How are turnover, assets and/or market shares valued or determined for the purposes of jurisdictional thresholds?
The parties taken into account when calculating the turnover of a business operator.
Pursuant to relevant Merger Control Regulations, the turnover of an individual business operator that participates in a concentration shall be the sum of the turnover of the following business operators:
- the individual business operator itself;
- other business operators directly or indirectly controlled by the business operator referred to in Item (1);
- other business operators who directly or indirectly control the business operator referred to in Item (1);
- other business operators directly or indirectly controlled by the business operators referred to in Item (3); and
- other business operators jointly controlled by two or more business operators among those referred to in Items (1) through (4).
And, most particularly, the turnover of an individual business operator that participates in a concentration transaction shall not include the turnover generated by transactions between and among the business operators listed in the preceding Items (1) through (5), and shall not include the turnover of business operators that it has sold or over which it no longer has a controlling power during or before the immediately preceding fiscal year.
The aggregate turnover of a party participating in the merger is calculated on the basis of the company’s latest audited annual account.
The aggregate turnover in Denmark includes the net turnover from the sale of goods and services to customers who resided in Denmark at the time of the sale. Any turnover from intra-group sales, however, is excluded.
The DCCA follows the general EU principles for accounting measures for valuation of assets.
The relevant turnover for the purposes of the Competition Act thresholds is the total turnover in the State of the undertakings involved in their most recent financial year (which is generally interpreted by the CCPC, in line with the practice of the European Commission, as being the most recent year for which audited accounts are available).
While there is no statutory definition of “turnover in the State”, the CCPC has interpreted it to mean the value of services provided or sales made to customers located in the Republic of Ireland in the relevant year. Thus, turnover of companies booked as Irish turnover for accounting/tax purposes (but which do not derive from sales to customers in Ireland) would typically be excluded from the turnover calculation. The CCPC consider that this approach applies equally to the turnover of credit and financial institutions and, therefore, it does not follow the approach under the EU Merger Regulation to the geographic allocation of turnover of such institutions.
Acquisitions of assets are potentially caught by the Competition Act. The relevant turnover in that case is the Irish turnover attributable to the target assets in the most recent financial year, such as, in the case of the acquisition of a building, its rent roll in that period.
Calculation of turnover
- Turnovers are calculated for Israel only, and are determined according to the following principles: Turnovers are calculated based on accepted accounting principles. In other words - if an entity's turnover must be brought into account, the relevant figure will normally be its sales turnover as it appears in its financial reports;
- The relevant turnovers are the turnovers in the financial year that ended before the transaction takes place. E.g. if a transaction occurs during 2017, the relevant turnover will be the 2016 turnover;
- Turnovers are calculated for the entire group of companies under the same ultimate control – see "Filing Thresholds" above. While turnovers, including consolidated turnovers, are calculated according to accepted accounting principles, the question of which entities will be brought into account and included in the consolidated turnovers of the group is set according to antitrust laws. That is, all entities which are controlled by the same ultimate controlling owner, according to the definition of "control" under Israeli Antitrust Law will be brought into account, regardless whether their turnovers are consolidated under accepted accounting principles;
- Sales into Israel from other locations will normally be brought into account.
Calculation of market shares
The definition of markets, the identification of market participants and the allocation of market shares are always some of the most complex and challenging questions presented by competition laws. Nonetheless, we can point to some principles that will apply in this regard in the context of Israeli merger control.
- Market shares refer to the relevant product and geographic market. The full market definition tests are beyond the scope of this essay, but, generally speaking, a relevant market would be one where a hypothetical single actor would be able to profitably raise the price by 5%-10% over time without the loss in quantities decreasing its revenues (this is the well-known "hypothetical monopoly test" which is also applied in other jurisdictions).
- The Israeli Antitrust Authority generally does not provide guidance on market share and market definition issues and the parties must determine the applicability of market share thresholds by themselves. Usually bona-fide estimates normally suffice in order to decide whether filing is necessary, unless there are specific doubts and concerns that require the parties to receive an expert economic opinion to define markets and measure market shares.
- The market is not necessarily national. If the parties cross the market share thresholds in a distinct geographic market within Israel, then filing is required.
- The Israeli Antitrust Authority prefers to measure market shares by quantities. However, such measurement may sometimes be irrelevant, especially in highly variated product markets. The less homogenous the products, the higher the tendency to calculate market shares by revenue.
“Turnover in Japan” means sales of products, including services, to customers located in Japan. However, sales to customers located outside Japan shall be included into “turnover in Japan” if the seller recognized that the buyer would re-sell the products to customers located in Japan without changing the characteristics of the products.
Sales to customers located in Japan can be excluded from “turnover in Japan” if the seller recognized that the buyer would re-sell the products to customers located outside Japan without changing the characteristics of the products.
Turnover is calculated broadly in the same way as it is for the purpose of the EU Merger Regulation, i.e. sales to third parties in the most recent financial year of goods and services, net of sales rebates, discounts and turnover-related taxes (such as VAT) and adjusted to take account fully of acquisitions and disposals of businesses. Turnover is usually (but not always) allocated geographically according to the location of the customer.
The only material difference between the calculation of turnover those for the purpose of the UK rules and EU rules is that under the UK regime the CMA has a discretion (but not an obligation) to take into account turnover of companies that have material influence (but not decisive influence) over a party to the transaction, as well as that of companies in which a party to the transaction has material influence.
For outsourcing transactions, the CMA may treat as turnover sales between the target and the seller, and may attribute such value to those sales as it considers appropriate to reflect their open market value.
For the share of supply test, the CMA has a broad discretion as to the category of goods or services that it uses as the frame of reference for assessing whether the test is met. In particular, the CMA will not – for the purposes of assessing whether it has jurisdiction – carry out a detailed assessment of the relevant economic market. Rather, it will consider the scope of products or services which appear to be broadly comparable, and potentially substitutable, with the products or services of the merging parties. That category may be considerably wider or narrower than the proper relevant economic product market to which the goods or services belong. As regards the geographic area that is used as the frame of reference for the share of supply test, this may be national, regional or local, depending on the circumstances (again, the CMA has a broad discretion).
Thresholds are determined by reference to ‘aggregate turnover’, which is defined as the amount derived by each of the undertakings concerned in the preceding financial year from the sale of products and the provision of services to other undertakings or consumers falling under the undertakings’ ordinary activities after deduction of sales rebates and of value added tax and other taxes directly related to turnover. Sale of products and provision of services to group entities is however exempted.
The Regulations stipulate that the figures to be taken into account for the calculation of turnover shall be those arising in the financial year immediately preceding the transaction. The Regulations exclude asset values from being considered for threshold purposes.
In determining the geographical allocation of turnover, the OFC adopts the principles established in the Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (2008/C 95/01), which establishes the general principle that turnover should be attributed to the place where the customer is located.
Asset-based thresholds are not provided for in the Regulations.
Thresholds are not based on market share.
As explained above, the jurisdictional thresholds under Turkish merger control regime are solely based on the turnover figures of the Parties. In other words there are no assets and/or market share based jurisdictional threshold. To that end, turnover consists of “the net sales realized at the end of the financial year preceding the date of the transaction according to the uniform chart of accounts, or if the calculation thereof is not possible, the net sales realized at the end of the closest financial year from the date of the transaction”. Captive/internal sales should be excluded.
Article 8 of Communiqué No. 2010/4 sets out detailed rules for turnover calculation. In short:
- The turnover of the entire economic group, including the undertakings controlling the undertaking concerned and all undertakings controlled by the undertaking concerned, will be taken into account.
- When calculating turnover in an acquisition transaction, only the turnover of the acquired part will be taken into account with respect to the seller.
- The turnover of jointly controlled undertakings (including joint ventures) will be divided equally by the number of controlling undertakings.
- Multiple transactions between the same undertakings realized over a period of two years are deemed as a single transaction for turnover calculation purposes. They warrant separate notifications if their cumulative effect exceeds the thresholds, regardless of whether the transactions are in the same market or sector or not and whether they were notified before or not.
Transactions that are closely connected in that they are linked by conditions or take the form of a series of transactions in securities taking place within a reasonably short period of time are treated as a single concentration (interrelated transactions theory).
On the matter of geographic allocation of turnover, unlike the EU legislation (i.e. para. 195-203 of the Consolidated Jurisdictional Notice), the Turkish merger control regime does not include any specific provisions regarding the geographic allocation of turnover. Also, the Turkish Competition Board does not have any specific precedent directly on point concerning the geographic allocation of turnover. One decision that discusses geographic allocation of turnover concerns Air Berlin Plc./Intro (4.7.2007, 07-56/661-230) which suggests that “the location of the customer at the time of the transaction” is taken into consideration in assessing whether the revenue is attributable to Turkey.
There are also specific methods of turnover calculation for certain sectors. These special methods apply to banks, special financial institutions, leasing companies, factoring companies, securities agents and insurance companies.
The value of assets and turnover are calculated for the calendar year (as of 31 December of the relevant year) immediately preceding the year of the notification to the AMC. All worldwide assets must be calculated. The Ukrainian assets include all groups of assets, which are directly or indirectly owned by the parties and located in Ukraine. The Ukrainian turnover includes all group sales in Ukraine (of residents of Ukraine and non-residents) and the sales of residents of Ukraine to other countries. The values of assets and turnover must be calculated based on the financial statements.
Determination of “value” for HSR purposes varies depending on what is being acquired.
Publicly traded voting securities. For publicly traded voting securities, the value is the higher of the acquisition price, if determined, and the market price. If the acquisition price is undetermined, the value is the market price.
Untraded voting securities, and interests in unincorporated entities. For untraded voting securities and interests in unincorporated entities, the value is the acquisition price, if determined. If the acquisition price is undetermined, the value is the fair market value as determined in good faith by the acquiring person.
Assets. For assets, the value is the higher of the acquisition price (including assumed liabilities), if determined, and the fair market value as determined in good faith by the acquiring person.
United States Nexus
Even if a transaction meets the HSR thresholds for size of person and size of transaction, it may fall under HSR exemptions for transactions that do not have a sufficient nexus to US commerce. Note that all thresholds are adjusted annually for changes in the US gross national product.
Assets. The acquisition of assets located outside the United States is exempt, unless the assets to be held as a result of the acquisition generated sales in or into the United States of greater than US$78.2 million in the acquired person’s most recent fiscal year.
Voting securities. The acquisition of voting securities of a foreign corporation by a US person is exempt, unless the foreign corporation has assets located in the United States valued at greater than US$78.2 million, or made sales in or into the United States in its most recent fiscal year of greater than US$78.2 million. The acquisition of voting securities of a foreign corporation by a foreign person is exempt unless the same thresholds are met, and the foreign person will “control” the foreign corporation as a result of the acquisition. Further exemptions potentially available in an acquisition of a foreign corporation by a foreign person are described below in the section addressing “foreign-to-foreign” mergers.
For the purposes of the jurisdictional thresholds:
- Asset value relates to the gross value of the firm's assets in South Africa, as recorded on the firm's balance sheet for the end of the immediately previous financial year.
- Annual turnover relates to the gross revenue of the firm from income in, into or from South Africa as recorded on the firm's income statement for the immediately previous financial year, arising from the sale of goods; the rendering of services; and the use by others of the firm's assets yielding interest, royalties and dividends. In particular, turnover should include sales into South Africa from another country; and/or sales to another country from South Africa.
If audited financial statements are not available, these should be prepared in accordance with Generally Accepted Accounting Practice (G.A.A.P.). In general, the Commission will accept management accounts prepared in accordance with G.A.A.P. Where the relevant financial statements are for more or less than 12 months, the turnover recorded must be pro-rated for a 12 month period.
If between the date of the most recent financial statements being used to calculate the thresholds and the date on which the calculation is being made (i.e. immediately before implementation of the transaction) the firm concerned has acquired any new business not shown on those financial statements, then the asset value and annual turnover of that business must be added to the calculation. Where a business shown on the financial statements has been divested, the annual turnover and asset value associated with that business can be deducted.
The detailed regulations published under General Notice 216 in Government Gazette 31957 of 6 March 2009 can be referred to for further details.
The concept of “turnover” corresponds to the revenue generated from the sale of goods and supply of services as part of normal business activities, after deducting discounts or any turnover-related taxes, in the last completed financial year. Transactions, such as mergers, acquisitions, or divestitures, closed since the last completed financial year which had an impact on the turnover must be taken into account.
With regard to geographical allocation of the turnover, the Merger Control Guidelines state that turnover must in principle be allocated to the location where the customer is located (para. 92). Accordingly, for the purpose of calculating turnover allocated to France, all sales made to customers located in France, including sales made from another country, should be taken into account.
Calculation of statutory thresholds is based on Units of Measure (Unidad de Medida y Actualización), which, for 2017, is equivalent to MEX $75.49 pesos. The Units of Measure replaced calculations which in the past were based on the minimum wage for the Federal District and are aimed to be an economic reference applicable in all Mexican territory. Also, Units of Measure are calculated on year by year basis and will be a fix reference through the whole applicable year.
In addition, according with the Regulatory Dispositions of the FECL, for the calculation of the afore-mentioned thresholds, parties should also consider the higher value between the assets specified in the general balance and the commercial value of the assets.
In order to assess whether the above jurisdictional thresholds are met, the ICA takes into account the turnover of the parties in the most recent completed financial year. As a general rule, the ICA prefers to rely on audited accounts. The calculation of turnover is net of sales taxes, discounts and rebates. Intra-group sales are disregarded.
The turnover of each undertaking concerned should be adjusted to allow for acquisitions or disposals made since the end of the last financial year as if they had taken place on the first day of the last completed financial year. Turnover in a territory is the sales revenue from immediate customers in that territory.
In transactions involving banks or financial institutions, the relevant turnover amounts to one-tenth of company’s total assets, excluding suspense accounts. In transactions involving insurance companies, the relevant turnover amounts to the total value of insurance collected premiums.
No specific monetary or asset-based thresholds apply so there are no rules for calculating such thresholds.
The Notification Threshold incorporates reference to market shares. General principles apply in determining market definition (including product, geographic and functional dimensions) and market shares, having regard to the transaction and the parties operations in Australia.
Both assets and revenues are generally determined with reference to a party’s most recent audited annual financial statements.
The revenue thresholds refer to revenues generated on an annual basis. For the ‘size of parties’ threshold, revenues from sales in Canada (domestic sales),sales into Canada from another country (imports) and sales to another country from Canada (exports) are included. For the ‘size of transaction’ threshold, revenues generated from sales in Canada (domestic sales) and sales from Canada (exports) are included, but not revenues from sales made into Canada from another country (imports).
The value of assets in Canada is generally determined with reference to the value of the total assets as stated in the relevant party’s most recent audited annual financial statements. Subject to limited exceptions, assets on the audited financial statements of a Canadian entity are considered to be assets ‘in’ Canada. An entity is considered Canadian where it is incorporated in Canada or, in the case of an unincorporated entity, formed pursuant to a Canadian statute. For moveable assets that are listed on the balance sheet of an entity incorporated outside of Canada, but which were physically located in Canada for a portion of the relevant fiscal period, the Bureau expects the parties to include a proportion of the value of those assets in determining the value of the relevant party’s assets in Canada.