Merger reviewi Trends, developments and strategies
Significant amendments in 2015 introduced a number of significant changes to the Polish merger control system, including two-phase proceedings, revised rules on turnover calculation and amendments to procedural aspects related to remedies. It proved to have positive effects for business, in particular as it resulted in reducing the average length of proceedings before the OCCP. The average proceedings in 2018 lasted 41 days, and remained at a level comparable to that seen in 2016 and 2017. However, the proceedings concluded in Phase I only lasted on average 36 days.
The OCCP issued a record 228 merger control decisions in 2018, 220 of which were Phase I decisions.
We saw a steady number of complex merger cases in 2018, with a slight decline in comparison to 2017 only. In eight cases, a decision was adopted after Phase II proceedings. A further five cases are currently being investigated in Phase II. In the extended review proceedings, the OCCP continued to widely use its market-testing competencies aimed at verification of the relevant market definitions proposed by notifying parties or at obtaining views on the notified transaction from other stakeholders. The OCCP largely relies on the results of such tests. Market testing significantly increases the duration of Phase II proceedings, which on average last approximately seven months.
The OCCP is also widely using statements of objections (SOs), an institution that was introduced in the 2015 review. In 2018, an SO, whereby the OCCP informs the notifying party of its views regarding potential competition concerns resulting from a concentration, was issued in two proceedings.
In concentrations where competition concerns arise, in the two most recent conditional decisions – Eurocash/Eko Holding in December 2016 and PGE/EDF Polska in October 2017 – the OCCP applied remedies that did not involve altering the structure of the transaction (i.e., a simple divestiture remedy and behavioural remedy consisting of an obligation to sell electricity on stock exchange). Nevertheless, the OCCP may continue to rely on 'fix-it-first' remedies ordering merging parties to limit the scope of a notified transaction to address any significant impediment to competition.
In 2017, the OCCP was active in gun-jumping enforcement cases, issuing two of the highest-level fines for breach of the standstill obligation in its history. In 2018 we saw no fines for implementation of the concentration without the required OCCP clearance, however one new proceeding was instigated in this regard.
In two cases in 2017 and early 2018, the OCCP requested the European Commission on the basis of Article 9(2)(a) of EU Merger Regulation to refer a case for its review under Polish competition law. In Discovery/Scipps, the European Commission rejected the request and issued a conditional decision. In turn, in Smithfields/Pini Polonia, the Commission accepted the request and referred the case in full to be reviewed by the OCCP.ii Significant cases
The OCCP issued no conditional decisions in 2018 and one conditional decision in 2017, which concerned PGE's acquisition of EDF assets in Poland (i.e., a power plant in Rybnik and eight heating plants).
PGE is a Polish company listed on the Warsaw Stock Exchange active in the production and distribution of electrical and heat power. EDF's business activity in Poland concentrates on the production and distribution of electricity and heat, and trading of production fuels such as biomass and coal.
The OCCP investigated the case in Phase II as the business activities of PGE and EDF Poland overlapped on nine national markets related to the production and sale of electricity, of which six markets were horizontally affected. During the market analysis, the OCCP surveyed major companies operating in the power sector and requested the President of the Energy Regulatory Office to submit his opinion on the case.
The OCCP assessed that PGE post-transaction may have a share in excess of 40 per cent on the Polish market for the production and wholesale of electricity in Poland, and pointed out that PGE could gain a dominant position in the electrical power production and distribution market. This could lead to a further drop in trade on the Polish Power Exchange and negatively affect those competitors of PGE that do not have their own generation sources. Consequently, the retail electricity market would also be negatively affected.
The OCCP therefore issued an SO, and PGE submitted its remedy proposals. PGE committed itself to selling additional power through the Polish Power Exchange in an amount effectively equal to the volume of power generated in EDF's power plant in Rybnik. This commitment, however, does not concern electrical power from cogeneration. The OCCP concluded that the proposed remedy removes the threat of a significant restriction of competition because it limits the possibility of PGE abusing its market power post-transaction. Moreover, according to the OCCP, the remedy also reduced other risks resulting from the vertical relations between PGE and EDF in Poland. The commitment will be in force until 31 December 2021 or until the acquired power plant in Rybnik ceases to belong to PGE. In addition, the OCCP set a requirement that PGE report quarterly on the execution of the commitment.
In 2018 and early 2019 the OCCP issued two SOs concerning the notified concentrations. The first was issued in November 2018 and concerned Air Products' acquisition of ACP Europe and Eurocylinder, which are subsidiaries of ACP that specialise in liquid carbon dioxide. In February 2019, the OCCP issued the SO concerning Multikino's, a subsidiary of Vue International, planned acquisition of Cinema 3D. The OCCP considers that this transaction may lead to a significant impediment of competition on the three local markets for network cinemas in Tricity and in Warsaw.
Although the OCCP did not forbid any concentration in 2018 and early 2019, the notifying party withdrew its notification in five cases after the OCCP issued an SO. In these cases, most likely, the commitment proposals were not good enough to mitigate the competition concerns identified by the OCCP.
In 2017, the OCCP imposed fines for breach of the standstill obligation in three cases: Bać-Pol in June, Fermy Drobiu Woźniak in September and MO in December. The cases show the OCCP's increased attention on cases pertaining to concentrations closing before required clearance.
In Bać-Pol, the OCCP concluded that Bać-Pol had infringed Polish competition law by acquiring control over Klementynka without the required OCCP clearance. The proceedings were instigated as a result of a complaint submitted by the previous co-owner of Klementynka. The evidence gathered indicated that Sezam had acquired the most important assets of Klementynka, such as key employees, contracts with key suppliers and customers, and goods designated for immediate shipment, which were Klementyka's main business assets. Although the proceedings did not reveal any written contract confirming the concentration, the OCCP found that the acquisition of those assets constituted a concentration based on other evidence such as mail correspondence and statements of witnesses. The OCCP fined Bać-Pol 527,000 zlotys, which is the highest fine imposed for breach of the standstill obligation in Poland so far. While determining the amount of the fine, the OCCP took into consideration both aggravating circumstances such as lack of cooperation in the course of the proceedings as well as mitigating factors such as no significant impediment of competition on the relevant market (i.e., non-specialised food wholesale) resulting from the completion of the transaction.
Fermy Drobiu Woźniak was also fined 339,000 zlotys for a similar infringement of the competition law. The OCCP concluded that Fermy Drobiu Woźniak acquired assets of Fermy Drobiu Borkowski without notifying the OCCP of its intention to concentrate, and thus violated merger control provisions laid down in the Act. Acting upon a complaint from Fermy Drobiu Woźniak's competitors, the OCCP collected evidence supporting the fact that Fermy Drobiu Woźniak acquired a part of Fermy Drobiu Borkowski's assets on the basis of a lease agreement of six poultry farms of Fermy Drobiu Borkowski. In the case, the OCCP confirmed that the lease agreement should have been classified as a form of notifiable concentration.
In MO, an undisclosed individual was fined 22,120 zlotys for the acquisition of joint control over Empik Media & Fashion. The OCCP concluded that MO acquired control at the moment of signing the shareholders' agreement, under which two major shareholders of Empik Media & Fashion agreed, inter alia, to act in concert as to the exercise of their voting rights at the company's shareholders' meeting.
No fines were imposed by the OCCP in 2018, but one ongoing proceeding is worth mentioning owing to the possibility of imposing a fine and precedent character. The OCCP alleges that Gazprom and five other companies breached Polish competition law by financing the creation of Nord Stream 2 gas pipeline without obtaining prior merger clearance. In 2015, the companies notified the OCCP of their intention to create a joint venture responsible for designing, financing and constructing a pipeline in the Baltic Sea. The OCCP raised concerns with regard to this concentration in July 2016 on the grounds that it could lead to a significant impediment of competition concerning gas supply to Poland. The notifying parties withdrew the notification. In April 2017, the OCCP instigated preliminary proceedings to re-examine the case as it learned that former JV parents signed the contract to finance the construction of Nordstream. This, in the OCCP's opinion, could constitute an attempt to circumvent the lack of consent to create a joint venture, given the similar objective of the JV and financing arrangements.iii Outlook
It is not anticipated that there will be a major shift in the current merger control policy in 2019.