On 15 December 2017, the Antimonopoly Committee of Ukraine (AMC) launched public consultations on the draft Non-Horizontal Merger Guidelines. The AMC invites to submit comments to the draft by 12 January 2018.
The draft Guidelines are largely modelled after the EU Non-Horizontal Merger Guidelines and will complement the existing Guidelines on Horizontal Mergers. The main points may be summarized as follows:
(i) AMC is unlikely to identify concerns in non-horizontal (i.e. vertical and conglomerate) mergers where the market share post-merger of the new business in each of the markets concerned is below 30% and where the post-merger HHI is below 2000 (except under certain circumstances, e.g., 'maverick' scenario, significant cross-shareholdings, etc.);
(ii) there is no presumption of illegality above the aforesaid safe harbor; a case-by-case analysis is required;
(iii) the anticompetitive effects of the non-horizontal mergers may be of non-coordinated and coordinated nature;
(iv) main concerns in the non-coordinated context include
a) upstream foreclosure (vertical mergers): raising costs of rivals by restricting their access to an important input;
b) downstream foreclosure (vertical mergers): raising costs/reducing revenue streams of rivals by integrating with an important customer in a downstream market to foreclose access to an important customer base;
c) foreclosure in related markets (conglomerate mergers): reducing rivals’ ability or incentive to compete by combination of products in closely related markets to leverage strong market position from one market to another by means of tying or bundling practices.
(v) in assessing the likelihood of foreclosure, the AMC will apply a three-step approach, including the analysis of:
a) ability to foreclose: assessment of the importance of the merged entity in the upstream, downstream or closely related market, possible counter-strategies of its rivals, etc.
b) incentive to foreclose: assessment of the profitability of the foreclosure strategy and possible trade-off that the merged entity may face (foreclosure may come at a cost).
c) impact on competition: assessment of the likelihood that the merged entity will increase prices, refuse to deal with rivals, mount barriers to entry or otherwise impede effective competition. This step also includes assessment of possible countervailing factors (buyer power, entry, efficiencies).
(vi) in the coordinated context, the draft Guidelines discuss the possibility that non-horizontal mergers could increase the likelihood of tacit coordination.
Overall, commentators applaud the AMC’s efforts in preparing and circulating for comment the draft Guidelines. They particularly welcome that the draft has substantial familiarity with the EU Non-Horizontal Merger Guidelines.
Notably, however, the EU Non-Horizontal Merger Guidelines were reproduced in the draft in somewhat pragmatic and straightforward fashion which potentially may result in certain divergence of substantive assessment standards of the EU and Ukraine. Namely, unlike its European version, the draft:
- does not state that non-horizontal mergers are often pro-competitive;
- acknowledges that input must be important for upstream foreclosure, but does not seem to expressly require the merged entity to have significant market power in the input market;
- recognizes that efficiencies can counteract adverse effect of non-horizontal mergers on competition, but fails to discuss at least some efficiencies specific to such mergers (e.g., internalisation of double mark-ups; reduction of inventories costs; alignment of incentives);
- does not expressly say that it is the impact on effective competition that matters, not the mere impact on competitors at some level of the supply chain;
- does not include non-coordinated theories of harm (e.g., gaining access to commercially sensitive information regarding rivals’ upstream or downstream activities) other than foreclosure.