On 26 June 2023 the Antimonopoly Committee of Ukraine (AMC) issued a press release on one of the highest fines for gun-jumping in a foreign-to-foreign transaction with the Ukrainian limb carved out from the deal.
The decision stands out for three reasons:
In December 2021 two international pharma companies notified the acquisition of certain rights to products comprising a business. In January 2022 the AMC concluded that the notified acquisition was potentially problematic in Ukraine and opened Phase II. Ukraine was then carved out from the scope of the transaction, with the closing occurring shortly after that. The transaction was unconditionally cleared in January 2023, the AMC found that the transaction as implemented had no effect on the Ukrainian markets. The investigation of the gun-jumping continued in parallel, and the fining decision was issued in June 2023.
In the press release that followed the still unpublished decision, the AMC noted that the parties had carved out Ukraine but added that this was insufficient to avoid gun-jumping as the transaction still remained subject to the standstill obligation. As to the fine itself, the AMC fell short of addressing an unprecedented high fine for a transaction that does not raise competition concerns, only pointing out that closing took place while in Phase II.
Further details on this case should be available from the non-confidential version of the decision that will be published later in July. However, the press release already contains important guidance on some frequently asked questions about merger control in Ukraine.
Question 1: how effective are carve-outs in Ukraine?
Unlike in some jurisdictions (including the EU) where there is a possibility of an exemptional derogation from standstill obligation, in Ukraine this obligation is set in stone. The AMC cannot grant any derogations even where a transaction does not raise prima facie substantive concerns. Nor does the law expressly allow the AMC to consider a carve-out as a mitigating circumstance while calculating the amount of the fine.
The dynamics of a transaction sometimes require the parties to close globally ahead of the Ukrainian clearance. While doing so they often put in place mitigating measures (like carve-outs or hold-separate arrangements) hoping for a more lenient treatment from the AMC based on the argument that there are no local effects from closing around Ukraine. The AMC for the first time discusses a carve out and essentially says that the global and the local closing present two separate notifiable events, each subject to the standstill obligation pending AMC review. Hence, closing globally ahead of the AMC clearance is not possible without running into the risk of fines.
Question 2: what is a real-world fine for gun-jumping in a foreign-to-foreign non-problematic transaction?
In 2016 the AMC published its Guidelines on Calculation of Fines for Ukrainian Competition Law Violations (Guidelines) to bring some clarity on the methodology of determining the amount of a fine. Under the Guidelines, the base fine (subject to mitigating and aggravating adjustments) in non-problematic mergers where the parties are active on non-overlapping markets in Ukraine should range from around EUR 4,000 to EUR 13,000.
While the Guidelines allow adverse interpretation as well as discretionary deviation, the AMC would normally follow them in practice staying close to the above range, at least in the context of foreign-to-foreign non-problematic deals with no overlaps in Ukraine. The decision in question is a wake-up call to notifying parties. It shows that even where parties reasonably exclude any substantive issues for Ukraine by carving out it completely from the scope of a transaction, the fines can still be appreciably higher than the base amounts declared by the Guidelines for genuinely non-problematic cases.
Question 3: how Phase II may impact the risks of gun-jumping?
Previously, there have been cases where parties closed while the deal was still under the AMC Phase I review. The fines have been comparable or even below those in situations where the parties closed before making a filing. The much higher fine in this particular case may perhaps be explained by the AMC being unhappy that the parties closed during Phase II review. The logic of the authority might be that by opening Phase II the AMC had sent a clear message that the deal was potentially problematic in their view. Parties proceeding to close this notwithstanding (albeit with a carve-out) was likely perceived as a kind of 'wilful disobedience' which deserved a more severe penalty. This goes in line with the provision of the Guidelines that the AMC may impose higher fines (up to the ceiling of 5% of global group-wide turnover) to ensure deterrence.
This adds an important additional consideration for filing parties whose deal goes to Phase II in Ukraine.