Is there a prohibition on completion or closing prior to clearance by the relevant authority? Are there possibilities for derogation or carve out?
Merger Control (3rd edition)
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 or foreseen Austrian turnover.
The main sanctions for infringing the prohibition to implement notifiable concentrations prior to clearance are fines and nullity.
Operations of concentrations that are notified to the FNE, either mandatory or voluntarily, cannot be implemented prior to the final clearance decision or until the timeframes established for the FNE’s analysis have lapsed without the FNE rendering a decision.
The Competition Act doesn’t provide that the obligatory suspension can be lifted by the FNE. Moreover, in a recent multinational transaction, the FNE indicated that the materialization of a concentration operation is determined by the possibility of exercising decisive influence on a previously independent economic agent, situation that concurs even in the case of a ‘local carve out’.
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 €7.2 million or $8.2 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, 20.12.2006, and the CVR Inc Inco Limited Decision 07-11/71-23, 07.02 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.
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 public 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 impeded.
It is not possible to avoid breaching the prohibition by “carving out” the assets and legal entities of the target, as a transfer 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.
Case law on pre-implementation in Denmark is scarce. However, on 31 May 2018 the ECJ rendered a preliminary ruling in C-633/16 Ernst & Young concerning the prohibition against merger implementation prior to clearance – so called “gun-jumping”. The ECJ held that the termination of a cooperation agreement does not constitute an implementing action covered by the prohibition. The ECJ stated that a merger is implemented only by a transaction, which – in whole or in part, in fact or in law – contributes to the change in control of the target undertaking.
However, at the same time the ECJ underlined the interaction between the EU merger regulation (Regulation 139/2004) and Regulation 1/2003 and made it clear that non-gun jumping behaviour may violate Article 101 and/or 102 TFEU despite not breaching the prohibition against pre-implementation.
Finally, on 20 June 2018, two Danish energy suppliers were fined DKK 4 million each for failure to notify a joint acquisition of a third undertaking back in 2010.
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 (with or without conditions); or (ii) the applicable statutory time limit for reaching a determination has passed without the CCPC having issued such a determination.
A transaction that is put into effect prior to receipt of clearance by the CCPC is void and unenforceable under Irish law.
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.
The Law expressly prohibits the partial or entire implementation of the concentration prior to clearance, infringement of which prohibition entails administrative fines.
Nevertheless, a temporary approval of a concentration is possible, in the case where a full (Phase II) investigation is decided by the CPC, where the undertakings concerned can establish, upon application to the CPC, that they shall suffer substantial damage as a result of any additional delay to the concentration.
Such temporary approval may be accompanied by conditions decided at the CPC’s discretion and it does not affect the final decision of the CPC.
Italian merger control rules do not provide for a standstill obligation. Accordingly, once the notification has been duly filed, the parties may execute the concentration before the final decision is adopted.
If Phase II is opened, the ICA may order the parties to suspend the implementation of the concentration (see question 20). Such order does not suspend a public takeover bid, provided that the acquired voting rights are not exercised pending the ICA’s review.
Should the concentration be executed before the final decision, and should the ICA adopt a prohibition decision, the latter may order the unwinding of the concentration, or specific remedies to restore competition.
The Law does not provide any guidance as to the possibility for the parties to carve out local completion. However, given the lack of a standstill obligation, the parties do not need to carve out local completion of a transaction to avoid a delay of the global completion.
A stand-still obligation applies until final clearance for all transactions. Infringements of the stand-still obligations can be sanctioned with administrative fines, and there are several examples of this in the NCA's practice. Derogations from the stand-still obligation are possible under particular circumstances, but the NCA has to render a formal decision. Exception decisions from the NCA are relatively rare and appears to be limited to exceptional circumstances, such as for instance "failing firm" and bankruptcy risk for the target company.
If the thresholds for compulsory notification are satisfied and the parties implement closing before clearance from the PCC is obtained, the transaction shall be considered void, and the parties shall be subject to an administrative fine of 1% to 5% of the transaction value.
In the case of In Re: Udenna Corporation, PCC Case No. M-2017-001, the PCC voided a Philippine conglomerate’s acquisition of shares in a foreign corporation which has Philippine subsidiaries that hold substantial assets for non-compliance with the compulsory notification requirement under the PCA. The PCC also imposed a fine of around Twenty Million Pesos (PhP20,000,000.00). In the application of the Size of the Transaction Test, the PCC held that the Target Corporation’s shares in “entities it controls are excluded” but the “assets of the controlled corporations are still included in the valuation”.
In the case of In re: AXA SA, Camelot Holdings Ltd., and XL Group Ltd., PCC Case No. M-2018-004, Decision No. 30-M-03/2018, 30 August 2018, the PCC held that merging firms have to notify the PCC within thirty (30) days from executing a definitive agreement. If the firms notify beyond the 30-day period but before consummating the transaction, they may be subjected to a fine of ½ of 1% of 1% of the value of transaction.
At present, the PCA IRR does not provide for derogations or carve outs. This, however, does not mean that the PCC is precluded from recognizing derogations or carve outs in appropriate circumstances.
Completion of a transaction prior to clearance by FAS may lead to the same consequences, i.e. potential administrative penalties and avoidance of the transaction, as conducting a transaction in the complete absence of clearance. It is in principle possible to carve out Russian shares or assets from a global transaction, if the structure of the transaction permits.
In addition, there is an option for intra-group transactions that allows to submit a subsequent notification instead of an application for prior approval, provided that a group chart is submitted to FAS prior to implementing the transaction. The main disadvantages are: (i) no changes of the group are permitted other than the transaction to be filed, and (ii) the transaction cannot be completed within one month from the date of submission of such group chart (1-month waiting period).
Completion or closing of a transaction subject to French merger control requirements prior to the issuance of a clearance decision by the FCA is prohibited (the notification is mandatory and entails a stand-still obligation pending the merger control review).
French legislation provides that a derogation may be requested before the FCA (either before or after the submission of the notification form) by the notifying parties in order to proceed with the completion of all or part of the transaction before clearance (Article L.430-4 §2 and 3 of the Code). However, such derogations, which have to be necessary and duly justified, are generally granted by the FCA only in exceptional and limited circumstances, essentially in cases where the target is subject to insolvency proceedings or financial distress.
This exemption from the stand-still obligation may be granted subject to conditions and is void if a complete notification form has not been filled with the FCA within three months from the date of the transaction's closing or completion. The granting of a derogation is without prejudice to the power of the FCA to adopt a prohibition decision or a clearance decision with commitments. In 2018, the Authority notably granted a derogation in the Financière Cofigeo/groupe Agripole case, before ultimately imposing divestments after a Phase II investigation.
The possibility of a carve out (local completion of a merger to avoid delaying global completion of a transaction) is not provided for by the French legislation.
Parties to a notifiable merger may not implement the merger before obtaining the requisite approval from the competition authorities. The Act does not deal specifically with “hold-separate” arrangements to “carve-out” South Africa while the merger process is still underway. In practice, however, such arrangements have been put in place successfully in various transactions in the past, on the basis that the jurisdictional ambit of the Act extends (only) to "all economic activity within, or having an effect within" South Africa. Conceptually, therefore, it is arguable that, to the extent that South Africa can be "ring-fenced" from the implementation of the merger elsewhere or worldwide, no contravention of the Act will arise (because the implementation of the merger in other jurisdictions will have no “effect” in South Africa). Importantly, “hold separate” arrangements should ideally be used only after the South African notification is submitted and where it is clear that no (material) competition concerns will arise.
The practical aspects of such a ring-fencing arrangement can be challenging especially in circumstances where the parties’ business activities relating to South Africa are conducted through divisions or subsidiaries outside South Africa that sell products into South Africa. This means that it may be difficult to put in place a ring-fencing structure that is not exposed to attack on the grounds that, at least on some level, the worldwide implementation of the merger will have an effect in South Africa. An appropriate arrangement will depend largely on the specific transaction, the presence (or lack thereof) of the parties in South Africa, and the basis on which they are active in South Africa.
Transactions that are subject to the HSR Act are prohibited from closing until expiration or early termination of the waiting period under the HSR Act. Parties may not ‘carve out’ portions of the transaction for closing prior to expiration or early termination of the waiting period.
The undertakings concerned must refrain from implementing the concentration at least for one month following the notification. As an exception, the merger may nevertheless be implemented if the ComCo approves the merger at the request of the companies for important reasons. Important reasons may include takeovers for restructuring if the bankruptcy of the acquired company is imminent if the acquirer cannot immediately take over operational and financial management.
If the ComCo does not inform within one month of the notification whether an examination is to be carried out, the merger can be implemented without reservation.
The legal effect of a concentration that has to be notified is suspended, subject to the expiry of the deadline of one month following the notification and any provisional authorisation to implement the concentration.
Closing and completion of the transaction are prohibited prior to clearance. It should be noted that this applies even in cases where the transaction would not have triggered an obligation to file in the first place, e.g. where filing took place as a precaution only.
It is possible to carve out assets within the same undertaking(s) in preparation to the transaction as long as the carve out as such does not trigger its own obligation to file, for example by transferring control to a separate legal entity owned by the same undertaking. Stretching out a transaction over time is rarely helpful, as transactions including the same parties are treated as one single transaction if they occur within two years.
In principle, it is possible to seek for a derogation to put a concentration into effect prior to filing/clearance. However, in practice this process is rather time-consuming and therefore very rare. It has to be noted that the FCO is very open to clear concentrations within short time if there are circumstances which require a quick clearance (e.g. in insolvency cases). Therefore, it might be advisable in practice to ask for a quick clearance rather than to apply for a derogation.
The consummation of the transaction is suspended until the HCC either clears or prohibits the notified merger (“suspension of consummation” rule). However, the public bids and the transfers of shares pursuant thereto are possible, as long as they have been notified to the HCC and the purchaser does not exercise the voting rights deriving from the ownership of the transferred shares. By contrast, in the past no “carve out” structures have been upheld by the HCC, as they have been considered to inadequately insulate the Greek operations of the parties from the other, non-Greek operations in jurisdictions having cleared the transaction.
Upon application by the parties of the transaction, submitted even before the filing of the notification, the HCC may allow derogations from the above mentioned prohibition only in order to avoid causing serious damage to the interests of one or more parties of the transaction or of a third party. The decision allowing the derogations may include terms and conditions for the protection of effective competition in the market and is freely revocable by HCC, in the event it was grounded on inaccurate information or the parties have breached the terms and obligations set out in the decision approving the derogation.
Yes, if all the requirements are met, the firms are forbidden to complete the transaction without the authority’s clearance. If the transaction is completed without this clearance, the transaction is deemed null.
Concentrations subject to notification must not be implemented prior to being notified to, and authorized by, the PCA, or before obtaining a tacit clearance decision.
There are two types of exceptions to the above suspensive effect:
a) A public bid of acquisition or an exchange offer notified to the PCA can be implemented before clearance, provided that the acquiring party does not exercise the voting rights associated with the shareholding, or exercises them merely with the aim of protecting the financial value of the investment based on derogation previously granted by the PCA to that effect;
b) Before or after the filing of the notification, the notifying party(ies) may submit a reasoned request to the PCA for a derogation from the suspensive effect. The parties must demonstrate that the threat to the transaction caused by the suspension is real and substantial (e.g. in case of a failing firm). The PCA may authorize such a derogation where the harm to the parties (and, where relevant, to affected third parties) resulting from the standstill obligation exceeds the possible threats to competition that might result from the transaction. The PCA may grant the derogation subject to certain conditions or obligations aimed at ensuring effective competition.
The PCA has been strict in its allowing of derogations to the stand still obligation. Only in certain circumstances has such derogation been permitted (see Triton/Stabilus, case Ccent. 11/2010, of 23.04.2010, where the PCA consent to a derogation for reasons of imminent bankruptcy). The relevant request must be objectively substantiated, as well as clear on the absence of competition law concerns, and that there will be an irreparable damage caused by the standstill obligation. In the context of the Portuguese financial crisis of the beginning of the decade, this mechanism has been much more frequently used, in particular with acquisitions of businesses close to insolvency, by funds.
The Competition Act does not foresee the possibility of carving out the local business or assets in order to allow completion of a global transaction. The notifying party(ies) may submit a reasoned request for a waiver from the standstill obligation, to be assessed on a case-by-case basis by the PCA.
A parking structure is explicitly contemplated in the Competition Act, confirming that acquisitions carried out by financial institutions on a temporary basis (in general, up to 1 year) are not subject to merger control obligations, provided that it is not given control over the target during the interim period, otherwise it would amount to an early implementation of the concentration.
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 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.
Yes, Section 6(2A) of the Competition Act imposes a standstill obligation. A notified transaction cannot be completed until the CCI gives its approval or 210 calendar days have passed from the date of notification, whichever is earlier.
If a CCI clearance has not been obtained, part or full consummation of the transaction is prohibited. As such the taking of any steps towards the implementation of the transaction, like closing the foreign leg of a transaction, depositing part of a refundable consideration, or putting shares in an escrow, etc., have been considered as gun-jumping by the CCI.
There are no exceptions to the standstill obligation under the Competition Act.
During the 'first-phase' investigation by the CMA (see section 19 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.
Yes, the EUMR imposes a “stand-still obligation” which prohibits the parties from closing a transaction prior to receiving clearance from the Commission. As described above, the Commission is increasingly vigilant that companies do not breach this obligation.
In a public bid, the purchaser is allowed to acquire the outstanding shares, provided the Commission is informed without delay and the shares are not voted for until clearance has been granted.
The Commission can also grant a derogation from the stand-still obligation. Such derogations are granted very rarely, when it can be proved that the harm to the companies (or to a third party) of waiting until clearance is greater than any potential negative effects on competition.
If the transaction falls under the definition of "merger of companies" according to the Israeli Antitrust Law and meets the relevant thresholds, it is illegal to complete the transaction before receiving the Israeli Commissioner's consent for completion of the transaction. However, if 30 days have elapsed since filing merger notifications and the Commissioner has not responded, the merger is considered approved.
Any action which amounts to carrying out a notifiable merger transaction, or the first steps thereof, prior to receiving the Commissioner’s approval, may, in the 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, under certain circumstances, the following have been deemed gun-jumping:
- A loan or transfer of funds to the acquired business;
- Transfer of shares to trustees who are, effectively, the controlling owners of the acquiring company;
- Transfer of the consideration, or 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 international transactions, it is possible to carve the assets and legal entities in Israel out of the transaction, though generally, any carve-out outline will require the Israeli Antitrust Authority's approval.
The Israeli Antitrust Authority does not normally allow exceptions, unless the acquired business is in severe financial distress and may not survive conclusion of the review. Thus, the Israeli Antitrust Authority may allow the prospective acquirer to transfer funds into the prospective target, under certain conditions.
Notifiable concentration is prohibited to be closed prior to the clearance by SAMR. In case that business operators close the concentration prior to the clearance, SAMR may instruct them to dispose of their shares or assets, transfer the business or adopt other necessary measures to return to the state prior to the concentration within a specified time limit, and SAMR may impose on them a fine of not more than RMB 500,000.