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 (2nd Edition)
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.
Two types of exceptions to the suspensive effect are possible:
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 to 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 very strict in its allowing of derogations to the stand still obligation. Only in particular circumstances has such derogation been allowed (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 an irreparable damage caused by the standstill obligation. In the context of the financial crisis, this mechanism has been much more frequently used, in particular within acquisitions of businesses near insolvency, by funds.
The Competition Act does not expressly allow for 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 target during the interim period, otherwise it would amount to an early implementation of the concentration.
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.
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.
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 19). 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.
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.
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 for precaution reasons only.
It is possible to carve out assets within the relevant undertakings in preparation to the transaction, as long as the carve out as such does not trigger an 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.
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.
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.
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.
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 timesframes 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 and, since this merger control system is recently in force, there is no precedent in this regard yet. It is therefore uncertain if the FNE is willing to allow a ‘local carve out’ or warehouse construction in case of global operations or cases with exceptional urgency, and if so, under which conditions.
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.
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 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.
A notifiable concentration cannot be implemented before receiving clearance from the Commission. The Commission has the power to impose a fine if this so-called “standstill obligation” is infringed.
The standstill obligation also applies to public bids, but in those case the bidder is allowed to acquire the shares, provided that it notifies the concentration to the Commission without delay and it refrains from exercising the voting rights attached to the acquired shares before the Commission approves the concentration.
The EUMR does not provide for the possibility to carve out and close the remainder of a global transaction. A derogation from the standstill obligation is however possible and could be granted by the Commission upon reasoned application. In practice, the Commission grants a derogation only in exceptional circumstances.
Closing a reportable transaction without having obtained a clearance decision is prohibited by French law since merger control has a suspensive effect. Derogations to the suspensive effect of French merger control are possible subject they are necessary and justified in case of public bids and in specific cases such as when companies are under receivership or compulsory liquidation. However, such derogation shall be accompanied and followed by a filing and does not prejudge the assessment of the transaction in substance.
There is no provision on the possibility to carve out.
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.
Concentrations covered by mandatory notification to the NCA are subject to a full standstill obligation until the NCA has issued a final decision. According to the NCA’s practice, the standstill obligation applies to the transfer of shares and assets, and any other “implementing steps” taken by the parties.
In cases where the NCA orders the submission of a notification despite the turnover thresholds not being exceeded, a standstill obligation will automatically be triggered from the moment the parties are informed of such decision. If at this point the transaction has been partly implemented, only further implementation during the handling of the case may be considered as a breach of the standstill obligation.
If the parties chose to submit a voluntary notification, they will be subject to the standstill obligation.
Public bids or a series of transactions in securities admitted to trading on a market such as a stock exchange, by which control is acquired, are exempted from the standstill obligation, provided that the acquisition is notified without delay to the NCA. These rules mirror the corresponding provisions in the EU Merger Regulation. The acquirer must not exercise voting rights for the acquired shares or initiate any other implementing measures.
The NCA has the power to issue derogations from the standstill obligation. The NCA has used this power on a number of occasions. Derogations are mostly granted in cases where an expedient takeover is necessary to ensure the day-to-day operation of the target business, e.g. in cases where there is an obvious risk of bankruptcy. It cannot be ruled out that the NCA may grant a partial derogation in situations where a “carve out” solution is possible provided the remaining parts (i.e. where the standstill obligation applies) can continue to operate on a stand-alone basis.
The rule is that the implementation of an economic concentration fulfilling the jurisdictional thresholds is forbidden prior to its clearance by the Competition Council. However, Competition Law no. 21/1996 provides for the following exemptions to this rule:
(i) the Competition Council may grant a derogation and allow the implementation of a concentration prior to its clearance, provided that the parties submit a well-founded request in this respect;
(ii) a public bid may be implemented before its clearance if the following conditions are met: the concentration is notified as soon as possible and the acquirer does not exercise its voting rights acquired or they are only exercised with the sole purpose of preserving the full value of the investment concerned, based on a derogation granted by the Competition Council.
In deciding to grant a derogation or not, the Competition Council must take into account the effects that the suspension of the concentration may have on the concerned parties or on third parties, as well as the threat represented by the concentration for competition.
Competition Law no. 21/1996 does not contain any provisions regarding the possibility to “carve out” the Romanian assets and legal entities in order to avoid delaying the global completion of a concentration.
KN: Yes, the implementation of a concentration is subject to a stand-still obligation i.e. closing is prohibited until the clearance is issued or statutory waiting periods have expired.
The exceptions on prohibition on closing are not available under the Competition Law even in urgent situations save for an exception provided for a specific scenario in relation to public bids. In particular, public bids are also caught by the stand still obligation. However, exceptionally parties may continue with the realization of a public sale provided that the merger notification was filed within the prescribed deadline and that the acquirer either does not exercise its managing rights after the registration of its share, or it may exercise its rights but solely for the purpose of protecting the value of the target company and solely based on a special approval by the Competition Commission. In practice, however, the Competition Commission has been rather formalistic and has been reluctant to allow such exceptions even when the prescribed conditions seem to be met.
Competition Law does not expressly provide for the carve-out options or hold-separate agreements, however it does not prohibit them either. The Competition Commission or the court has never given a formal opinion as to whether ‘carve out’ agreements are acceptable in practice and they have not been tested in practice before the Commission or the court. While this option is not without risks, it may be considered as an additional security in certain cases with the advice of a local competition counsel.
Parties to a notifiable merger may not implement the merger before obtaining the requisite approval. 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.
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 €8.9 million or $9.9 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.
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.