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Under what circumstances is a transaction caught by merger control 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 merger control 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.

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