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Overview of merger control activity during the last 12 months
The Antimonopoly Committee of Ukraine (the "AMC") has taken a number of steps towards the development of the Ukrainian merger control regime and cooperation with the business community, including through the simplification of merger control procedures and the implementation of transparency to the AMC's activity.
Based on the AMC's statistics for 2016, the number of merger applications submitted in 2016 decreased but still amounted to a considerable 547 filings (for comparison, there were 774 applications in 2015). However, the statistics do not represent the real number of transactions notified with the AMC, as multiple acquisitions and complex deals are often notified in multiple applications. On top of that, the so-called 'amnesty program' which proposed fixed fines for non-problematic deals closed in violation of Ukrainian merger control requirements is also covered by the statistics.
Most of the transactions did not raise competition concerns; Phase II was initiated only in 10% of cases.
New developments in jurisdictional assessment or procedure
The key policy developments concern the following: Merger control
The new law reforming the merger control regime came into force on 18 May 2016. The most notable changes introduced by the new law include:
- Remodelling of notifiability thresholds. Under the new law, clearance is required if:
(i) the combined worldwide value of assets or turnover of the parties to the concentration exceeds €30 million AND the value of Ukrainian assets or turnover in Ukraine of each of at least two parties exceeds €4 million - both in the last financial year immediately preceding the year of the concentration; OR
(ii) the Ukrainian value of assets or turnover in Ukraine of the target group (including the controlling seller), or of at least one of the founders of a new entity, exceeds €8 million AND worldwide turnover of at least one other party exceeds €150 million - both in the last financial year immediately preceding the year of the concentration.
- Introduction of a simplified review procedure. The new law introduced a simplified 25-day review procedure for transactions where:
(i) only one party is active in Ukraine; or
(ii) parties' combined shares do not exceed 15% on overlapping or 20% on vertically related markets.
- Clarification of rules applicable to remedies. Under the new law, in case the AMC sees any grounds for the merger to be prohibited, it must inform the parties about the substance of those grounds. The parties, in turn, can propose remedies to the AMC within a 30-day period (extendable upon the request of the parties).
Other notable amendments include the introduction of consultations during the 15-day preview stage and increase of the filing fees (from UAH 5,100 (approx. €180) to UAH 20,400 (approx. €700)).
In August 2016 the AMC completed revision of the Merger Regulation, significantly reducing disclosure requirements and simplifying notification forms. The following information is no longer required:
- detailed information on non-relevant markets - instead, the parties only have to provide a brief overview of such activities;
- exhaustive lists of groups' subsidiaries and minority shareholdings; and detailed information on the officers/directors and relatives.
- The revised Merger Regulation also increased requirements to substantiation of transactions which do not qualify for the simplified review procedure.
The law on ensuring transparency of the AMC's activity that came into force in March 2016 provides for mandatory publication by the AMC of non-confidential versions of the decisions and resolutions on/in: (i) merger and concerted practice applications and cases; (ii) violation of competition cases; and (iii) the initiation of merger Phase II reviews within 10 working days of the decision/resolution.
Review of fining policy
In August 2016 the AMC revised and amended Guidelines on the calculation of fines. The document sets basic amounts of fines for violation of competition laws, including for merger cases. The Guidelines set the below basic fines in merger cases:
- 10% of the turnover on the relevant (and adjacent) markets - for failure to notify a concentration that results in monopolisation or substantial restriction of competition;
- between UAH 510,000 (approx. €17,400) and 5% of the turnover on the relevant (and adjacent) markets - for failure to notify a concentration that does not lead to monopolisation or significant restriction of competition and/or raise competition concerns; and
- between UAH 170,000 (approx. €5,800) and UAH 510,000 (approx. €17,400) for failure to notify a concentration in case the parties are active on non-overlapping and non-adjacent markets in Ukraine
When defining the basic fine, the AMC may apply coefficients depending on the effect of violation on competition, social importance of the products, profitability of economic activity connected with violation, which may increase/decrease the fine. Also, in each case, the above basic amounts are subject to possible further adjustment for aggravating/ mitigating circumstances.
Although the Guidelines on fines have a recommendatory nature and are non-binding, the AMC publicly committed to follow them and does so in practice.
Key industry sectors reviewed and approach adopted to market definition, barriers to entry, nature of international competition, etc.
Because of the specifics of national competition regulation, the Ukrainian authority usually considers markets as Ukraine-wide or narrower. To date, international competition has been rarely taken into account as a decisive factor in merger cases, though the authority is constantly improving enforcement practice, and the competition environment outside Ukraine is likely to influence the authority's analysis in cases involving international companies active on global markets.
As regards market definition, the major problem is a lack of consistency and a sometimes formalistic approach. In non-problematic mergers the AMC often agrees with the suggested definitions, especially if they are supported by EU cases. However, when it comes to complex cases or companies with historically high market shares in Ukraine, the AMC may request to define markets more narrowly or, leaving aside the discussion regarding market definitions, use statistics on their segments and decide on such basis.
Entry barriers have been rarely used in recent cases as grounds for prohibition of transactions, but mainly because most of the deals reviewed were non-Ukrainian, or production facilities concerned by them were located outside of Ukraine. The authority often pays attention to barriers in other competition cases; hence, where the merger concerns Ukrainian business, such arguments are very likely to be used as well. Among the barriers, the AMC sees various administrative restrictions (e.g. licensing, incl. the cost of licence, import/export requirements), custom duties and taxes, quotas.
Key economic appraisal techniques applied e.g. as regards unilateral effects and co-ordinated effects, and the assessment of vertical and conglomerate mergers
As a general rule, the AMC approves a concentration if it does not lead to monopolisation (achievement or strengthening of a dominant position in the market) or a substantial restriction of competition in the Ukrainian market or a significant part of it.
In December 2016 the AMC adopted the Guidelines on the Assessment of Horizontal Mergers, which provide general rules and procedure of review of concentrations where the parties are actual or potential competitors. Pursuant to this document, the authority is required to assess whether the changes brought about by a horizontal merger would result in any of the following effects:
- Unilateral or non-coordinated effects - whether the merger will eliminate important competitive constraints on one or more companies, which consequently would have increased market power.
- Coordinated effects - whether the merger will change the nature of competition in such a way that companies that previously were not coordinating their behaviour, would be significantly more likely to coordinate and raise prices or otherwise harm effective competition.
The document aims to implement the relevant obligation of Ukraine under the Association Agreement and is largely based on the European Commission Guidelines on the assessment of horizontal mergers.
The AMC is working on the draft guidelines on the assessment of non-horizontal mergers, though no text is available yet. Generally, the authority also tends to take potential vertical effects into account, especially in transactions involving establishment of a joint venture.
Approach to remedies (i) to avoid second stage investigation and (ii) following second stage investigation
The current Ukrainian merger control regime outlines the concept of remedies in very general terms. Basically, the law says that remedies should alleviate competition concerns, be proportionate, and supervision of their implementation should be reasonable. Remedies may be structural (e.g., divestitures) or behavioural (e.g., restrictions on use or management of certain assets).
In case during the Phase II review the AMC sees any grounds for a merger to be prohibited, it shall inform the parties of these grounds and the parties, in turn, may propose remedies to the AMC within a 30-day period (extendable upon the parties' request). Practically, this means that discussions on remedies start at Phase II. Offering remedies at Phase I is not prohibited, but it will most probably automatically bring the case to Phase II, as Phase I review implies the absence of any substantive competition concerns. Therefore, initiation of discussions on remedies with the authority is very unlikely to help avoid Phase II investigation.
As transpires from the authority's enforcement practices in recent years, there is an evolving tendency to apply remedies in those industries where the authority regards the position of customers as most vulnerable (e.g. pharmaceutical industry), and where at least one party has an appreciable market share. There were several instances where the authority applied behavioural remedies (e.g., to refrain from anticompetitive practices) only as a precaution in situations where only one of the parties had a strong position on the market, while the transaction had no foreseeable effect in Ukraine. When imposing remedies, the AMC often sets three years' reporting obligation to monitor the effect on the markets.
Key policy developments
Threshold revision and simplification of the merger review procedures were the main changes in the merger control regime.
In addition to the Guidelines on fines calculation introduced by the AMC, on 26 January 2016 the draft law reforming regulation of imposition by the AMC of fines for violation of legislation in the sphere of protection of economic competition was sent by the Parliament for the second reading. The draft law aims to make the Guidelines on fines calculation binding upon the AMC, to empower courts to annul the AMC's decisions as regards fines and/or obligations imposed on the parties, and to order the AMC to reconsider cases in this regard.
Besides that, reform will be required as regards the following issues:
- clarity on sole/joint control issues (current merger control regime does not differentiate clearly between sole and joint control, which often causes uncertainty as regards turnover allocation and qualification in 'change of control' cases);
- treatment of non-horizontal mergers; and
- ancillary restraints (currently, ancillary restraints such as non-compete obligations accompanying a merger are often formalistically regarded as anticompetitive concerted practices requiring a separate clearance), etc.