Is there a prohibition on completion or closing prior to clearance by the relevant authority? Are there possibilities for derogation or carve out?
According to Article 21 of the AML, a concentration transaction meeting the relevant revenue thresholds shall be filed for a merger review, and such concentration shall not be implemented before MOFCOM's clearance.
The scope of the prohibition.
There is no specific rule on the definition of “implementation” in China. It is generally understood that any actions that bring to the buyer actual control over the target company or an ability to influence the daily operation of the target company constitute implementation of a concentration transaction, and therefore are prohibited before MOFCOM's clearance. According to the penalty decisions published on MOFCOM’s official website, MOFCOM has always taken the position that behaviours such as the transferring of shares and the creation of a new legal entity (e.g., a joint venture) would clearly belong to the implementation of a concentration transaction.
The prohibition cannot be easily circumvented.
Traditionally, MOFCOM does not accept "carve-outs" where the assets and legal entities in China are transferred at a date later than the closing of the main transaction, or they are transferred to a trustee. In addition, if the carve-out does not make the China transaction an independent transaction separate from the global transaction, i.e. the two transactions are inter-conditioned and viewed as one transaction, then both transactions need to be cleared by MOFCOM before it can be implemented.
Derogation is not available.
There is no concept of “derogation” in the AML and relevant Merger Control Regulations, and to date MOFCOM has not granted a derogation. Thus, it can be said that derogation is not available in China.
Under Danish merger rules, it is prohibited to implement a merger prior to approval by the Danish competition authorities. Implementation of a merger prior to obtaining an approval from the DCCA may result in a penalty.
However, the implementation prohibition does not prevent the implementation of a pub-lic takeover bid or a series of transactions in securities, including securities that can be converted to other securities which can be traded in a market such as a stock exchange, whereby control is acquired from different sellers, provided that the merger is notified immediately to the DCCA and the acquirer does not exercise the voting rights attached to the securities in question or only does so to maintain the full value of his investment and on the basis of an exemption granted by the DCCA.
Moreover, the DCCA may exempt a merger from the prohibition to implement a merger before obtaining clearance if the DCCA finds that effective competition will not be im-peded.
It is not possible to avoid breaching the prohibition by “carving out” the assets and legal entities of the target, as a transferral of assets, in so far as the assets allow the purchaser to develop a market presence, will be subject to the Danish merger rules itself.
Where a merger or acquisition is either mandatorily notifiable, or has been voluntarily notified, to the CCPC under Irish merger control rules, the parties must not put the merger or acquisition into effect until either (i) the CCPC makes a determination that the transaction may be put into effect or put in effect subject to conditions; or (ii) the applicable statutory time limit for reaching a determination has passed without the CCPC having done so.
Generally, it is not possible to carve out local completion of a merger or acquisition and any transaction put into effect prior to receipt of clearance by the CCPC is void and unenforceable under Irish law. There are no derogations for “carving out” the Irish assets and/or legal entities and transferring them at a later date. The 2014 Act closed off the “warehousing exception” previously available, by which certain temporary acquisitions of control were not notifiable.
The position under the Competition Act is now that this exception does not apply to transactions involving the future onward sale of the business to an ultimate buyer in circumstances where the ultimate buyer bears the major part of the economic risk.
For a transaction which falls under the definition of "merger companies" according to the Israeli Antitrust Law (see "Jurisdictional Test" below) and meets the relevant thresholds (see "Summary of Jurisdictional Thresholds" below), it is prohibited to complete the transaction before receiving the Israeli Commissioner's consent to the transaction. However, if 30 days have elapsed since filing merger notifications and the Commissioner has not responded, this is considered an approval of the merger.
Any action which amounts to performing a notifiable merger transaction or the first steps thereof, may, in the Israeli Antitrust Authority Israeli Antitrust Authority's view, constitute gun-jumping. Any transfer of actual foothold or involvement in the operations of the acquired company may also be considered gun-jumping. Among other things, the following have been deemed gun-jumping, under certain circumstances:
- A loan or transfer of funds to the acquired business;
- Transfer of shares to trustees who were effectively the controlling owners of the acquiring company;
- Transfer of the consideration, or a part thereof, prior to the Commissioner's approval;
- Transfer of risk with regard to the assets prior to the Commissioner's approval;
- The appointment of officers in the company, including temporary members of the board.
In case of an international transaction, it is possible to carve the assets and legal entities in Israel out of the transaction, though generally, any carve-out outline will have to receive the Israeli Antitrust Authority's approval.
The Israeli Antitrust Authority normally does not allow derogations, except in the case that the purchased business has severe financial difficulties and may not survive until the review is concluded. In such a case, the Israeli Antitrust Authority may allow the prospective acquirer to transfer funds into the prospective target, under certain conditions.
Any transaction that is subject to the mandatory notification cannot be implemented during the 30-day waiting period (Phase I). There is no exception to the prohibition to implement the reportable transaction, such as a waiver and a derogation. However, the 30-day waiting period may be shortened by the JFTC if the party files a request in writing and it is clear that the transaction may not substantially restrain competition in any relevant market.
A concentration may not be implemented before its notification or, where applicable, until it has been declared lawful pursuant to a decision taken by the DG. However, the DG may grant a derogation upon a reasoned request made before notification or after the transaction, after taking into account inter alia the effects of the suspension on one or more undertakings concerned by a concentration or on a third party and the threat to competition posed by the concentration. Such derogation may be granted subject to conditions and obligations established by the DG to ensure conditions of effective competition.
The above general prohibition shall not prevent the implementation of a public bid which has been notified to the DG provided that the acquirer does not exercise the voting rights attached to the securities in question or does so only to maintain the full value of those investments and on the basis of a derogation granted by the DG.
The Regulations and Act make no reference or allowances for carve outs.
Under Turkish merger control regime there is an explicit suspension requirement. A notifiable merger or acquisition, not notified to, or approved by, the Board, shall be deemed as legally invalid with all of its legal consequences. If a transaction is closed before clearance, the substantive nature of the concentration plays a significant role in determining the consequences.
As for the filing process for privatisation tenders, Communiqué No. 2013/2 provides that it is mandatory to file a pre-notification with the Competition Authority before the public announcement of tender specifications to receive the opinion of the Competition Board which will include a competitive assessment. In the case of a public bid, the merger control filing can be performed when the documentation adequately proves the irreversible intention to finalise the contemplated transaction. Filing can also be performed when the documentation at hand adequately proves the irreversible intent to finalise the contemplated transaction.
The notification process differs for privatisation tenders. According to communiqué entitled Communiqué on the Procedures and Principles to be Pursued in Pre-Notifications and Authorisation Applications to be filed with the Competition Authority in order for Acquisitions via Privatisation to Become Legally Valid (Communiqué No. 2013/2), it is mandatory to file a pre-notification before the public announcement of tender and receive the opinion of the Competition Board in cases where the turnover of the undertaking or the asset or service production unit to be privatised exceeds TL 30 million (approximately €10 million or $11 million). Further to that, the Communique promulgates that in order for the acquisitions to become legally valid through privatisation, which requires pre-notification to the Competition Authority, it is also mandatory to get approval from the Competition Board. The application should be filed by all winning bidders after the tender but before the Privatisation Administration’s decision on the final acquisition.
There is no normative regulation allowing or disallowing carve-out arrangements. Carve-out arrangements have been rejected by the Board (eg, the Total SA Decision 06-92/1186-355, December 20 2006, and the CVR Inc Inco Limited Decision 07-11/71-23, February 7 2007) so far arguing that a closing is sufficient for the suspension violation fine to be imposed and that a further analysis of whether a change in control actually took effect in Turkey is unwarranted. The wording of the Board’s reasoned decisions does not analyse the merits of the carve-out arrangements, and takes the position that the "carve-out" concept is found unconvincing. Therefore, methods like carve-out or hold separate would not eliminate the filing requirement and they cannot authoritatively be advised as safe for early closing mechanisms recognised by the Board.
Finally, Turkish merger control rules do not provide the possibility of derogations from suspension.
The transaction cannot be completed prior to its approval by the AMC.
Nothing prohibits the parties to sign the transaction documents at any time. However, completion of the transaction (including the acquisition of shares or assets) is conditional upon the AMC merger control clearance, unless the transaction qualifies for an exemption. The exemptions are as follows:
- establishment of an entity in order to coordinate the competitive behaviour between its parent entities or between the newly established entity and its parent entities. Such transaction, however, is considered as concerted actions (practices) and may require the parties to obtain a separate AMC concerted actions (practices) clearance;
- acquisition of shares by a broker (or by a financial institution), if such acquisition is made for the further resale and the broker does not participate in managing the target. The broker must resell the shares within one year from the date of the initial acquisition;
- intra-group transactions (provided that the control relations within the group were established in accordance with the merger control rules); and
- acquisition of control over an entity or a part of it by a receiver or a state officer acting in his official capacity.
In the case of public bids, the notification may generally be filed both before and after a public bid, unless special legislation provides otherwise. In any event, the notification must be filed not later than the expiry of 30 calendar days from the date of the announcement of the winning bidder.
Derogations are not available. It is impossible to avoid breaching the prohibition by “carving out” Ukrainian assets and legal entities from the overall transaction.
The HSR Act prohibits closing the notified transaction until expiration or early termination of the HSR waiting period. The Act does not permit parties to “carve out” portions of the transaction for closing prior to expiration or early termination of the waiting period.
In general, clearance should be obtained before closing the deal. In certain cases (a number of intra-group transactions only), the law provides for the possibility of sending the authority a notification within 45 calendar days of closing (instead of filing before closing). Yet the latter method is very rarely used in Russia since such a procedure provides for public disclosure of the group on the FAS website a month prior to closing.
The practice of “carving out” certain assets in the transaction is not frequently used specifically for the purpose of obtaining clearance in Russia, since the merger control procedure does not take long time and is predictable enough. Consequently, in general, the parties have enough time and a good opportunity to prepare and successfully obtain a clearance decision. Also, in practice, some consequences of closing before clearance could be mitigated by obtaining of a positive clearance decision afterwards.
The Russian law does not provide for the possibility of the FAS to grant derogation, therefore such an instrument does not exist in Russia in the form similar to the EU one.
During the 'first-phase' investigation by the CMA (see paragraph 5.3 below for details of the stages of the review process), there is no automatic obligation to suspend implementation of the transaction. An automatic prohibition only becomes applicable if and when a second-phase investigation is opened.
The CMA has the power to impose an order prohibiting closing of an uncompleted transaction, for the purpose of preventing 'pre-emptive action'. Pre-emptive action is that which would prejudice the CMA's ability to investigate the merger or to remedy any competition concerns that it may subsequently identify. A prohibition on closing might therefore be necessary if the legal act of closing itself (as opposed to events that may take place after closing) will automatically impact the viability of the target as a standalone competing business. The CMA has given the example of a closing that would automatically lead to the loss of key staff or management capability for the target. Another example might be where the target has important and irreplaceable contracts that contain change of control provisions that will inevitably be exercised on closing, for example because the other party to the contract is a competitor of the purchaser.
The power to prohibit closing during the first-phase investigation was introduced on 1 April 2014 but has not yet been used.
The CMA also has powers to impose 'hold-separate' orders to prevent pre-emptive action being taken, both for completed and uncompleted transactions. These typically require the target business and the purchaser's competing business to be held and operated separately for the duration of the CMA's review, and for the period of implementation of any remedies. Complying with these obligations is often costly and onerous.
'Hold-separate' undertakings/orders typically impose, among other things, obligations to:
- refrain from further integration of the target's business with those of the purchaser, or selling it to a third party;
- maintain as a going concern both the target's business and any competing businesses of the purchaser. This typically includes requirements to: (i) make available sufficient resources for the development of the business on the basis of pre-merger plans; (ii) not to change key staff, organisational structure or management responsibilities; (iii) take steps to encourage key staff to remain with the relevant business; (iv) preserve and maintain assets, facilities and goodwill; (v) not reduce the range and/or standard of goods and services supplied);
- prevent the flow of commercially sensitive information between the competing businesses of the target and the purchaser; and/or
- operate each business separately and independently, particularly as regards competitive decisions such as pricing.
For completed mergers, 'hold-separate' orders are almost invariably imposed. For uncompleted mergers, the CMA has stated that it will usually only impose 'hold-separate' orders if there is some evidence that pre-emptive action is already taking place (which is likely to be rare as, in many cases, such action would independently breach the separate prohibition on anticompetitive agreements under EU and/or UK competition laws).
If the CMA opens a second-phase investigation, the parties are automatically prohibited from completing any transfer of shares in relation to the transaction, or – where the merger is already completed – further integrating the relevant businesses, without the consent of the CMA (which is rarely granted). An exception to the prohibition on closing during the second-phase investigation applies where completion occurs pursuant to a pre-existing contractual obligation.
In addition, the CMA can impose 'hold-separate' orders (see above) during the second-phase investigation or can negotiate 'hold-separate' undertakings with the parties.
Closing is prohibited until the concentration receives the approval of the Belgian Competition Authority. The parties must suspend the implementation of their transaction until approval is received, i.e., there must be no transfer of shares or securities and no de facto change of control. There is no express provision that allows Belgium to be “carved out” so that closing can proceed in other jurisdictions.
There is one statutory exception to the prohibition on closing without approval. In the case of public offers, the parties may transfer the shares or securities in question provided that the concentration is notified without delay and the purchaser does not exercise the voting rights attached to the securities until the acquisition is approved. The buyer may request a waiver of the prohibition on exercising their voting rights if this is necessary to maintain the full value of the investment.
Such waivers have been successfully obtained on a number of occasions, typically when the change of control was considered urgent in order to preserve the value of the target. For example, in 2008 the Belgian Federal Holding and Investment Company acquired a stake in Fortis Bank and was granted permission to exercise limited control prior to formal approval, on account of the financial difficulties facing the bank. A waiver was also granted in the case of the initial public offering of Bpost in 2013.
According to Austrian law, notifiable mergers may only be implemented once the official parties have waived their right to request Phase II proceedings or the time period of Phase I, typically four weeks, has elapsed.
If a request for further examination was placed by one of the official parties, the concentration may only be implemented once the Cartel Court has issued its decision (and it is not a prohibition decision; in case the Cartel Court issues a conditional clearance decision, the conditions must be complied with or the parties run the risk to be regarded as implementing a merger without prior clearance).
According to jurisprudence, a concentration is implemented when the influence, which constitutes the core of the respective concentration, is exercised for the first time in a way affecting the competitive conditions. This would mean that the realisation of the concentration (including the registration in the commercial register) and the exercise of controlling influence can fall apart in terms of time. Apart from that, carve out or withhold constructions are hardly compatible with Austrian merger control.
In this context, the effects doctrine may also be mentioned. Irrespective of whether a concentration is realised in Austria or abroad, as long as the Austrian turnover thresholds are exceeded, a notification is, in principle, required. This is not the case, if it can be established that there will be no effect on the Austrian market – this may, in particular, be the case where the target is active on markets not including Austria and has no actual nor foreseen Austrian turnover.
The main sanctions for infringing the prohibition to implement notifiable concentrations prior to clearance are fines and nullity.
Mergers in South Africa are classified as either small, intermediate or large, based on the South African turnover and assets of the acquiring and target firms.
Parties to an intermediate or large merger may not implement the merger in South Africa until it has been approved, with or without conditions.
The scope of the prohibition on prior implementation is absolute, and there is no carve out for public bids or other derogations.
For multi-jurisdictional mergers, ring-fencing or "carving out" the South African leg of the transaction pending approval is in principle allowed, provided that this can be done in such a way as to ensure that there is no establishment or acquisition of control (see 3.1 below for instances of control) over the business or assets of the target company in South Africa.
However, it is important to note that the Commission in South Africa is known to be conservative in its approach and such "ring-fencing" is not readily applied in South Africa.
Parties may not implement a transaction which triggers a notification to the FCA until the concentration is approved by the FCA (Article L.430-3 of the FCC). Implementation of the transaction must therefore be suspended until clearance is obtained. Derogation from the suspensive effect is available provided that such derogation is necessary and justified:
- In the case of public bids falling within the scope of French merger control: the parties may transfer the shares, provided that the transaction is notified without delay and the voting rights attached to the shares are not exercised before the FCA clears the transaction (Article R.430-5 of the FCC); or
- In very specific cases where closing prior to having obtained the FCA’s approval is crucial, such as transactions involving companies put into receivership or compulsory liquidation (Article L.430-4 of the FCC).
There is no provision in French law concerning the possibility to “carve out” French assets and legal entities in order to avoid delaying the global completion of a merger.
Mexico became a suspensory jurisdiction as a result of the new FECL. Therefore, transactions that reach any of the statutory thresholds are legally forbidden to close without previously obtaining clearance. Actions from the parties without clearance shall have no legal effects until approval, so potential carve outs, derogations or other strategies that could imply the combination or de facto execution of the transaction could potentially constitute a violation of the FECL.
Transactions that require notification to the FCO must not be completed prior to obtaining clearance from the FCO. Such transactions are generally void under German law so long as clearance has not been obtained or is not deemed to have been obtained following expiration of the waiting period. The prohibition to close a transaction prior to clearance also applies to precautionary notifications that are made in cases where the notification requirement is not clear-cut, e.g. where it is doubtful that a foreign transaction has sufficient domestic market effects to require notification and clearance from the FCO prior to closing. Only in specific situations involving, for instance, public tender offers may the parties under certain preconditions proceed with closing the transaction prior to obtaining clearance. Thus, the implementation of a public tender offer may be permissible to the extent the transaction is immediately notified to the FCO and the parties commit not to exercise their voting rights or do so only to preserve the full value of the transaction based on a derogation granted by the FCO.
While the FCO can grant derogations from the prohibition to close prior to or during the pendency of the German merger review, such request for derogation must be based on important grounds and is rarely granted in practice, also because clearance in straightforward matters is often available well ahead of the expiration of the statutory waiting period. The most plausible example are cases of imminent insolvency, but even in those situations it may often be possible to convince the FCO to grant swift clearance to a notified transaction instead of requesting a derogation.
Similar considerations apply with respect to ‘hold separate’ arrangements or envisaged local carve-outs of a global transaction by which the parties intend to close a foreign transaction although German merger approval has not yet been granted. While such structures are not impossible to consider in the German context, they require careful design and implementation in order to assure that domestic market effects of the global transaction are indeed fully eliminated. The stronger the likely effects of a transaction in Germany, the higher the risk becomes for the parties that the FCO would take issue with such measures and potentially challenge them. It is therefore advisable to discuss the intended local carve-out or ‘hold separate’ arrangement with the agency in advance to avoid that the FCO might consider imposing fines for gun jumping type violations. Again, it may be often easier in practice to discuss with the FCO ways to speed up German merger clearance rather than considering local carve out structures that may then become subject to challenge.
Under Italian merger control rules, if a transaction meets the thresholds for mandatory notification, the filing shall be submitted to the ICA prior to completion. However, there is no standstill obligation. Therefore, in principle, the parties can implement a notified transaction before the final decision of the ICA.
In practice, very often, the parties agree that the clearance decision of the ICA shall constitute a contractual condition of closing a transaction subject to mandatory notification. This is because, in case of a prohibition decision, the ICA may force the parties to restore effective competition and remove any anticompetitive effects produced by the transaction, if the latter has already been implemented.
If the ICA decides to start a phase II investigation, it can order the suspension of the transaction until the final decision (e.g., in case C11524 - UNIPOL GRUPPO FINANZIARIO/UNIPOL ASSICURAZIONI-PREMAFIN FINANZIARIA-FONDIARIA SAI-MILANO ASSICURAZIONI of 26 April 2012).
In case of takeover bids of undertakings listed on the Italian stock exchange, the purchaser can complete the transaction and acquire the shares, notwithstanding an order of suspension issued by the ICA, provided that it does not exercise the voting rights until the final decision.
In principle, the parties do not need to carve out local completion of a transaction to avoid delaying global completion, given that, as mentioned above, under Italian merger control rules, there is no standstill obligation until the final decision of the ICA. However, in practice, carving out local completion might be an option for transactions that raise potential competition issues at local level.
There is no prohibition on completion or closing under the CCA. The ACCC can, and does, take action in the Federal Court of Australia to prevent completion of transactions that it considers contravene the merger control prohibition.
In order to mitigate the risk of action by the ACCC, parties can seek informal clearance and typically include a condition precedent in transaction documents with respect to applying for, and obtaining, clearance prior to closing, if required.
For foreign mergers, local completion of a merger may, if commercially practical to do so, sometimes be 'carved out' of a global completion to allow time for informal clearance to be obtained.
If merger approval is sought through formal clearance or authorisation, an undertaking prohibiting completion of the acquisition while the matter is under consideration must be given by the applicant.
Transactions that require notification, including public bids, may not be completed or closed until the applicable waiting period has expired, been waived, or terminated. The expiry of the applicable waiting period (and hence the ability to legally close the transaction) is often, but not necessarily, aligned with the conclusion of the substantive merger review.
Parties generally do not “close around” Canada. If a transaction triggers a notification requirement, the law does not prohibit merely the acquisition of assets or businesses in Canada but rather the completion of that transaction before the merger control requirements have been met. The Bureau has stated that it will not normally agree to hold-separate provisions pending completion of a merger investigation.