreement implementation provisions requiring the AMC to "adopt and publish a document explaining the principles to be used in the setting of any pecuniary sanctions imposed for infringements of the competition laws".
Legislation, triggers and thresholds
Legislation and authority
What legislation applies to the control of mergers?
Applicable laws and regulations include:
- the Law of Ukraine on Protection of Economic Competition (2001);
- the Resolution Approving the Regulation on the Procedure for Filing Applications with the Anti-monopoly Committee of Ukraine for Obtaining its Prior Approval of the Concentration of Undertakings (2002) (Concentrations Regulation); and
- the Anti-monopoly Committee Methodology for Establishment of the Monopoly (Dominant) Position of the Undertakings on the Market (2002).
What is the relevant authority?
The Anti-monopoly Committee (AMC) is the primary state authority entrusted with ensuring the protection of competition. It has powers to investigate and grant or refuse clearance for concentrations. If the AMC refuses to approve a concentration, the Cabinet of Ministers may overrule such decision.
Transactions caught and thresholds
Under what circumstances is a transaction caught by the legislation?
The Law of Ukraine on Protection of Economic Competition (Competition Law) uses the term ‘concentrations’, broadly defined as covering the following transactions:
- the merger of two or more previously independent undertakings or the takeover of one undertaking by another;
- the establishment by two or more undertakings of a new undertaking that will independently pursue business activities on a permanent basis, and whose establishment does not result in the coordination of competitive behaviour between the parents or between the new undertaking and its parents;
- the direct or indirect acquisition of shares whereby certain thresholds (25% or 50% of the votes in the highest governing body of the undertaking concerned) are reached or exceeded; and
- the acquisition of direct or indirect control over an undertaking, including through:
- the acquisition or lease of a significant part of the assets of an undertaking (including through liquidation); or
- appointments to certain positions (eg, chairperson, deputy chairperson or more than half of members of decision-making or supervisory corporate bodies).
The Anti-monopoly Committee (AMC) requires separate notification for each step of a multi-stage transaction. In particular, an acquisition of joint control by two independent undertakings through a special purpose vehicle (SPV) normally requires two separate clearances – one for the joint establishment of a purely technical SPV (even where the SPV is a new company incorporated with the sole purpose of participating in a bidding process) and one for the acquisition of the target. Depending on the structure of the deal, it may involve other triggering events requiring additional clearance.
The same complexity applies to multiple acquisitions. For example, in asset deals involving the acquisition of shares in a number of directly acquired entities, where one undertaking simultaneously acquires a number of direct targets from the same (ultimate) seller, the AMC must clear each acquisition through separate clearance decisions. This has only become the prevailing practice of the AMC since 2011 – before 2011, most multi-target deals were cleared through a single decision.
Regarding the acquisition of control provision (as defined above), although the Competition Law provides only a couple of examples of notifiable transactions, it is in fact a catch-all provision intended to cover acquisitions with respect to any kind of control. ‘Control’ is defined as the ability to exercise decisive influence (including via blocking rights) over strategic decisions relating to the business activity of an undertaking. It may arise through contractual arrangements and also includes joint and negative control. There is little guidance as to what constitutes ‘negative control’, save for some confusing tests for negative control in the Concentrations Regulation. Consequently, it may be difficult in practice to distinguish negative control from standard minority protection rights, making relevant self-assessment a tricky exercise and obliging parties to a merger to apply for clearance on a precautionary basis.
Under a fair interpretation of the law, a change from joint to sole control or vice versa should qualify as a concentration. However, due to the very broad definition of ‘control’ and absent guidance on the matter from the AMC, the notifiability analysis of this change must be made on a case-by-case basis.
The following transactions do not qualify as concentrations under the Competition Law and no merger clearance is required, irrespective of the parties' turnover or value of their assets:
- the establishment of a new undertaking aimed at, or that results in, coordination of competitive behaviour between the parents or between the new undertaking and its parents (as mentioned above). This is generally regarded as a concerted practice and may require antitrust clearance;
- the acquisition of shares qualifying as a financial buyer transaction – for example, where shares are acquired by a financial institution for the purposes of further resale within one year (extendable), provided that the acquirer does not exercise voting rights attached to the acquired shares;
- the acquisition of control over an undertaking or part thereof by a receiver or a representative of a state authority (eg, through an insolvency procedure); and
- intra-group transactions, provided that control links within the group have been established in compliance with Ukrainian merger control rules. Although the AMC may be time barred from imposing penalties because of the five-year statute of limitations, an adverse interpretation of the law could mean that the filing obligation applies to intra-group transactions involving undertakings acquired in violation of Ukrainian merger control requirements – even if such violation took place during the period when merger control rules applied (under both the current and the previously applicable law). To date, there are no official guidelines on such intra-group transactions. However, to our knowledge there have been no cases where the AMC penalised a group for similar violations.
Do thresholds apply to determine when a transaction is caught by the legislation?
A transaction that qualifies as a concentration requires merger clearance by the Anti-monopoly Committee if it satisfies the following criteria:
- All of the following thresholds are met:
- The combined worldwide value of the assets or turnover of the participating undertakings exceeded €12 million in the previous financial year;
- At least two participating undertakings had worldwide assets or turnover valued in excess of €1 million in the previous financial year; and
- At least one participating undertaking had Ukraine-based assets or turnover value in excess of €1 million in the previous financial year; or
- The combined market share of the participating undertakings in the relevant and adjacent Ukrainian market(s) is above 35%.
For the purposes of the qualification of a transaction and the calculation of thresholds, an ‘undertaking’ is defined as:
- a legal entity;
- a natural person; or
- a group of undertakings connected by a control relationship, including via natural persons.
The Concentrations Regulation has no definitive concept of an ‘undertaking concerned’. In each case the whole group qualifying as an undertaking shall be taken into account, irrespective of its role in the transaction. This means that the turnover and value of assets of the entire group acting as a seller – not only of the target – should be used when assessing a company's figures against the merger control thresholds.
Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?
The parties may refer to the Anti-monopoly Committee (AMC) for formal guidance (ie, a non-binding preliminary opinion) on the notifiability of a concentration and whether clearance is likely to be granted. The review period for such guidance applications is up to 30 calendar days. Informal discussion with the AMC's officers is usually possible, although the law does not expressly provide for this.
Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?
An obligation to notify arises if just one participating undertaking has €1 million in assets located in Ukraine or meets the turnover threshold, irrespective of its role in the transaction and the overall effect of the transaction in Ukraine. As a result, the Ukrainian filing requirement catches many foreign-to-foreign deals that have no reasonable relevance to Ukraine and its competitive environment.
Pursuant to the Law of Ukraine on Protection of Economic Competition, an argument can be made that the application of the turnover/asset thresholds should be qualified by the 'effects doctrine', under which clearance is not required if the transaction lacks reasonable local nexus and cannot have an anti-competitive effect. However, this argument runs contrary to the current approach of the Anti-monopoly Committee (AMC) in the application of merger control rules. On several occasions the AMC has expressed its unofficial position on the issue, claiming that foreign-to-foreign transactions are subject to clearance because the AMC has exclusive authority to determine whether a particular transaction may affect competition in Ukraine, and verification of impact is conducted while reviewing a merger case and granting clearance.
The AMC has accepted and reviewed applications for clearance of transactions that lack reasonable local nexus (but technically triggering the thresholds), thus indirectly confirming its jurisdiction over such transactions. Further, it has imposed fines for the closure of some of these transactions without prior merger clearance.
What types of joint venture are caught by the legislation?
The legislation applies to any establishment by two or more undertakings of a new undertaking that will independently pursue business activities on a permanent basis, where its establishment does not result in the coordination of competitive behaviour between the parents or between the new undertaking and its parents.
A joint venture is deemed to be established once it has been registered in the commercial register or the equivalent thereof. The preparatory stages of a joint venture often qualify as notifiable concentrations and, if not cleared by the Anti-monopoly Committee (AMC), can attract penalties.
The AMC’s approach to the qualification of transactions is highly formalistic, disregarding the substance of such transactions. Therefore, the establishment of a joint venture may qualify as an acquisition of shares if the joint venture partners acquire a shelf company from a corporate services provider or one of the partners acquires a stake from the other.
Further, if the formation of a joint venture results in the coordination of competitive behaviour between the parents or between the joint venture and its parents, it may require separate antitrust (as opposed to merger) clearance.
Process and timing
Is the notification process voluntary or mandatory?
Once the jurisdictional thresholds are triggered, a concentration requires clearance unless it qualifies for an exemption (eg, as an intra-group transaction or a financial buyer transaction).
What timing requirements apply when filing a notification?
There are no deadlines for filing a notification in Ukraine. The only requirement is that Anti-monopoly Committee clearance be obtained before implementation of the concentration. It is even possible to file notification of transactions in the early stages, where no definitive agreement has been reached.
What form should the notification take? What content is required?
The Concentrations Regulation sets the form for notification. Certain data must also be submitted in electronic form using special software developed for that purpose by the Anti-monopoly Committee.
The notification must include the following:
- a detailed outline of the transaction structure, indicating the transaction stages, financial aspects of the transaction and the applicable timeline;
- the respective groups’ composition and a brief outline of their worldwide activities;
- detailed information on the parties’ activities in the Ukrainian markets, including:
- the details of any parties which are active in (ie, selling to) Ukraine;
- supply volumes per market;
- market shares (with calculations if available, or at least estimates); and
- the names and contact details of customers, competitors and suppliers in all markets in which the respective parties are active in Ukraine (including those which may be not relevant to the transaction); and
- a detailed description of relevant Ukrainian markets and the anticipated effect of the transaction in Ukraine (although it may be possible to negotiate some limitation of information on non-relevant markets).
Is there a pre-notification process before formal notification, and if so, what does this involve?
There is no pre-notification process. However, Anti-monopoly Committee officials are usually available for brief unofficial discussions regarding the notifiability of a proposed transaction or technical issues related to a future notification.
Can a merger be implemented before clearance is obtained?
The parties are subject to a stand-still obligation. Closing without or before clearance constitutes a violation of merger control laws.
Guidance from authorities
What guidance is available from the authorities?
The parties to a transaction may refer to the Anti-monopoly Committee (AMC) for formal guidance (ie, a non-binding preliminary opinion) on whether the concentration is notifiable and whether clearance is likely to be granted or refused. Informal discussions with the AMC's officers are usually possible at any stage; in complex cases it is customary to have meetings with the AMC and seek advice on remedies. Individual derogations are not possible.
What fees are payable to the authority for filing a notification?
The obligatory filing fee is UAH5,100 (approximately €210) per notification (there may be multiple notifications depending on the transaction structure).
Publicity and confidentiality
What provisions apply regarding publicity and confidentiality?
Generally, all information submitted the Anti-monopoly Committee (AMC) can be marked by the notifying parties as confidential and will be treated by the AMC as such.
The AMC may (but is not required to) disclose certain general information on the transaction and the parties involved, including the nature of the transaction and the relevant markets. The AMC may also publish (usually on its website) other information regarding the transaction to the extent that it has not been marked as confidential by the parties. The AMC tends to make public those investigations which are likely to attract public attention, comments and opinions.
In addition, under the Law on Access to Public Information, which entered into force in 2011, the AMC must disclose its decisions (excluding confidential information). To date, this provision has been implemented by the AMC through the publication of short notices regarding its decisions and major investigations.
On receipt of a merger notification, the AMC may disclose general information on the transaction and the parties involved if:
- third parties may object to the transaction; or
- Phase II review (ie, a close analysis of the transaction and associated competition concerns) has been initiated.
On issuing a decision, the AMC may disclose other information regarding the transaction and the parties involved, within the scope usually agreed with the parties. In practice, the AMC publishes notices containing the notifying parties’ names and a brief description of the transaction structure on its website one to three business days after issuance of the decision.
Are there any penalties for failing to notify a merger?
Failure to notify can lead to a fine of up to 5% of the consolidated turnover for the year immediately preceding that in which the fine is imposed. The Anti-monopoly Committee's official position is that reference is made to worldwide turnover.
The fine may be imposed on the entire corporate group of the offender whose actions or omissions led to a violation of the Law of Ukraine on Protection of Economic Competition.
Procedure and test
Procedure and timetable
What procedures are followed by the authority? What is the timetable for the merger investigation?
The merger review procedure includes the following steps.
The Anti-monopoly Committee (AMC) has 15 calendar days to decide whether the notification is complete and can be forwarded for substantive review (ie, Phase I). If the AMC considers the notification incomplete, it will be rejected; the parties have the right to resubmit it.
Phase I review
This stage involves substantive review and assessment by the AMC of whether the concentration can be approved or whether there are potential grounds to prohibit it or conduct an in-depth investigation (in which case Phase II is initiated). The assessment must be completed within 30 calendar days of the acceptance of the notification for substantive review. During this period the AMC will either issue the clearance or initiate Phase II.
Phase II review
Phase II review involves close analysis of the transaction and the associated competition concerns, and the examination of expert opinions and other additional information. Although the review period is limited to three months from its initiation, in practice it may take longer if additional documents, information and expert evidence are required (the relevant AMC requests may stop or even restart the clock). During this period the AMC will either issue clearance (conditional or unconditional) or adopt a decision prohibiting the concentration.
If the AMC has failed to adopt a decision on the concentration before Phase I or Phase II expires, it is deemed to have granted clearance by tacit consent. However, the AMC does not normally clear by tacit consent.
What obligations are imposed on the parties during the process?
The parties are required to provide any additional information and documents upon the Anti-monopoly Committee’s request.
What role can third parties play in the process?
The Anti-monopoly Committee (AMC) may involve third parties (eg, competitors, suppliers, consumers and experts) in the merger case review process if the AMC decision with respect to the notified transaction might significantly affect their rights and interests. Some of the parties may be involved during Phase I, and all of them during Phase II. The AMC acts in its full discretion when deciding on the issue and its decision is then communicated to the notifying parties.
Third parties may also submit their observations relating to the notified transaction and its impact on the market. Such observations are then attached to the case as evidence and must be taken into account when the AMC decides on the case. The AMC may request information, documents and third-party opinions where it considers such data relevant and necessary for the case assessment. Normally, when issuing such information and document requests, the authority indicates the deadlines for the provision of the requested data. Non-compliance with such information/documents request may result in the imposition of penalties on the third party.
What is the substantive test applied by the authority?
The Anti-monopoly Committee (AMC) approves a concentration if it does not lead to monopolisation (ie, the achievement or strengthening of a dominant position in the market) or substantial restriction of competition in the Ukrainian market or a significant part thereof. Otherwise, the transaction will be prohibited unless the parties offer sufficient remedies.
The test for dominance is:
- more than 35% of the market share, if held individually;
- more than 50% of the market share, if held collectively by two or three undertakings with the largest market shares; and
- more than 70% of the market share, if held collectively by four or five undertakings with the largest market shares.
However, no further guidance is provided concerning – among other things – how the effects of the maintenance of dominance should be assessed or the threshold beyond which restriction of competition becomes substantial. Each transaction must therefore be assessed on a case-by-case basis.
Does the legislation allow carve-out agreements in order to avoid delaying the global closing?
The stand-still obligation for notifying parties applies globally and Ukrainian merger control law does not provide for any possibility to obtain individual derogation or avoid penalties through respective carve-out or hold-separate arrangements.
In practice, the Anti-monopoly Committee may accept a hold-separate/carve-out arrangement as a mitigating factor when deciding on the amount of a fine, as such agreements show the parties' good-faith intention to comply with Ukrainian merger control law.
Test for joint ventures
Is a special substantive test applied for joint ventures?
No special substantive test is applied for joint ventures.
What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.
The Anti-monopoly Committee’s (AMC) clearance decision can be made conditional on the parties' undertaking to perform – or refrain from performing – certain actions aimed at removing or mitigating the negative impact of the concentration on the market competition, which may be either:
- structural (eg, divestitures); or
- behavioural (eg, restrictions on the use or management of certain assets or price increases).
Remedies and the relevant procedures are not comprehensively regulated by Ukrainian law and are usually negotiated with the AMC on a case-by-case basis. In practice, remedies are usually offered and discussed during Phase II.
Remedies cannot normally be accepted to prevent the initiation of Phase II review or to obtain a conditional Phase I clearance. Once the AMC has identified competition concerns, it is procedurally required to initiate Phase II.
When issuing a conditional clearance, the AMC may also impose reporting requirements to monitor compliance; this usually covers a three-year period.
Right of appeal
Is there a right of appeal?
An Anti-monopoly Committee’s (AMC) decision can be appealed by the parties to the transaction or third parties within two months of receipt of the decision.
If the AMC prohibits the concentration, the Cabinet of Ministers may still grant clearance if its positive effects in the public interest outweigh the negative impact of the restriction of competition, unless that restriction of competition:
- is unnecessary for achieving the purpose of the concentration; or
- jeopardises the market economy system.
Do third parties have a right of appeal?
Third parties can appeal an Anti-monopoly Committee’s decision.
What is the time limit for any appeal?
An Anti-monopoly Committee's decision can be appealed by the parties to the transaction or third parties within two months of receipt of the decision.
Law stated date
Correct as of
Please state the date as of which the law stated here is accurate.
The law stated here is accurate as of April 30 2015.