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Merger Control in Ukraine. 2016
1. Relevant Authorities and Legislation
1.1 Who is/are the relevant merger authority(ies)?
The Antimonopoly Committee of Ukraine (AMC) is the primary state authority entrusted with ensuring protection of competition and, in particular, enforcement of merger control rules in Ukraine. Its responsibilities include, inter alia, review of the merger control notifications and authorisation/prohibition of transactions, market research, and investigation of violations of the merger control rules.
If the AMC refuses to authorise a concentration, the Cabinet of Ministers of Ukraine (CMU) may overrule such decision.
1.2 What is the merger legislation?
The principal law governing the merger control aspects is the Law of Ukraine on Protection of Economic Competition of 2001 (the Competition Law). The Competition Law defines the concept of a concentration, whereby certain transactions, in particular, mergers, acquisitions, and acquisitions of control have to be notified before implementation. It also sets the applicable notifiability thresholds, basic procedural rules, sanctions, etc.
Other applicable laws and regulations include:Commercial Code of Ukraine of 2003; Law on the Antimonopoly Committee of Ukraine of 1993; AMC Resolution Approving the Regulation on the Procedure for Filing Applications with the Antimonopoly Committee of Ukraine for Obtaining its Prior Approval of the Concentration of Undertakings of 2002 (theConcentrations Regulation); AMC Methodology for Establishment of the Monopoly (Dominant) Position of the Undertakings on the Market of 2002 (Monopoly Methodology); and Guidelines on Calculation of Fines in Competition Cases of 2015 (the Guidelines on Fines).
1.3 Is there any other relevant legislation for foreign mergers?
No, there is no specific legislation for foreign mergers.
1.4 Is there any other relevant legislation for mergers in particular sectors?
There is no merger legislation that would be industry-specific.
However, there are special rules for the calculation of assets/turnover of banks and insurance companies for the purposes of the merger control thresholds.
2. Transactions Caught by Merger Control Legislation
2.1 Which types of transaction are caught – in particular, what constitutes a "merger" and how is the concept of "control" defined?
The following transactions/events qualify as concentrations under the Competition Law and may require prior merger clearance:merger of previously independent undertakings or the takeover of one undertaking by another; acquisition of direct or indirect control over an undertaking (including through the acquisition of a significant part of its assets, appointment of its managers and so on); establishment by two or more undertakings of a new undertaking that will independently pursue business activity on a lasting basis and its establishment will not result in coordination of competitive behaviour of either: its parents; or the new undertaking, on the one hand, and its parents, on the other; direct or indirect acquisition(s) of control over shares/participation interests (through purchase or otherwise) where certain thresholds (25% or 50% of the votes in the highest governing body of the undertaking concerned) are reached or exceeded.
Ukrainian merger control rules define control as the ability to exert decisive influence (including via blocking rights) on the strategic decisions related to the business activity of an undertaking. In particular, control is deemed to exist if an undertaking:directly or indirectly holds or manages more than 50% of shares or votes in another undertaking; is entitled to receive at least 50% of profit in another undertaking; is authorised to appoint CEO, deputy CEO or more than 50% of the members of another undertaking’s corporate bodies (or if the same persons hold positions of CEO, deputy CEO, the Chairman, the Deputy Chairman or more than 50% of members of said boards or committees in two undertakings); otherwise controls another undertaking (through contractual arrangements, management or joint activity, or otherwise).
2.2 Can the acquisition of a minority shareholding amount to a "merger"?
Yes. Direct and indirect acquisitions of control over participation interest of the target undertaking, where the threshold of 25% of votes in the highest governing body of such an undertaking is reached or exceeded, is deemed to be a concentration and may require prior merger clearance.
2.3 Are joint ventures subject to merger control?
Under the Competition Law, a joint venture may qualify as a concentration or as concerted practice.
A joint venture is considered a concentration, which is notifiable and requires prior approval of the AMC, if the relevant thresholds are met and if the following criteria are satisfied:it is established by two or more independent undertakings; it can independently pursue business activity on a lasting basis; and its establishment does not result in the coordination of competitive behaviour of either: its parents; or the joint venture, on the one hand, and its parents, on the other.
A joint venture is considered a concerted practice if it is established with an objective of, or results in, coordination of competitive behaviour of its parents or the joint venture, on one hand, and its parents, on the other. Potentially harmful joint ventures – i.e., the joint ventures that result or may result in prevention, elimination or restriction of competition – may be implemented only after receiving individual clearance of the AMC.
2.4 What are the jurisdictional thresholds for application of merger control?
A concentration is notifiable and requires approval of the AMC prior to implementation if all of the following thresholds are exceeded:the combined worldwide asset value, or turnover of the parties of the concentration (for the purposes of this item parties are considered as part of their corporate group), in the previous financial year exceeded EUR12 million; each of any two parties had worldwide asset value or turnover in the previous financial year in excess of EUR1 million; and the value of assets located in Ukraine, or Ukrainian turnover of either of the parties, in the previous financial year exceeded EUR1 million.
There is also a market share test, which applies independently. AMC clearance is required if either individual or combined market share of the parties in the market concerned or the adjacent market exceeds 35%.
2.5 Does merger control apply in the absence of a substantive overlap?
Yes. If the thresholds are met, the filing obligation arises irrespective of whether the parties’ activities overlap or whether the overlap is substantial.
2.6 In what circumstances is it likely that transactions between parties outside Ukraine ("foreign-to-foreign" transactions) would be caught by your merger control legislation?
There are no rules exempting foreign-to-foreign transactions. Once the applicable thresholds are met, the filing obligation arises. The Ukrainian merger control regime is exterritorial, and it is not unusual for the AMC to claim jurisdiction over transactions that reasonably lack sufficient local nexus. For instance, a transaction is at least technically notifiable even where only the controlling seller meets the local turnover or assets value threshold.
2.7 Please describe any mechanisms whereby the operation of the jurisdictional thresholds may be overridden by other provisions.
Ukrainian merger control laws do not provide for such mechanisms. However, certain specific types of transactions (intra-group transactions, for instance) are not considered concentrations (see question 3.2 for further details).
2.8 Where a merger takes place in stages, what principles are applied in order to identify whether the various stages constitute a single transaction or a series of transactions?
It is the current practice of the AMC to treat each stage of a single transaction, which qualify as concentrations, as separately notifiable events requiring separate merger clearances. For instance, in a transaction where the purchaser simultaneously acquires several sister companies, each of such acquisitions will technically constitute a separate concentration, requiring payment of the filing fee and separate AMC clearance. Despite this rather formalistic approach, in practice the AMC looks into the nature of the transaction stages and analyses whether such stages are integral parts of a single transaction. If so, the AMC would usually assess the transaction as a whole in a single proceeding.
3. Notification and its Impact on the Transaction Timetable
3.1 Where the jurisdictional thresholds are met, is notification compulsory and is there a deadline for notification?
The filing is mandatory once the notifiability thresholds are met, unless the transaction qualifies for an exemption (e.g., as an intra-group transaction).
The Competition Law does not set any specific deadlines for submission of a notification. The only requirement is that AMC approval is obtained before closing. The only exception from this general rule applies in the case of a tender/bid process, where a notifiable concentration should be filed within 30 days after a winner of a tender/bid is announced.
3.2 Please describe any exceptions where, even though the jurisdictional thresholds are met, clearance is not required.
The following exceptions apply (such transactions are not considered concentrations):establishment of a new undertaking aiming at or resulting in coordination of competitive behaviour of either its parents or of the new undertaking, on the one hand, and its parents, on the other (such an establishment is generally regarded as a concerted practice and may require antitrust clearance); acquisition of shares qualifying as a financial buyer transaction (that is, shares are acquired by a financial institution for the purposes of further resale within one year (extendable further), provided the acquirer does not exercise the voting rights attached to the acquired shares); acquisition of control over an undertaking or a part thereof by a receiver or a representative of a state authority (e.g., in an insolvency proceeding); intra-group transactions (unless control links within the group were established in violation of the Ukrainian merger control rules).
3.3 Where a merger technically requires notification and clearance, what are the risks of not filing? Are there any formal sanctions?
Implementation of a notifiable transaction prior to or without clearance may result in a fine of up to 5% of the group’s worldwide turnover achieved in the year immediately preceding the year when the fine is imposed.
In practice, according to the Guidelines on Fines, the actual fines in merger cases are limited as follows:30% of the turnover on the relevant Ukrainian market – for implementation of a concentration resulting in monopolisation or substantial restriction of competition, or for failure to implement undertakings applied in merger cases; between approx. EUR21k and 5% of the turnover on the relevant Ukrainian market – for failure to notify a transaction that does not lead to monopolisation or significant restriction of competition; between approx. EUR7.1k and EUR21k if the parties are active on non-overlapping and non-adjacent markets in Ukraine.
In each case, these limits are subject to possible adjustment of the basic amount for aggravating/attenuating circumstances.
Although the Guidelines on Fines have a recommendatory nature and are non-binding, the AMC is publicly committed to follow its rules on setting fines strictly.
The Guidelines on Fines also provides for quasi-amnesty for ‘corrective’ merger filings. A fine for the failure to have a past merger cleared is limited to approx. EUR850 provided that a ‘corrective’ filing is made until 15 March 2016, or to approx. EUR4.2k if such a filing is made after 15 March 2016, but before 15 September 2016. The document also recommends that the authority satisfies confidentiality requests from such quasi-amnesty applicants with respect to fining decisions.
In addition to fines, there may be the following negative implications for the parties:reputational issues (information about the imposed fine and identity of the offender is usually published by the AMC on its website; since mid-summer 2015 the AMC has also started publishing its decision, except for confidential information); ban on the companies’ cross-border activities with Ukraine, if the parties refuse to pay the imposed fine. This can be imposed by the Ministry of Economy of Ukraine at the AMC’s request; third-party damages claims (compensation is paid in the double amount of the actual damages); and/or invalidation of the transaction.
3.4 Is it possible to carve out local completion of a merger to avoid delaying global completion?
The requirement to suspend implementation of the transaction until clearance is granted applies globally. Ukrainian merger control law does not envisage any possibilities to obtain derogation. Thus, there is no way to carve out Ukrainian closing of the transaction without risk.
However, in practice the AMC may, under exceptional circumstances, accept a hold-separate/carve-out agreement which may mitigate the liability for early closing, as such an agreement would clearly show the parties’ bona fide intention to comply with Ukrainian merger control law. Although the fines are not excluded under this scenario, the amount would usually be nominal.
3.5 At what stage in the transaction timetable can the notification be filed?
The Competition Law generally does not set any specific requirements as to time of filing, for as long as the suspension requirement is met.
In practice, the filers are recommended to submit the notification at least approx. 60 calendar days (i.e., approx. 45 days for Phase I review and approx. 15 days for issuance and delivery of the paper copy of the decision) in advance of the intended closing (see question 3.6 for detail), provided that the transaction is not expected to pose any competition concerns.
3.6 What is the timeframe for scrutiny of the merger by the merger authority? What are the main stages in the regulatory process? Can the timeframe be suspended by the authority?
The merger review procedure consists of the following stages:Preview period: 15 calendar days for the AMC to decide whether the filing is complete and can be passed on for the substantive review (Phase I); additional AMC questions do not stop the clock at this stage. Though, if the filing does not meet the formal requirements, the AMC may consider the notification incomplete, reject it and the applicants would need to file anew after having supplemented the initial application with the missing information and documents. Phase I review: substantive review and assessment of whether the concentration can be approved or whether there are potential grounds to prohibit the concentration or conduct an in-depth analysis, in which case PhaseII is initiated. The assessment must be completed within 30 calendar days following acceptance of the notification for substantive review. Questions at this stage also do not stop the clock. During Phase I the AMC will either issue the clearance or initiate Phase II. Phase II review:close analysis of the transaction and the associated competition concerns, examination of expert opinions and other additional information. Although Phase II is limited to three months, in practice it may take longer if additional documents, information and/or expert evidence are required (the relevant AMC requests may stop or even restart the clock). In practice, in mid-July 2015 the AMC announced amendments to the Concentrations Regulation with a view to limit Phase II review period to 135 days after sending the relevant Phase II information/documents requests to the applicant(s). During Phase II the AMC will either issue the clearance or adopt a prohibitive decision.
If by/on the date of Phase I or Phase II expiry the AMC has failed to adopt any decision on the concentration, clearance by tacit consent is deemed to have been granted, although the AMC normally does not use this option.
3.7 Is there any prohibition on completing the transaction before clearance is received or any compulsory waiting period has ended? What are the risks in completing before clearance is received?
Yes, it is prohibited to implement the transaction before clearance. Furthermore, the filing parties must refrain from any actions that may restrict competition and make restoration of the initial state of affairs impossible (for example, through pre-clearance “gun-jumping”). Failure to meet the suspension requirement may result in a fine and/or other sanctions (see question 3.3 for details).
3.8 Where notification is required, is there a prescribed format?
Although there is no fixed form for a merger application, the Concentrations Regulation sets requirements to the contents of the notification, depending on the type of transaction.
Usually, the applicants are required to provide the following information and documents:detailed description of the transaction structure, indicating transaction stages, financial aspects of the transaction, and the timeline for implementation of the transaction; the composition of the parties’ groups and brief outline of their worldwide activities; detailed information on the parties’ activities in Ukraine (both with respect to supplies to Ukraine and local sales), including sales and market share data (calculations or at least estimates) per products markets, both relevant and non-relevant, the details of the companies acting in (selling to) Ukraine, names and contact details of the customers, competitors and suppliers on all markets where the respective parties are active in Ukraine; a detailed outline regarding the markets involved: definition of the markets and the market structure prior to and post-closing; an outline of the economic rationale of the transaction, including a discussion on the purpose and expected outcome of the transaction, its expected effects on the markets involved, etc.; information on the corporate officers and directors of the participants to the concentration and the participants-individuals’ relatives shareholdings; and powers of attorney, corporate documents and financial documentation of the parties; some of these need to be notarised and apostilled/legalised.
The Concentrations Regulation requires that all documents and information are provided in or with a translation into Ukrainian.
Furthermore, some of the above information should also be submitted in electronic form using special software developed by the AMC.
3.9 Is there a short form or accelerated procedure for any types of mergers? Are there any informal ways in which the clearance timetable can be speeded up?
There is no short form or accelerated procedure for any types of mergers. However, as a practical matter, it may be possible to negotiate a more expedited review with the AMC if the transaction has a simple structure and does not raise any competition concerns.
3.10 Who is responsible for making the notification and are there any filing fees?
The parties to the transaction are under the joint application to file. Though, in practice, confidential information may be filed to the AMC separately. In cases of hostile takeovers, where no cooperation from the target entity may be expected, the AMC will accept a notification filed by the acquirer only.
The filing fee is UAH5.1k (approx. EUR210) per notifiable event.
3.11 What impact, if any, do rules governing a public offer for a listed business have on the merger control clearance process in such cases?
General merger control rules apply.
3.12 Will the notification be published?
No, the notification itself is not published. The AMC only publishes a short note of the decision made (with the identity of the parties and the essence of the transaction) followed by publication of the AMC decision itself in full, save for the confidential information.
4. Substantive Assessment of the Merger and Outcome of the Process
4.1 What is the substantive test against which a merger will be assessed?
The concentration will be approved by the AMC if it does not lead to monopolisation (creating or strengthening of the monopoly/dominant position) or substantial restriction of competition on the Ukrainian market or a significant part thereof. Dominance is generally defined in the Competition Law by reference to 35% market share (for individual cases) and 50% and 70% market shares (in the case of collective dominance).
If the AMC identifies the grounds to prohibit the transaction or if it identifies that an in-depth review is required, it will proceed to opening the Phase II investigation. In practice, the AMC sometimes uses this formal ground to prolong review in complicated cases and gain additional time to analyse properly the information that was additionally requested (usually informally) within Phase I.
If the competition concerns are not alleviated (e.g., through offering adequate remedies) the transaction will be prohibited.
However, the Cabinet of Ministers may still authorise a prohibited transaction if its positive effects for the public interest outweigh the negative impact of the restriction of competition, unless that restriction:is not necessary for achieving the purpose of the concentration; and/or jeopardises the market economy system.
4.2 To what extent are efficiency considerations taken into account?
Efficiency considerations (such as modernisation and rationalisation of production, purchase or sales, technical and product standards, promotion of technical, technological or economic development etc.) may be taken into account by the AMC as supporting arguments. The parties would normally discuss these in the economic substantiation of the transaction. However, in cases posing serious competition concerns, efficiency considerations may not be sufficient to alleviate those and adequate remedies will need to be offered.
Still, efficiencies are likely to play an important role in the assessment of the prohibited transaction by the Cabinet of Ministers.
4.3 Are non-competition issues taken into account in assessing the merger?
The AMC would, predominantly, consider competition issues. Other considerations may still be used as supporting arguments.
4.4 What is the scope for the involvement of third parties (or complainants) in the regulatory scrutiny process?
Third parties (normally, competitors and customers) can be involved during the Phase II investigation if the AMC believes that the notified transaction may significantly affect their rights and interests. Such third parties enjoy the right to be heard and limited access to file.
4.5 What information gathering powers does the regulator enjoy in relation to the scrutiny of a merger?
The AMC may request any additional information and documents from the filing parties which it deems appropriate for the analysis of the transaction. The authority would normally set a submission deadline that the parties must comply with.
Furthermore, in complex cases involving specific industries (e.g., telecommunications, pharma, etc.) the authority will likely request opinion or additional data from the relevant state authorities.
4.6 During the regulatory process, what provision is there for the protection of commercially sensitive information?
There is no automatic confidentiality. Confidential information must be properly identified and marked as such in the merger filings to benefit from adequate protection. Sections of the notification bearing confidentiality marks cannot be disclosed to the public except with the express written consent of the relevant filing party.
The AMC would normally expect the parties to justify their request for confidentiality. In cases where the parties do not provide proper justification, their request for confidentiality may be rejected.
5. The End of the Process: Remedies, Appeals and Enforcement
5.1 How does the regulatory process end?
The review process ends with issuing by the AMC of the clearance decision (with or without remedies) or the decision prohibiting the transaction. The standard term of the authorising decision is one year; that is, the parties must implement the transaction within a year or file anew. However, in the case of complex multi-stage transactions, it is possible to request that the AMC issue the decision with a longer term. The authority would normally agree to do that if the implementation steps transpire from the structure of the transaction.
5.2 Where competition problems are identified, is it possible to negotiate "remedies" which are acceptable to the parties?
The AMC clearance decision can be made conditional on the parties’ undertaking to perform, or refrain from performing, certain actions aiming to remove or mitigate the negative impact of the concentration on the market competition. Such undertakings may be either:structural (e.g., divestitures); or behavioural (e.g., restrictions on use or management of certain assets or price increases).
Remedies are usually negotiated with the AMC on a case-by-case basis. Neither the Competition Law nor the Concentrations Regulation set clear rules or procedures for offering and negotiation of the remedies. In practice, the remedies are usually offered and discussed during Phase II when the competition concerns have already been identified.
5.3 To what extent have remedies been imposed in foreign-to-foreign mergers?
There are no specific rules on application of remedies in foreign-to-foreign transactions.
5.4 At what stage in the process can the negotiation of remedies be commenced? Please describe any relevant procedural steps and deadlines.
Considering that Ukrainian competition laws do not set any specific rules or procedures for offering and negotiation of remedies, those may be offered at any time after submission of the merger filing.
5.5 If a divestment remedy is required, does the merger authority have a standard approach to the terms and conditions to be applied to the divestment?
Considering that the process is not properly regulated by the law, there is no standard approach to the terms and conditions to be applied to the divestment. Generally, the Competition Law requires that remedies should alleviate competition concerns. The AMC has full discretion to decide on the nature and specifics of the divestment to effectively lift all concerns, be that through disposition of a part of the assets or simply the application of limitations on the use of certain assets.
5.6 Can the parties complete the merger before the remedies have been complied with?
There are no strict rules on this. Normally, specifics of implementation of a merger that was authorised subject to remedies, as well as the timetable of the remedies implementation, are set out in the AMC clearance decision. Non-compliance with the AMC decision, including the part on remedies, may result in the imposition of rather substantial fines.
5.7 How are any negotiated remedies enforced?
The timetable and any specific requirements as to the implementation of the remedies are set out in the AMC decision. The AMC usually obliges the filers to report regularly on compliance with the remedies. As noted above, non-compliance with the AMC decision on remedies may lead to the imposition of fines and other negative implications.
5.8 Will a clearance decision cover ancillary restrictions?
Merger clearances do not cover ancillary restraints automatically. The current practice is to notify ancillary restraints (such as non-compete arrangements) as concerted practices.
5.9 Can a decision on merger clearance be appealed?
Any AMC decision may be appealed to the court, including by third parties. Prevailing practice is to appeal to commercial courts.
5.10 What is the time limit for any appeal?
Decisions of the AMC may be appealed within two months following the receipt of the decision.
5.11 Is there a time limit for enforcement of merger control legislation?
The time limit for enforcement in relation to mergers is five years after the merger has been implemented.
6.1 To what extent does the merger authority in Ukraine liaise with those in other jurisdictions?
The AMC perhaps most commonly cooperates with the CIS competition authorities within the Interstate Council for Antimonopoly Policy, using this forum for information exchange on the overall tendencies in the area and current national developments, including discussions on current approaches to substantive assessment in merger cases and most complex multi-national investigations.
Cooperation with other competition authorities is usually based on bilateral treaties (e.g., with Bulgaria, Hungary, Latvia, Lithuania and the Slovak Republic). The AMC also cooperates with international organisations like the Organisation for Economic Cooperation and Development, the United Nations Conference on Trade and Development, the International Competition Network and others.
6.2 Are there any proposals for reform of the merger control regime in Ukraine?
A draft law reforming the Ukrainian merger control system was submitted to the Parliament at the end of June 2015.
The most notable modifications to the existing regime include:remodelling of notifiability thresholds (two alternative tests): the combined parties’ worldwide value of assets or turnover exceeded EUR30 million and the combined value of Ukrainian assets or turnover of each of at least two parties exceeded EUR4 million – both in the last financial year; or Ukrainian turnover of at least one party exceeded EUR8 million and worldwide turnover of at least one other party exceeded EUR100 million – both in the last financial year; (reportedly, this test is not finally shaped, as the underlying idea is to link the local turnover to the target); elimination of the market share-based notifiability test as ineffective; introduction of consultations at the pre-filing and the 15-day ‘preview’ stages; introduction of a simplified and fast-track 25-day review procedure for transactions where: only one party is active in Ukraine; or parties’ combined market shares do not exceed 15% on the overlapping markets or 20% on vertically related markets; clarification of rules applicable to remedies; and increase of the filing fees.
Besides that, the AMC is working on the updated version of the Concentrations Regulation, having announced earlier that it plans to shorten the extensive list of documents and information which filing parties are now required to submit.
6.3 Please identify the date as at which your answers are up to date.
These answers are up to date as of 7 October 2015.