Do merger control rules apply to joint ventures (both new joint ventures and acquisitions of joint control over an existing business?
There are no separate thresholds for JVs.
There are no known separate thresholds for determining whether a concentration relating to JVs is notifiable or not. The aforesaid merger control rules in China also apply to JVs (both new joint ventures and acquisitions of joint control over an existing business operator).
Which entities or groups of entities should be taken into account for considering whether the jurisdictional thresholds are satisfied?
Generally speaking, the business operators that control a JV company after the transaction and the JV company itself should be taken into account for considering whether the jurisdictional thresholds are satisfied. MOFCOM has issued highly detailed rules in notations to the notification form to be used to identify the parties to a concentration.
Unlike the EU, a JV does not need to be “full-functional” to be notifiable in China.
Neither the AML nor other merger control regulations specify any express requirements under which a JV incorporated as a certain type of legal entity shall be exempted from notification. In the Maersk/MSC/CMA CGM joint venture transaction which was prohibited by MOFCOM in 2015, MOFCOM identified the proposed P3 Alliance as a “tight joint operation,” and concluded that notification to MOFCOM was required for merger review based on the fact that the proposed P3 Alliance would integrate all of the capacity of the concerned parties through the establishment of a network centre. This case highlighted the approach to be taken when analysing the notifiability of JV transactions.
Danish merger rules apply to transactions whereby a full-function joint venture is either created on a permanent basis, or whereby a permanent change of control over an exist-ing full-function joint venture is obtained.
In order for an establishment of a full-function joint venture to be subject to merger control, the joint venture must act independently of its parent companies, i.e. it must perform all the functions normally carried out by an autonomous economic entity on a market and thus have its own access to or presence on the market.
The jurisdictional thresholds for joint ventures are the same as for other transactions.
The creation of a joint venture to perform, on a lasting basis, all the functions of an autonomous economic entity constitutes a merger or acquisition for the purposes of the merger control rules under the Competition Act. In interpreting this provision, the CCPC generally follows the approach of the European Commission on full-function joint ventures under the EU Merger Regulation and, in particular, the approach to the analysis of full-functionality set out in the Commission's Consolidated Jurisdictional Notice.
The thresholds for notification under the Competition Act are the same for joint ventures as for other types of mergers or acquisitions. The undertakings involved in the acquisition of joint control in a newly-created joint venture company are each of the parents acquiring control, while the undertakings involved in the acquisition of a pre-existing joint venture company are both the parents and the joint venture company. Changes from joint control to sole control of a joint venture also fall under the Competition Act; in such cases the undertakings involved are the shareholder acquiring sole control and the joint venture company. Where there is a situation of joint control both and after the transaction, the undertakings involved are the shareholders (both existing and new) who will exercise joint control after the transaction and the joint venture company itself.
Where a joint venture does not qualify as full-function, it may still be assessed under the rules on restrictive agreements under the Competition Act, which are in all material respects identical to Article 101 of the Treaty on the Functioning of the European Union. In this regard, the CCPC tends to have regard to the European Commission's Guidelines on Horizontal Cooperation Agreements and the Guidelines on Vertical Restraints in its assessment.
The same thresholds and nexus tests described above apply to joint ventures, if such joint ventures are indeed considered "mergers of companies".
It should be noted that a joint venture between competitors which does not amount to a "merger of companies" may sometimes be considered a "restrictive arrangement" and require clearance in one of the mechanisms prescribed by the Israeli Antitrust Law for this kind of transaction, including, e.g. specific exemptions or block exemptions. Joint ventures whereby joint control is acquired over an existing business will normally count as "mergers of companies". New joint ventures may or may not be described as "mergers of companies" depending of the specific characteristics of the venture. As a rule of thumb, the more long-term the joint venture is and the more "structural" in nature, the higher the tendency to classify it as a merger of companies.
Thresholds will apply to all parties to which the "merger of companies" definition applies, and will certainly apply to every party which will, following the transaction, eventually hold over 25% of one of the rights detailed in section 3.1 in the joint venture. Thresholds will include the sellers, unless the sellers sell their entire holdings and sever all connections to the joint venture. If there are additional parties acquiring less than 25% of the joint venture, the applicability of the thresholds to such parties will depend on their specific involvement in the joint venture, e.g. their ability to appoint officers, their role in the conduct of business of the venture and the like.
Turnovers apply to both the joint venture and its parents, and may be satisfied by the parent companies alone. The Israeli Antitrust Authority has been known to require filing in cases where the parents met the relevant nexus and thresholds tests, even if the joint venture itself was not expected to have any activity in Israel.
No special thresholds for transactions establishing joint ventures exist. This means that parties have to analyse whether the transaction structure includes any qualifying transactions, such as share acquisitions, mergers, and business/asset transfers, and if it includes any, then apply the thresholds designed for each category.
The Regulations stipulate that the creation of a ‘full functioning joint venture’, that is a joint venture performing on a lasting basis all the functions of an autonomous economic entity, shall be considered a concentration for the purposes of the Regulations. In such situations the turnover threshold test does not apply, as the determining criterion is the creation of the joint venture itself.
With regard to that the acquisition of joint control of an entity, whether direct or indirect, such transaction would form a concentration only if the turnover thresholds as discussed in Point 1.1 above are met. Moreover, where there is an acquisition of joint control by two or more undertakings and the turnover of the joint venture and/or the turnover of the contributed activities arising in Malta is less than €698,812.02, and the total value of assets transferred to the joint venture in Malta is less than €698,812.02, a short form notification and simplified procedure in terms of the Regulations is allowed.
The undertakings to be taken into account for considering the thresholds shall be the same as those identified above, that is the entities participating directly in the transaction and any group entities which are related under the conditions outlined above.
The turnover thresholds can be satisfied by any undertaking involved in the transaction, including either of the participating parent companies. This applies even where the joint venture is not in itself active in Malta. The consequences of not filing a notification in such instances shall be the same as those identified in the Penalties section discussed below.
A newly created joint venture is automatically considered a concentration if it performs on a lasting basis all the functions of an autonomous economic entity. The default rule in such cases is that it is subject to the notification requirements established in the Regulations.
By exception to the above, where the joint venture has as its object or effect the coordination of the competitive behaviour of undertakings that remain independent, such concentration shall be appraised in terms of the prohibited agreements and concerted practices provisions that are found in the Act, so as to establish whether the operation is lawful. In making this appraisal, the DG shall take into account:
- whether two or more parent companies retain to a significant extent activities in the same market as the joint venture or in a market which is downstream or upstream from that of the joint venture or in a neighbouring market closely related to this market; and
- whether the coordination which is the direct consequence of the creation of the joint venture affords the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products or services in question.
As discussed, the acquisition of control by one or more undertakings of the whole or part of another undertaking (i.e. an existing business) would only qualify as a concentration if the turnover thresholds are met by any involved entity. Where a new JV is created, this is automatically a concentration and would need to be assessed in terms of the above to establish if it is notifiable and if it should be assessed in terms of the prohibited agreements and concerted practices provisions of the Act.
The Turkish merger control rules applicable to joint ventures are akin to-if not the same as-the EU rules. Article 5 of the Communiqué 2010/4 on Mergers and Acquisitions Requiring the Approval of the Competition Board (“Communiqué No. 2010/4”) provides a definition of joint venture, which does not fall far from the definition used in the EU law.
To qualify as a concentration subject to merger control, a joint venture must be of a full-function character and satisfy two criteria: (i) existence of joint control in the joint venture and (ii) the joint venture being an independent economic entity established on a lasting basis (i.e. having adequate capital, labour and an indefinite duration). Additionally, regardless of whether the joint venture is full function, the joint venture should not have as its object or effect the restriction of competition among the parties or between the parties and the joint venture itself within the meaning of Article 4 of Law No. 4054, which prohibits restrictive agreements. If the parent undertakings of a joint venture operate in the same market or the downstream or upstream or neighbouring market as the joint venture, it could lead to coordination between independent undertakings that restrict competition within the meaning of Article 4 of the Law.
If the turnover thresholds are triggered by the parents, the JV transaction would be notifiable as long as it has a full-function nature. The fact that the JV’s products/services are or will not be offered in Turkey would not change the analysis. There has been a legal debate in Turkey that transactions which do not trigger any (potential) effects in Turkey would fall outside the scope of the Competition Law. However, this debate seems now settled. The Competition Board has adopted several clearance decisions regarding JVs that do not involve sales in Turkey, and has considered that they are notifiable as long as the characteristics of the goods and services in question allow for a theoretical possibility that there "could" one day be sales by the JV into Turkey.
As a side note, in case the nature of the JV turns out to be non-full-functional, while the non-full function JVs are not under a mandatory merger control filing, non-full function JVs may fall under Article 4 of Law No 4054, which prohibits restrictive agreements. The parties have the ability to do a self-assessment individual exemption test, which is set out under Article 5 of Law No. 4054, on whether the JV meets the conditions of individual exemption (which are also very similar to, if not the same as EU regime). Notifying the transaction for individual exemption is not a positive duty of the parties, but it is an option granted to them.
The Ukrainian merger control rules apply to JVs on a common basis. There are no separate thresholds for JVs.
If the formation of a joint venture involves existing entities, then the same thresholds would apply to the acquisition of assets, voting securities, or a controlling interest in an unincorporated entity as they would to any other acquisition.
Joint ventures sometimes may involve the formation of a new entity. When multiple parties contribute assets to a newly formed entity (Newco), the Newco is treated as the acquired person for purposes of calculating the size-of-person test, and is deemed to have in it all the assets that will be contributed to it in the formation transaction. Each contributing party is deemed an acquiring person, and the value of the transaction is the value of the voting securities or unincorporated interests in the Newco received by the contributing party in the formation. The rules for formation transactions vary slightly depending upon whether the Newco being formed is a corporation or an unincorporated entity such as an LLC or partnership. All thresholds are adjusted annually to reflect changes in the US gross national product.
Formation of a Corporation
In the formation of a Newco corporation, the size-of-person test is met if either the Newco or the acquiring person has total assets or annual net sales of US$15.6 million or more; the other party has total assets or annual net sales of US$156.3 million or more; and at least one other acquiring person – i.e., another party contributing assets to the Newco corporation – has total assets or annual net sales of US$15.6 million or more.
Formation of an Unincorporated Entity
In the formation of a Newco unincorporated entity, the size-of-person test is met if either the Newco or the acquiring person has total assets or annual net sales of US$15.6 million or more, and the other party has total assets or annual net sales of US$156.3 million or more. Also, as with other acquisitions of interests in unincorporated entities, an acquisition of an interest in a Newco unincorporated entity is reportable only if the acquiring person will control the unincorporated entity as a result of the acquisition.
Establishment of a JV in Russia by competitors is covered by the Russian merger control regime. Since the definition of a JV is quite general, it covers new joint ventures, existing entities and even contractual arrangements made by the parties without incorporation of any legal entity.
The jurisdictional thresholds for JVs are the same as for acquisition transactions with one exception: the RUB 0.4 bn threshold does not apply, since a JV is not established at the time of filing, so there is no target. Consequently, the relevant thresholds are met if:
- the global turnover of the parties to the JV and their groups calculated together or separately for the calendar year preceding the establishment of the JV exceeds RUB 10 bn; or
- the total asset value of the parties to the JV and their groups taken together or separately for the calendar year preceding the establishment of the JV exceed RUB 7 bn.
Please note once again that the concept of JV clearance in Russia is quite general and the relevant thresholds could be met, e.g., based on the asset value of the head companies of the parties’ groups. The only connection with the Russian market is that such a JV should be established for activity on the Russian market. This means that establishment of a foreign JV by competitors that will, in particular, be active in Russia might fall under the merger control regime in Russia if the relevant thresholds are met.
Moreover the concept of competition in the context of JV clearance is also not fully clear. In practice, competition test is met if the parties compete in Russia.
In relation to joint ventures, where both/all parents are contributing assets to the new joint venture, turnover of each of the businesses being contributed to the joint venture must be assessed, with the lowest business turnover being deemed the 'target' in this respect.
'Greenfield' joint ventures (i.e. joint ventures that commence a new business activity, rather than combining existing activities of the parent companies) are not notifiable under UK merger control rules, as such ventures have neither turnover nor share of supply.
The merger control regime applies to the creation (or change in control of) “full-function” joint ventures. There are no separate turnover thresholds for joint ventures.
A joint venture will be considered to be full-function if it performs, independently of its parents, the functions normally carried out by any undertaking active on the same market. Hence, to be full-function, a joint venture must: have management dedicated to its daily operations and access to sufficient assets, personnel and finance to conduct its business activity independently; be able to conduct its own commercial policy; perform activities other than specific functions for its parents; have no significant purchase or supply contracts with its parents which would limit its independent character; and be of a sufficiently long duration that this will cause a permanent change in the structure of the undertakings in question. A production joint venture that is created solely to supply its parents, for example, would not be regarded as full-function.
It should be noted that creating a joint venture that is not full-function – and hence is not subject to merger control – may be subject to review under the EU and Belgian rules on anticompetitive agreements.
The creation of a joint venture – that is an undertaking being jointly controlled by at least two other undertakings – performing on a lasting basis all the functions of an autonomous economic entity qualifies as a concentration under Austrian law. Such joint ventures are also referred to as so-called full-function joint ventures. Similar as under the EUMR, a full-function joint venture has to be economically autonomous, permanent and must not fulfil only auxiliary functions. The joint venture must have sufficient resources to operate independently on a market in order to conduct on a lasting basis its business activities. Moreover, it must be involved in activities beyond one specific function for the parent companies.
If two undertakings gain joint control over an already operating target company, this can as well qualify as concentration (see the above elaboration on what transactions are concentrations under Austrian law). The full-function test is in such cases not a requirement to have a concentration.
The merger control rules apply to joint ventures where:
- a new JV is formed and one or more parties to the JV contribute existing business assets; or
- one or more parties acquire joint control over an existing business;
The concept of a "full function" joint venture does not find specific application in South Africa and the simple test is whether control is established over an existing business.
Note that the relevant thresholds described in 3.1 above apply. Identifying the target and acquiring firms will depend on transaction structure.
The mere formation of greenfields JVs do not require notification.
The French merger control regime applies to the creation of full-function joint ventures, (Article L.430-1 of the FCC). There is no difference in the applicable rules depending on whether the transaction relates to the creation of a “green field” joint venture or to the acquisition of joint control over an existing business.
A full-function joint venture is defined as a common undertaking that carries out all functions of an autonomous economic entity on a lasting basis.
There are no separate turnover thresholds for joint ventures. For the purpose of calculating turnover, the turnover of each undertaking acquiring a controlling interest in the joint venture should be taken into consideration in addition to the turnover of the joint venture itself, if applicable. This means that, in principle, a joint venture may need to be notified in France even if the joint venture will have no activity in France. Fines may be imposed in case of failure to notify.
As explained before, the FECL defines “concentrations” very broadly. Such definition includes, without exemptions, joint ventures and acquisition of non-controlling interests, or similar commercial arrangements. Therefore, merger control over joint ventures does not vary or is treated differently and thresholds are the same.
Likewise, merger control review in Mexico has become very complex so joint venture transactions will not just be analysed in regard of the specific transaction but rather the enforcement agencies will also review the corporate groups to which the parties belong (all the way to ultimate parent companies) and the group’s activities and business. Therefore, in cases where parent companies trigger statutory thresholds and the joint venture transaction will have a direct or indirect impact in Mexican markets the obligation to notify the transaction is undisputable.
In addition, failing to notify a JV operation when statutory thresholds are reached could constitute a violation of the FECL as the enforcement agencies could consider it either as an unlawful concentration or potential collusive behaviour depending on the merits of each case specially by considering the precedent rendered by the Supreme Court regarding Groups of Economic Interest. Similarly, for those cases where there is related to an existing JV, parties might be exempted of merger control if the particular case falls within one of the exemption cases described before but a deep assessment would be required for such matter.
Joint ventures are subject to the same jurisdictional thresholds based on their parents’ turnover. If the turnover thresholds are met, the JV is in principle notifiable. However, the creation of a JV that has no effects on the Germany market may not be notifiable under the effects doctrine. The FCO has published in 2014 an updated guidance paper on the question when foreign JVs will be deemed to have sufficient domestic effects in Germany.
Unlike under EU merger control principles, German law does not distinguish between full-function and non-full-function joint ventures. The creation of a joint venture that does not perform all the functions of an autonomous economic entity on a lasting basis may hence be notifiable in Germany.
Another particularity is that under German law, the cooperative aspects of a JV between its parents are governed not by merger control rules, but by the restrictive practices provisions. Hence, the review of these provisions is not integrated into the merger control review and can be conducted independently of it. Clearance of the JV under the merger control rules does not preclude an investigation under the rules on restrictive practices, which may be conducted in parallel or after completion of the JV merger review.
Joint ventures fall within the scope of the Italian merger control rules if they are full function (as opposed to cooperative joint ventures, which are reviewed under Article 101 of the Treaty on the Functioning of the European Union and/or Article 2 and 4 of Law No. 287/90, which prohibit anticompetitive agreements between competitors).
In order to assess whether a joint venture is full function, the ICA considers whether it is likely to perform, on a lasting basis, all the functions of an autonomous economic entity (e.g., because of dedicated management, access to sufficient financial resources, staff and tangible and intangible assets).
In case of creation of a new (full function) joint venture, for the purpose of the second cumulative threshold based on the turnover of the target, the ICA takes into account the turnover related to any contribution to the joint venture made by the companies acquiring joint control. Such turnover shall not be included in the turnover of the companies acquiring joint control for the purpose of the first threshold based on the combined turnover of the parties.
Multiple contributions deferred over time, which do not meet individually the second turnover thresholds are considered as a single concentration for merger control purposes, if they are put in place within two years from the creation of the joint venture.
The test for assessing joint ventures in Australia is the same as for any other type of merger: if the joint venture involves the acquisition of shares or assets, it will be subject to the merger prohibitions under the CCA. If it does not, the joint venture will still need to be assessed under the general prohibition on anti-competitive agreements.
The Act exempts the formation of an unincorporated combination (e.g., a joint venture established through the formation of a partnership) from the merger control provisions if: (i) all the persons who propose to form the combination are parties to an agreement in writing or intended to be put in writing that imposes on one or more of them an obligation to contribute assets and governs a continuing relationship between those parties; (ii) no change in control over any party to the combination would result from the combination; and (iii) the agreement restricts the range of activities that may be carried on pursuant to the combination, and contains provisions that would allow for its orderly termination.
The formation of a joint venture that does not qualify for the exemption above (e.g., a joint venture carried on through a corporation), as well as the acquisition of an interest in an existing joint venture, may be subject to merger control if the transaction exceeds the relevant financial thresholds that are generally applicable to all transactions. There are no separate thresholds for joint ventures, and the same general rules apply regarding entities that must be included for the purpose of determining whether the thresholds are met.
For example, the “size of transaction” threshold for a joint venture established through the contribution of assets to a new corporation would be met where: (i) at least one of the persons contributes assets from an operating business, and (ii) the aggregate value of the assets in Canada or the gross revenues from sales in or from Canada generated from those assets exceeds CAD $87 million (for 2016).
The “size of transaction” threshold for the acquisition of an interest in a combination (e.g., acquiring voting interests in a partnership) would be met where: (i) the combination carries on an operating business other than through a corporation; (ii) the aggregate value of the assets in Canada that are the subject‑matter of the combination or the gross revenues from sales in or from Canada generated from those assets exceeds CAD $87 million (for 2016); and (iii) as a result of the acquisition, the person acquiring the interest will be entitled to over 35% of the profits of the combination or of its assets on dissolution, or where the person acquiring the interest is already so entitled, the acquiring person will be entitled to over 50% of such profits or assets.
From a substantive perspective, joint ventures may be reviewed under the Act’s prohibition on anticompetitive agreements among competitors regardless of whether they are subject to merger control. If they constitute the acquisition of a significant interest in a person (i.e., a merger), joint ventures also could be reviewed under the substantive merger provisions, even if they are not notifiable.