Do merger control rules apply to joint ventures (both new joint ventures and acquisitions of joint control over an existing business?
Merger Control (4th edition)
Establishment of a new joint venture is considered as concentration of business operators if the joint venture will be jointly controlled by at least two business operators. In such a case, the two or more business operators controlling the joint venture will be considered as the business operators participating in the concentration, and the turnover of each of them shall be considered for the purpose of determining whether the notification thresholds are met. For the calculation of the turnover of each business operator which has the controlling power over the joint venture, please refer to Question 7. For the thresholds of the notification, please refer to Question 6.
An acquisition of joint control over an existing business is also considered as concentration of business operators. For example, a transaction in which company A acquires joint control with Company B over Company C which was solely controlled by Company B is considered as concentration of business operators. In such a case, Company A and Company B shall be the business operators participating in the concentration, and the turnovers of each of Company A and Company B shall be calculated for purpose of determining whether the notification thresholds are met. For another example, a transaction in which company A and Company B acquire joint control over Company C which was solely controlled by Company D is also considered as concentration of business operators. In this case, Companies A, B and C shall be the business operators participating in the concentration, and the turnovers of each of these three companies shall be calculated for purpose of determining whether the notification thresholds are met.
Fully functional joint ventures are subject to notification to the competent authority. The decisional practice of the CPC has c that the European Court of Justice’s judgment in Austria Asphalt is adhered to by the CPC. As such, when there is a change from sole to joint control in the over an existing undertaking, the criterion of a concentration is only fulfilled when the arising joint venture performs on a lasting basis all the functions of an autonomous economic entity.
A joint venture that is genuinely fully functional must be able to operate independently of its parents on an identifiable market. In order to do so the joint venture must have a management dedicated to its day-to-day operations and access to sufficient resources including finance, staff, and assets (tangible and intangible) in order to conduct its business activities on a lasting basis.
Danish merger rules apply to transactions whereby a full-function joint venture is created on a lasting basis, or whereby a lasting change of control over an existing business creates a full-function joint venture.
According to judgment of the ECJ in case C-248/16, Austria Asphalt, the creation of a joint venture shall, in either way, be subject to merger control only if it performs on a lasting basis all the functions of an autonomous eco-nomic entity. This involves that the joint venture must act independently of its parent companies and thus have its own access to or presence on the market.
Prior to this ruling, the DCCA – similarly to the European Commission - held that a change from sole control to joint control of an existing undertak-ing was subject to merger control regardless of whether the full-function joint venture would perform on a lasting basis all the function of an autonomous economic entity. It may be expected that ECJ’s judgment will affect the Danish merger regime.
Yes, joint ventures that produce effects in Ecuador, surpass the thresholds established in the Antitrust Law and cause a change in the control in one of the economic operations by decisively influencing the decisions of the other are obligated to notify the SCPM. The scope of application of the Antitrust Law includes state-owned enterprises. Therefore, joint ventures involving this kind of economic operation are also subject to prior control by the SCPM.
Acquisitions of joint control over an existing business or the setting up of a newly established joint venture are notifiable if the general criteria mentioned above are met. There are no specific thresholds for JVs; each of the jointly-controlling parent companies is viewed individually as the “undertakings concerned” and, if joint control is acquired over an existing company, then the joint venture itself is also viewed as an “undertaking concerned”. As a result, JVs with no actual or foreseeable effects within the EEA might be subject to mandatory EU notification, as the thresholds can be met solely on the basis of two parents’ turnover – irrespective of the geographic location of the JV or the size of its activities and assets.
In addition, under the EUMR, only so-called “full-function” JVs are notifiable to the European Commission. These are the joint ventures that are performing, on a lasting basis, all the functions of an autonomous economic entity on the market. A “full-function” JV needs to have sufficient resources to operate independently on the market and not just as an annex to its parent companies by, for example, manufacturing solely for its parent companies.
If the EUMR does not apply because a JV is not full-function, the creation of the JV may still be notifiable under national merger control rules, as not all national rules apply the concept of full-functionality.
Both new joint ventures and acquisitions of joint control over an existing business are notifiable if they result in a change of control over a “full-function” joint venture, i.e. an entity that performs all the functions of an autonomous economic entity on a lasting basis, provided that the thresholds are met.
Indeed, the French Guidelines specify that the “creation” of a joint-venture may result from :
- The creation of a new structure;
- The contribution of assets previously held by the parent companies individually to a pre-existing joint venture, when such contribution enables the joint-venture to become full-function;
- The acquisition by one or several new parent company(ies) of a joint control over a preexisting joint-venture.
The concept of full-functionality is in general consistent with the EU merger control rules and depends on whether the resources of the joint-venture (in staff, budget, tangible or intangible assets, etc.) are sufficient to perform all the functions generally performed by the other companies operating on the market. It is notably crucial in this respect to assess whether the joint-venture may have access to the market (i.e. if it can achieve sales to third parties).
The rules for merger control apply to joint ventures as well. Forming new joint ventures is covered as well as any significant transfer of assets to an existing JV. The same merger control regime applies to JV and other transactions alike.
When assessing a transaction involving a joint venture, any company holding 25% of shares or more needs to be taken into account.
In the framework laid out by the ARC, merger control, prohibition of abuse of dominant position and prohibition of cartels work alongside each other. Therefore, the fact that one applies to a JV does not mean that the other could or would not.
It does not make a difference if a transaction relates to an existing JV or the creation of a new JV. Neither does German merger control treat full-function and non-full-function JVs different. As long as parent companies and/or the JV exceed the relevant thresholds and the transaction is considered a concentration, the transaction is subject to merger control.
Joint ventures (JVs) are not specifically dealt with under the Competition Act from a merger control perspective. If there is a purely greenfield JV, the value of assets and turnover of the JV are unlikely to the meet the de minimis thresholds as described above. That said, for setting up or acquisition of a brownfield JV where the parents of the JV contribute assets, business divisions, contracts, intellectual property, etc. to the JV, , the transaction would be notifiable in case the de minimis thresholds are exceeded and the jurisdictional thresholds are breached.
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 EUMR and, in particular, the approach to the analysis of full-functionality set out in the CJN.
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 before 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 Section 4 of the Competition Act, which are in all material respects similar 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 considered "mergers of companies". Generally speaking, a joint venture will be considered a “merger of companies” if joint control is acquired over an existing business, or existing business activities are transferred to the joint venture.
Brand new joint ventures commencing a new joint activity may or may not be described as "mergers of companies" depending on the specific characteristics of the venture. As a rule, the more long-term the joint venture and the more "structural" in nature, the higher the tendency to classify it as a merger of companies.
A joint venture between competitors which does not amount to a "merger of companies" may sometimes be considered a "restrictive arrangement" and require clearance via one of the mechanisms prescribed by the Israeli Competition Law for this kind of transaction, including, e.g. specific exemptions or block exemptions.
Thresholds will be tested by reference to all parties to which the "merger of companies" definition applies, and will certainly apply to every party that will, following the transaction, hold over 25% of one of the rights [detailed in section 4 above] in the joint venture entity. The threshold tests will include the sellers, unless the sellers sell all holdings and sever all ties 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 parent companies, and may be satisfied by the latter alone. The Israeli Competition Authority has been known to require filing in cases where the parent companies satisfied the relevant nexus and thresholds tests, even when the joint venture itself was not expected to have any activity in Israel.
Participation in the establishment of a new joint venture: If the total assets or annual turnover of the largest investor and another partner meets the thresholds described in question 6 (i.e., if the largest investor has total assets or annual turnover greater than KRW 300 billion and another partner has total assets or annual turnover greater than KRW 30 billion respectively, or vice versa) such transaction is subject to a reporting obligation. The share ratio acquired by each partner is irrelevant (therefore, must be notified even if the largest shareholder acquires less than 20% of total shares). However, if only affiliate companies participate in the establishment of the joint venture, such transaction will not be subject to a reporting obligation.
Acquisition of joint control over an existing company: if an acquiring party jointly acquires 20% or more of the shares of the target company (15% for companies listed on the Korea Exchange) and the total assets or annual turnover of the acquiring party and the target company meets the threshold described in question 6, such transaction is subject to a reporting obligation. Also, if the acquiring party jointly acquires additional shares of the target company and become the largest shareholder while already jointly owning more than 20% of the target company’s shares (15% for companies listed on the Korea Exchange), such transaction will be subject to a reporting obligation.
Joint ventures are generally considered concentrations and therefore if they exceed the thresholds, clearance should be obtained.
The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity (‘full-function’ joint venture) is considered to constitute a notifiable concentration. Thus, an agreement establishing a full-function joint venture amounts to a structural change and is assessed under the notification regime. The acquisition of joint control over an existing business is also notifiable, given that the acquirer did not control it previously or there is a change in the "quality of control."
The PCA IRR includes joint ventures in the definition of the term ‘merger’. Thus, the relevant provisions of the PCA that pertain to mergers also find application to joint ventures.
There are two main types of joint ventures in the Philippines: (i) a contractual or unincorporated joint venture where the partnership between the joint venture partners is governed by contract and no legal entity is created; and (ii) an incorporated joint venture where a legal entity that is separate and distinct from the joint venture partners is created and registered with the Philippine Securities and Exchange Commission (SEC).
Entities to a proposed JV that meet the Size of Party and Size of Transaction Thresholds are required to notify the PCC. If notice is required, then all acquiring and acquired pre-acquisition ultimate parent entities (“UPEs”) or any entity or entities authorized by such UPEs to file notification on its behalf must each submit a Notification Form and comply with relevant rules and procedures. For purposes of notifying a proposed JV, the JV Partners shall be deemed as the Acquiring Entities while the JV Entity is the Acquired Entity.
New joint ventures and acquisitions of joint control over an existing business, are both subject to merger control whenever the joint undertaking is full-function, and if one, or more, of the three jurisdictional thresholds is met.
Non-full-function joint ventures, e.g. the establishment of a cooperative joint venture, are subject to self-assessment by the parties/parent companies to that agreement, under both Article 101 TFEU and the Portuguese equivalent.
Entry into, and amendment of, joint venture agreements by competitors requires a man-datory merger control filing if the aggregate asset value of all parties (and their groups) exceeds RUB 7,000,000,000 or their aggregate turnover exceeds RUB 10,000,000,000 for the calendar year preceding the entry into the joint venture agreement.
Conclusion of a joint venture agreement by two competing non-Russian entities can also be subject to FAS approval if the parties perform or are contemplating joint activities in Russia. Competitors for purposes of this filing requirement can, arguably, also be enter-prises that compete not within, but only outside the area of the specific collaboration. This filing requirement on joint venture agreements between competitors applies irrespective of the allocation of control.
There is no specific filing requirement for joint ventures between enterprises that do not compete with each other. In this respect the general filing requirements as to types of transactions (see question 4) apply. Consequently the joint formation of a new Russian entity with cash contributions by two or more non-competing partners does generally not trigger a filing requirement.
Russian merger control does not distinguish between full-function and non-full-function joint ventures. There is no concept of joint control under the Russian Competition Law.
Yes, if the thresholds are met, the merger control rules apply to both the establishment of a new joint venture and the acquisition of joint control over an existing undertaking, provided that the joint venture perform, on a lasting basis, all the functions of an autonomous economic entity and thereby constitutes a full-function joint venture. For the concept of undertakings concerned in relation to a joint venture, each of the jointly-controlling parent companies is viewed individually as the “undertaking concerned”. If joint control is acquired over an existing company, then the joint venture itself is viewed as an “undertaking concerned” together with the parents.
Where control of a joint venture is exercised by two or more undertakings which previously did not jointly control it, a notification to the ComCo is required, if the joint venture performs all the functions of an autonomous economic entity on a lasting basis. If a joint venture is newly founded by two or more companies, a notification to the ComCo is only necessary if, in addition, the business activities of at least one of the controlling undertakings are transferred to the joint venture.
A separate merger filing is not required, if the joint control exists only for a very limited period of up to one year during the starting-up period of the joint venture.
If through the joint venture no control is acquired, there would be no need to notify the operation to INDECOPI. Nevertheless, as long as the joint venture qualifies as a concentration operation that grants direct or indirect control of a company and the thresholds are exceeded, it will be necessary to notify it to INDECOPI.
In the case of the Bill, the regulation is essentially the same. In that sense, if it exceeds the concurrent thresholds and, also, implies a change in control or the creation of joint control over a new entity, it must be notified for approval.
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.. Indeed, the Competition Board has adopted several clearance decisions whereby 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.
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.
According to the Competition Law, joint venture is to be cleared with the AMCU, if establishment of an undertaking by two and more undertakings, which will be engaged in business activities independently over a prolonged period of time, does not encourage the competition coordination among the established undertakings or between the undertakings and the newly established undertaking and the financial thresholds (see above) are met.
Joint control can occur if one of the founders (shareholders) of the business entity have not chartered, but situational veto and can block decisions of the governing bodies of the controlled business entity through actual inability of its shareholders to reach the quorum for legality of the governing bodies’ meetings without participation of such a shareholder required by the establishing documents.
As long as the criteria of the thresholds are met, establishment of a business entity by two or more other business entities as well as a joint control over another business entity constitutes a concentration regardless of the new entity’s autonomy status and shall be prior approved by the Antimonopoly Committee of Ukraine.
At the same time, setting up the joint venture for the purpose of coordination of competitive behaviour between the founding undertakings or between the founding undertakings and the joint venture, is not viewed as concentration, but as concerted actions, which are subject to the concerted actions regulations and the merger control clearance.
Joint ventures that do not involve the formation of a new corporate or non-corporate entity (i.e., involve existing entities) are HSR reportable if they meet the relevant size-of-transaction and size-of-person thresholds, one of the parties forming the joint venture is engaged in commerce, and no exemption applies.
When a joint venture involves the formation of a new entity (Newco), each contributing party is considered an acquiring person and the Newco is considered the acquired entity. The rules determining whether a formation triggers a filing vary depending upon whether the Newco is a corporation or an unincorporated entity.
The threshold values listed below are as of April 2019 and are adjusted annually.
Formation of a Corporate Entity
In the formation of a US Newco corporation, each acquiring person must submit an HSR filing if no exemption applies and the value of that acquiring person’s shares of the new corporate entity is either over $359.9 million or between $90 million and $359.9 million and the ‘size-of-person test’ is met. The value of an acquiring person’s voting securities of the Newco is based on the acquisition price of the Newco’s voting securities, if determined, or the fair market value (described in response to question 7 above) of the acquiring person’s contributions to the Newco if the acquisition price is not determined. The ‘size-of-person test’ is met if:
- The acquiring person has annual net sales or total assets of at least $18 million and (1) the Newco has assets of $180 million and (2) at least one of the other acquiring persons has assets or annual net sales of at least $18 million, or
- The acquiring person has annual net sales or total assets of at least $80 million and (1) the Newco has assets of $18 million and (2) at least one of the other acquiring persons has assets or annual net sales of at least $18 million.
Formation of a Non-Corporate Entity
In the formation of a US Newco non-corporate entity, the transaction is reportable if that acquiring person acquires control of the Newco. An acquiring person that acquires control of the Newco must submit an HSR filing if the value of that acquiring person’s shares of the non-corporate entity is either over $359.9 million or between $90 million and $359.9 million, the ‘size-of-person test’ is met, and no exemption applies. The value of an acquiring person’s controlling interest in the Newco is based on the acquisition price of the controlling interest in the Newco, if determined, or the fair market value of the controlling interests. The ‘size-of-person test’ is met if:
- The acquiring person has annual net sales or total assets of at least $18 million and the Newco has total assets of $180 million, or
- The acquiring person has annual net sales or total assets of at least $180 million and the Newco has total assets of $18 million.
Italian merger control rules apply to full-function joint ventures - i.e., intended to perform on a lasting basis all the functions of an autonomous economic entity (full function nature).
Joint venture which do not qualify as concentrations, need to be (self-)assessed according to rules governing agreements between independent undertakings (i.e., Articles 2 and 4 of the Law and Article 101 TFEU).
Merger Control Legislation applies to market-facing (autonomous) joint ventures in accordance with the EU Merger Regulation and the Guidelines of the Jurisdictional Notice. The HCC in its recent decision, C.A. Papaellinas Ltd / HOB House of Beauty Ltd (54/2017) has ruled that the full-functionality element of a joint venture is examined under various criteria, such as whether the joint venture is intended to function on a lasting basis, has its own management, personnel and assets, the access to sufficient resources, and its ability to shape its own business policy independently from the parent companies.
In case of a creation of a new joint venture, the participating parties of the transaction are the parent entities. In case of an acquisition of control of another company by the joint venture, only the joint venture and the target company are considered for the assessment of the notification thresholds, and not the parent companies, unless the joint venture only constitutes the vehicle for such acquisition of control by the parent companies.
To the extent that the creation of a joint venture, qualifying as a concentration, has as its object or effect the coordination of the competitive behavior of companies which remain independent, such coordination will be appraised in accordance with the criteria laid in Articles 1(1) and 1(3) of Greek Competition Law concerning anti-competitive agreements.
By contrast, in its decision Wind Hellas – Vodafone (Network Sharing Agreement) 698/19/2013 the NTPC issued a decision underlying that the companies created a non-market facing joint venture, which did not constitute a concentration, solely for the facilitation of its parents’ business. Therefore, the creation of the joint venture was assessed in accordance with the general competition rules (Articles 1(1) and 1(3) of Greek Competition Law) and not the Merger Control Legislation.