In which circumstances are joint ventures notifiable or reviewable (both new joint ventures and acquisitions of joint control over an existing business)?
Merger Control (3rd edition)
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 its business activities on a lasting basis. 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 establishment of a new structural joint venture that will perform activities on a permanent basis is qualified in the Competition Act as an operation of concentration, that must be notified to the FNE if it meets the turnover thresholds indicated in answer number 6 above. From the FNE’s Guidelines on Jurisdiction it is moreover clear that non-structural joint ventures are not caught by the provisions of Section IV of DL 211, and may be assessed under the general provision prohibiting anticompetitive facts, acts or agreements of paragraph I, Article 3 of DL 211.
The Guidelines stipulate furthermore that the joint venture doesn’t necessarily require joint control by the parent companies. The important features are that a new entity is established and that has operational autonomy on a structural basis. Therefore, the joint venture shall be analyzed under a “full functionality” criterion. Such functional autonomy has a normative and an economic dimension: (i) normatively in the sense that the joint venture must act as a sovereign legal economic agent; and (ii) economically in the sense that the joint venture has sufficient resources to operate in the market.
In relation to the analysis whether the turnover thresholds are met, the turnover of the parties establishing the joint venture and their respective company group’s turnover are relevant. The acquisitions of control in an existing joint venture or the acquisition of joint control in an existing company are also qualified as a concentration operation. However, for the analysis whether the turnover thresholds are satisfied, the turnover of the party or parties acquiring control (and their respective company group) and that of the target company are to be taken into account.
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 Law No.4054. 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.
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 a recent judgment of the ECJ (C-248/16), 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 economic 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.
Previous to this ruling, the DCCA – as similar to the European Commission - held that a change from a sole control to joint control of an existing undertaking 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.
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 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 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.
Fully functional joint ventures are subject to notification to the competent authority. The decisional practice of the CPC has demonstrated that the European Court of Justice’s judgment in Austria Asphalt is fully adhered to. 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.
The strong presence of the parent companies in upstream / downstream plays a crucial role in assessing the full functionality of a joint venture, where this presence results in substantial sales or purchases between the parents and the joint venture. Given that the basic function of an outsourcing joint venture is normally to supply the outsourcing parent, the essential question is whether, regardless of these sales, the joint venture is able to play an active role on the market.
The joint venture's full functionality will not normally be affected by an initial period of sales exclusively to its parents. Indeed, such a start-up period may be necessary in order to establish the joint venture on a market. The joint venture should inevitably have sufficient resources to build up such market presence within a reasonable time frame.
Where sales from a joint venture to the parent companies are intended to be made on a lasting basis, the essential question is whether, regardless of these sales, the joint venture is geared to play an active role on the market and can be considered economically autonomous from an operational viewpoint. In this respect the relative proportion of sales made to its parents compared with the total production of the joint venture is an important factor.
Italian merger control rules apply to joint ventures, only if they have a “concentrative” nature, namely:
(i) They are intended to perform on a lasting basis all the functions of an autonomous economic entity (full function nature); and
(ii) Their object or effect is not the coordination of the competitive behavior of the parent companies.
As a result, a full function joint venture could fall outside the scope of the Italian merger control rules if, for example, the parent companies were active in the same relevant product and geographic market as that of the joint venture, or in upstream/downstream markets. Such joint venture would need to be (self-)assessed according to rules governing restrictive agreements (e.g., Art. 101 TFEU).
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.
Entities to a proposed JV that satisfy the thresholds in Section 3 of the IRR 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.
Entry into, and amendment of, joint venture agreements by competitors requires a mandatory 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 enterprises 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.
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 Act does not specifically refer to joint ventures. To the extent that a joint venture constitutes a ‘merger’ as defined, the merger control provisions of the Act will apply. Generally ‘greenfield’ joint ventures will not be caught by the Act, but a combination of existing operations may be. The Commission has published a non-binding practitioners’ note to help determine whether a joint venture is caught by the merger control provisions. To the extent that a joint venture is not a ‘merger’, the prohibited practices provisions of the Act may nevertheless apply.
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 February 2018 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 $337.6 million or between $84.4 million and $337.6 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 $16.9 million and (1) the Newco has assets of $168.8 million and (2) at least one of the other acquiring persons has assets or annual net sales of at least $16.9 million, or
- The acquiring person has annual net sales or total assets of at least $168.8 million and (1) the Newco has assets of $16.9 million and (2) at least one of the other acquiring persons has assets or annual net sales of at least $16.9 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 $337.6 million or between $84.4 million and $337.6 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 $16.9 million and the Newco has total assets of $168.8 million, or
- The acquiring person has annual net sales or total assets of at least $168.8 million and the Newco has total assets of $16.9 million.
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.
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.
The Competition Act does not provide for separate thresholds for JVs. Where joint control over a to-be-established-JV (newCo) is the case, all undertakings that acquire control over such JV are deemed as participating parties to the concentration; the JV cannot be considered as a participating party to the concentration, since it practically does not yet exist and generates no turnover. As a result, the acquiring undertakings will be taken into account for considering whether the jurisdictional thresholds are satisfied. On the contrary, when two or more undertakings acquire joint control over an existing JV, then all undertakings concerned, i.e. on the one hand the acquiring undertakings and on the other hand the existing JV, will be considered participating parties to the concentration and will be taken into account for considering whether the jurisdictional thresholds are satisfied.
When the full-function JV (as per how it is defined below) acquires control over another undertaking-target, then, in principle, only the JV and the target will be considered participating parties to the concentration, and not the parent companies of the JV. On the contrary, when the JV is used merely as a vehicle for such acquisition of control by the parent companies, then only the latter along with the target will be considered participating parties to the concentration; only such participating parties will be taken into account for determining whether the thresholds are satisfied.
According to art. 3 para. 4 of the Merger Regulation and art. 5 para. 5 of the Law, a concentration will be found in the case of the creation of a JV performing on a lasting basis all the functions of an autonomous economic entity; such JV is deemed a “full-function JV” [see Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (2008/C 95/01) para. 91 et seq.]. The criteria taken – on an ad hoc basis- into account for the determination of full functionality or autonomy, among others, are (ibid. para. 94-102) related to (i) whether sufficient resources for independent operation in the market exist, (ii) whether activities beyond one specific function for the parents are carried out, (iii) whether there is strong presence of the parent companies in upstream or downstream markets and whether the JV relies on sales/purchases to/from the parent companies (especially for a period exceeding an initial start-up period, which usually lasts three years). Accordingly the JV must be intended to operate on a lasting basis (ibid. para. 103-105). Should the above characteristics of full-functionality and long lasting operation not be met, then the JV may be reviewed under art. 1 of the Law and/or art. 101 TFEU for prohibited collusions.
Due to the declined volume of concentrations that have taken place in Greece during the past few years, as a result of the unprecedented fiscal crisis the country is facing, the Hellenic Competition Commission has not generated rich case law. In a recent merger control decision issued by the HCC, Decision no. 615/2015, the HCC held that there two conditions which shall be met in order to confirm the full functionality of a JV i.e. a) the exercise of joint control by the parent entities (with a citation to footnote 84 of the Jurisdictional Notice) and b) that the JV shall perform on a lasting basis all the functions of an autonomous economic entity, i.e. be operationally and therefore economically autonomous in an operational respect (with citation to paras 92-93 of the Jurisdictional Notice). Another relative decision of the HCC dealing with a shift of control over a joint venture is decision no. 577/2013; the case pertained to the shift in the quality of control over Waste Syclo, a full-function JV. Such was implemented through the acquisition of the 51% of the shareholding in the JV by a new shareholder. Until the time of the concentration the JV had generated zero turnover (since its activity amounted merely to its participation in an international public tender) and had been funded by its parent companies. The HCC, which approved the concentration, subject to certain commitments assumed by the parties, ruled in its decision that a concentration exists in the case of the establishment of a new legal entity in the form of a JV, which can boast performance on a lasting basis and function as an autonomous economic entity, as well as in the case of a shift in the structure of an existing JV. According to the HCC in its ruling, a JV carries out on a lasting basis all the functions of an autonomous undertaking when it is active in the market and carries out all usual functions of an undertaking that is active in the same market, it is independently managed and has sufficient financial funds, personnel and fixed assets so that it can carry out its business activity on a lasting basis.
It is irrelevant whether the transaction relates to an existing JV or the creation of a new one. The full-functionality criterion set forth above delineates the application of the Merger Regulation for the creation of joint ventures by the parent companies, irrespective of whether such a joint venture is created as a “greenfield operation” or whether the parties contribute assets to the joint venture which they previously owned individually. In addition, a transaction involving several undertakings acquiring joint control of another undertaking or parts of another undertaking fulfilling the criteria in the test for control, from third parties does constitute a concentration without it being necessary to consider the full functionality criterion.
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 Bills, the regulation is essentially the same.
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 at 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.
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.
Joint ventures are not afforded any distinct treatment under the Competition Act in terms of notifiability requirements. Under the Competition Act, an “acquisition of an enterprise” is notifiable. The reference to an “enterprise” has been defined by the Competition Act to mean an active or former business, rather than a prospective business. The prevailing view in India is that the formation of a “greenfield” joint venture (“JV”) would not be notifiable, since the parties do not contribute an already active or former business towards the formation of the JV and therefore there is no acquisition of an “enterprise”. Based on this view, the Competition Act’s merger control provisions cover only “brownfield” JVs (i.e., where an active or former business is being contributed to the JV by one or more of the JV parents). To assess the notifiability of a transaction, the value of the assets and turnover attributable only to the portion of the assets being transferred to the JV by the JV parents is considered for testing Jurisdictional Thresholds.
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.
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”.
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.