The Antimonopoly Committee of Ukraine (the AMC) published a press release on a minor deal that gives rise to the old discussion on the applicability of merger control to real estate transactions.
In Ukraine, as in many other jurisdictions, asset deals comprising a business require merger clearance. However, the number of clearances granted for the acquisitions of assets remained relatively small. Usually, they involved transfers of a mixture of assets representing a business, like a production line, a patented drug, or just distribution rights consisting of supply agreements and certain data. As it comes to real estate, the absolute majority of notified deals have been equity deals, with the real estate being transferred in a corporate wrapper.
The ongoing privatization in Ukraine has drawn the AMC’s attention to acquisitions of buildings and constructions through asset deals, and the press release contains some important clarifications.
In a fairly short document, the AMC summarized simple elements sufficient to trigger the merger clearance requirement. The asset for which the clearance has been granted is a real estate object that is intended to be used for commercial purposes – an office lease. As it transpires from the documentation earlier published by the State Property Fund for the relevant auction, the two privatized buildings have not been used for quite some time, required renovation, and have not been generating any turnover.
By this decision, the AMC has again practically confirmed that transactions with real estate allowing to carry out commercial activities are notifiable. Absent other criteria in the law or decisions by the AMC, any sale, lease, or transfer of real estate requires a merger control assessment and respective risk evaluation.
There are two other important considerations that may be particularly relevant.
First, Ukraine still does not recognize local nexus of both parties or at least of the target as a precondition for merger control requirement, forcing many international companies to notify transactions that a priori pose no antitrust concerns. The real estate transactions reviewed by the AMC so far concerned assets located in Ukraine. However, a growing interest to real estate deals in conjunction with the non-recognition of the local nexus prerequisite could be a challenge for transactions both in and outside Ukraine.
Second, the turnover and the assets of the seller are always counted towards the business being sold. This means that a sale of a tiny real estate object by a company that meets thresholds may potentially trigger the clearance requirement.
The AMC press release came shortly after another important decision confirming that carve-outs in foreign-to-foreign deals do not exempt from Ukrainian merger control. More in Asters' legal alert via link.