What is the substantive test applied by the relevant authority to assess whether or not to clear the merger, or to clear it subject to remedies?
Merger Control (4th edition)
Different to the EUMR which uses the SIEC-Test (Significant Impediment of Effective Competition Test), Austrian merger control still employs the dominance test. Hence, the authorities examine whether or not the notified transaction creates or strengthens a dominant position.
Pursuant to jurisprudence, a dominant position is given if an undertaking can prevent the maintaining of effective competition on the relevant market by being able to behave independently with regard to its competitors, customers and/or consumers to a notable extent.
In applying the substantive test, the Cartel Court (the BWB does not issue any binding decision but may simply refrain from or waive its right to ask for an in-depth examination of a merger case) evaluates the effects of the concentration on the market structure in a predictive approach. Competition conditions before and (hypothetically) post implementation of the concentration are compared. All circumstances may be taken into account, with market shares being a major factor. Strong buyer power, for example, is also considered.
In many cases, the Cartel Court relies on (economic) expert opinions.
Besides, when a merger concerns sectors subject to specific regulation (e.g. electricity and gas, broadcasting and telecommunication), the competition authorities collaborate closely with experts from the sector specific regulators.
The substantive test is whether the concentration will lead or will likely lead to elimination or restriction of competition. If the answer is affirmative, SAMR shall make a decision to prohibit the concentration, unless the business operators participating in the concentration can prove that the advantages of the concentration to competition obviously outweigh the disadvantages, or that the concentration is in the public interest. Under the latter circumstances, SAMR may decide to approve the concentration with remedies, i.e., restrictive conditions for lessening the negative impact on competition.
Specifically, the following factors will be taken into consideration by SAMR in review of concentration of business operators:
- the market shares of the business operators in a relevant market and their power of control over the market;
- the degree of concentration in the relevant market;
- the impact of the concentration on entry to the market and technological advance;
- the impact of the concentration on consumers and the other relevant business operators concerned;
- the impact of the concentration on the development of the national economy; and
- other factors which SAMR deems necessary to consider in terms of its impact on market competition.
For more details, please refer to Interim Provisions on Assessment of the Impact of Business Operator Concentration on Competition issued by MOFCOM in August 2011.
There are no special tests that apply to particular sectors.
The substantive test for compatibility of a concentration with competition in the market is whether such concentration significantly impedes effective competition in Cyprus or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position.
In assessing the compatibility of a concentration, the CPC takes into consideration the following criteria:
- the need to maintain and develop conditions of effective competition in the relevant markets, taking into account, inter alia, the structure of the affected markets, other markets upon which the concentration may have significant effects and the potential competition on behalf of undertakings within or outside Cyprus;
- the position in the market of the undertakings concerned and undertakings connected to them;
- the financial power of such undertakings;
- the alternative sources of supply of products or services in the affected markets and/or other markets upon which the concentration may have significant effects;
- any barriers of entry to the affected markets and/or other markets upon which the concentration may have significant effects;
- the interests of the intermediate and end consumers of the relevant products and services;
- the contribution to technical and economic progress and the possibility of such contribution being in the interest of consumers and not obstructing competition; and
- the supply and demand trends for the relevant markets.
To the extent a joint venture that constitutes a concentration has as its object or effect the coordination of competitive conduct of undertakings that remain independent, the Service shall particularly take into account:
- whether two or more parent companies retain, to a significant extent, activities in the same market as the joint venture or in a market which is downstream or upstream from that of the joint venture or in a neighbouring market closely related to this market; and
- whether the coordination that directly emanates from the creation of the joint venture provides the undertakings concerned the ability to eliminate competition for a substantial part of the relevant products or services.
While the Law is silent in this regard, the CPC’s approach and analysis of harm is substantially aligned with the respective approach of the European Commission. Besides high market shares, the assessment usually takes into account the anti-competitive effects that could potentially arise out of a concentration, such as coordinated effects as well as unilateral effects.
The test and factors considered by the competent authority in the course of assessing whether a concentration should be cleared is consistent for all sectors.
In essence, the substantive test applied by the DCCA to assess whether or not to clear a merger is whether the merger will significantly impede effective competition, in particular due to the creation or strengthening of a dominant position. When carrying out merger control, the DCCA will in general apply the same tests as the Commission.
Thus, the Commission’s merger practice and relevant case law from the EU Courts will apply. The Commission’s guidelines on the assessment of horizontal mergers as well as non-horizontal mergers will also provide an im-portant contribution to the interpretation of the DCCA’s merger assessments.
Historically, the Council and the DCCA seemed to apply a more static, market-share based approach to findings of dominance and unilateral effects compared to the Commission. Over the last few years, however, there has been a change towards a more economic approach, and recent merger decisions thus show an increasing use of economic evidence such as diversion ratios and upward pricing pressure (UPP) calculations.
Furthermore, public statements from the DCCA indicate that the use of diversion ratios and UPP calculations is becoming the new standard in cases concerning consumer related markets, and that diversion ratios and UPP calculations may also be used for the purpose of defining the relevant markets. Nonetheless, during the initial assessment of a merger, the classic ap-proach of defining markets and calculating market shares is still applied. The initial test may then be supplemented with a more economic assessment in case the DCCA finds that the merger could potentially give rise to concerns.
In general, the same substantive test applies to all sectors. However, it should be noted that mergers between providers of telecommunications (which do not meet the normal thresholds for merger control, cf. above) must be notified to the Danish Business Authority if the parties have a combined turnover in Denmark of at least DKK 900 million and the merger includes a public telecommunications network. The Danish Business Authority will consider whether such merger cases should be referred to the DCCA for further assessment. If a merger is referred to the DCCA, the DCCA will apply its usual substantive test applicable to all mergers.
- The state of competition in the relevant market;
- The degree of market power of the economic operator in question and that of its main competitors;
- The need to develop and/or maintain free competition among economic operators in the following areas the market, considered its structure as well as current or potential competitors;
- The circumstance of whether, as a result of the concentration, market power is generated or strengthened, or whether there is a significant reduction, distortion or obstacle, clearly foreseeable or proven, to the free competition of economic operators and/or competition;
- The contribution that the concentration may make to:
a) The improvement of production or commercialization systems;
b) The promotion of the country's technological or economic advancement;
c) The competitiveness of the national industry in the international market as long as it does not have a significant effect on the economic well-being of national consumers;
d) The welfare of national consumers;
e) If such contribution is enough to compensate certain and specific restrictive effects on competition; and,
(f) Diversification of social capital and worker participation.
The EUMR requires that the Commission examine whether a transaction would cause a “significant impediment to effective competition” (SIEC test). The adoption of this test in 2004 has led to a more effects-based approach to merger control review by the Commission.
The FCA examines whether the contemplated transaction significantly lessens competition. In this respect, Article L.430-6 of the Code provides that the FCA assesses if a transaction may harm competition, notably
- by creating or strengthening an individual or collective dominant position; or
- by creating or strengthening a situation of buying power which places suppliers in a situation of economic dependency.
The market shares of the parties (and their competitors) play a predominant role in the competitive assessment of the transaction, but the FCA also takes into consideration other indicators, such as the importance of barriers to entry, market structure and evolution (both of supply and demand), closeness of competing products/services, etc. The FCA also takes into account the results of the market tests launched as the case may be.
Both unilateral and coordinated effects (horizontal, vertical and/or conglomerate) on the various markets impacted by the transaction are assessed by the FCA, as well as the efficiency gains expected thereon.
There are no tests specific to given sectors, but the FCA takes into consideration the specificities of the sectors concerned, especially for regulated sectors such as telecoms, medias or energy, if needed after having consulted other independent administrative authorities.
The basic test is whether a merger would result in a significant impediment of competition and whether a dominant market position may result from, or further increase by, the merger. The FCO will take horizontal, vertical, unilateral and coordinated effects of the transaction into account. The test takes a forward-looking approach when assessing future developments and potential effects on the market. Considerations about the structure of the market are a very important factor as a market share of 40% is sufficient for a rebuttable statutory presumption of a dominant market position in German competition law. The FCO examines a timeframe of up to five years of likely future developments.
German merger control provides further for a de-minimis provision for the substantive test. This de-minimis provision was recently moved to the substantive test. According to this de-minimis rule, the FCO cannot take into consideration any effects on a market which exists for more than five years and whose market volume in Germany does not exceed EUR 15 million. In practice, the definition of the markets concerned and the total market volume is of high relevance in this context.
In addition, there is also a newly introduced exemption for press companies if the target is a small or medium press company which achieved a significant loss in the last three years prior to the transaction and who could not survive without the transaction. In addition to the aforementioned prerequisites, the parties in these cases have to prove that there was no other acquirer available.
The CCI is required to consider all or any of the following factors to determine whether the combination being considered is likely to cause an AAEC:
- actual and potential level of competition through imports in the market;
- extent of barriers to entry into the market;
- level of combination in the market;
- degree of countervailing power in the market;
- likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or profit margins;
- extent of effective competition likely to sustain in a market;
- extent to which substitutes are available or are likely to be available in the market;
- market share, in the relevant market, of the persons or enterprise in a combination, individually and as a combination;
- likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market;
- nature and extent of vertical integration in the market;
- possibility of a failing business;
- nature and extent of innovation;
- relative advantage, by way of the contribution to the economic development, by any combination having or likely to have an AAEC; and
- whether the benefits of the combination outweigh the adverse impact of the combination, if any.
Under the Competition Act, the CCPC is required to examine whether the notified merger or acquisition will lead to a substantial lessening of competition (“SLC”) in the supply of goods or services in the State. The CCPC has stated that the SLC test must be applied in terms of the effect that the proposed merger or acquisition would have on consumer welfare which, in its view, refers to a range of variables including price, output, quality, variety and innovation.
The CCPC’s approach in applying the SLC test is based heavily on economic analysis and, in practical terms, mirrors closely the approach of the European Commission in applying the significant impediment to effective competition test under the EUMR. In analysing whether an SLC arises, the CCPC will first typically look to define relevant product and geographic markets by reference to demand-side and supply-side substitutability. It will then examine the impact of the transaction in relation to unilateral effects at the horizontal and vertical level, as well as the possibility of coordinated effects arising on relevant markets. The assessment will focus on the competitive constraints on the merged entity, including those exerted by competitors, customers and the threat of new entry or expansion. The CCPC will consider efficiency arguments, if presented. It will also consider the failing firm defence (Baxter/Fannin), although the criteria required for establishing this defence are difficult to meet.
Unlike the position under the EUMR, in which the European Commission must proceed to an in-depth Phase 2 investigation only where it has "serious doubts" regarding the compatibility of a proposed transaction with the internal market, there is no specific test under the Competition Act that must be satisfied in order for the CCPC to open a Phase 2 investigation. The CCPC will move to Phase 2 if it is unable, on the basis of the information before it, to form a view that the result of the merger or acquisition will not be to substantially lessen competition during the Phase 1 period of 30 working days (45 working days where commitments are offered).
In practice, however, the majority of cases reviewed by the CCPC are cleared at Phase 1. The CCPC’s 2018 Mergers & Acquisitions Report states that for the 2018 calendar year, the CCPC received 98 merger notifications, but only 14 cases involved an extended Phase 1 review (three of which were carried forward from 2017) and 3 cases involved a Phase 2 review (Irish Times/Sappho(Irish Examiner), Trinity Mirror/Northern & Shell and Enva/Rilta).
The substantive test, as set out in the Israeli Competition Law, is "reasonable concern for significant harm to competition or public" in relation to price, quality, quantity or regularity of supply of a product or service.
The Commissioner discussed horizontal mergers in Opinion 1/11 – Guidelines for The Competitive Analysis of Horizontal Mergers (the "Horizontal Merger Guidelines"). According to the Horizontal Merger Guidelines, the merger review will begin by using a demand-based definition of product and geographic market to identify current participants and market positions. The Israeli Competition Authority will estimate possible unilateral effects and coordinated effects, as well as defences such as merger efficiencies and the failing firm doctrine.
The guidelines indicate that a horizontal merger may raise the Israeli Competition Authority's concerns and merit further examination when post-merger market shares are high, the merging companies are the closest substitutes, or entry barriers are high. It should be noted that in some cases when evaluating horizontal mergers, the Israeli Competition Authority has been known to use rather narrow market definitions.
The substantive test set by the Israeli Competition Law for vertical mergers is no different from those set for horizontal mergers: "reasonable concern for significant harm to competition or public". According to Competition Tribunal precedent, vertical mergers are usually beneficial, although they may raise concerns of foreclosure. The Commissioner rarely objects to mergers based on vertical concerns, but such concerns may result in the imposition of remedies.
According to Article 7(4) of the MRFTA, a horizontal merger between competitors is presumed to substantially restrict competition when any of the following conditions are satisfied.
(1) if all of the following conditions are satisfied:
(a) the combined entity possesses a market share of 50% or more (or the top three market players, including the combined entity, possess an aggregate market share of 75% or more);
(b) the collective market share of the combined entity is the largest in the relevant market; and
(c) the market share difference between the combined entity and the second largest company is greater than 25% of the collective market share of the combined entity.
(2) when a merger conducted directly by a large company (a company which has total assets or annual turnover greater than KRW 2 trillion) or through its specially related person meets all of the following condi¬tions:
(a) the merger is in a business area where aggregate market share of small and medium enterprises is at least two thirds of the entire market; and
(b) the merger will result in the large company possessing at least 5% of market share.
Under the KFTC Guidelines for M&A Review, a merger is not considered to restrict competition, if the market concentration and the degree of change after the merger falls under any of the following.
For horizontal mergers, if any of the following applies:
- the post-merger Herfindahl-Hirschman Index (“HHI”) is less than 1,200;
- the post-merger HHI falls between 1,200 and 2,500 and the HHI increase between the pre- and post-merger is less than 250 points; or
- the post-merger HHI exceeds 2,500, and the HHI increase is less than 150.
For vertical and conglomerate mergers, either of the following applies:
- the post-merger HHI is less than 2,500 and the market share of each party is less than 25% in each of the relevant markets; or
- Each party ranks no higher than 4th in each of the relevant markets.
In addition to the above presumptions, in order to determine whether or not competition is substantially restricted due to a merger, the following factors are considered:
- to determine whether a horizontal merger substantially restricts competition, factors such as market concentra¬tion before and after the merger, unilateral effects, coordinated effects, level of foreign and global competition, the possibility of new entrants, the existence of substitute products and adjacent markets are taken into consideration.
- to determine whether a vertical merger substantially restricts competition, factors such as market foreclosure effects and coordinated effects are taken into consideration.
- to determine whether a conglomerate merger substantially restricts competition, factors such as the hampering of potential competition, exclusion of competitors, and the effect of enhancing entry barriers are taken into consideration.
There are no different tests that apply to particular sectors
As part of its analysis of the concentration, the authority reviews the substantial power in the relevant market, and whether or not the concentration is lawful. The following aspects are considered to determine the relevant market: (i) the possibilities of substituting the good or service in question; (ii) the good’s distribution costs, its relevant inputs, its complementary goods and substitutes from other regions or abroad; (iii) the costs and probabilities that users or consumers have to access other markets; (iv) the federal, local or international regulatory restrictions that limit the users’ or consumers’ access to alternative supply sources, or the access of suppliers to alternative clients; among others.
To determine substantial power in the relevant market, the following elements of the participants must be considered: (i) their market share and ability to unilaterally fix prices or restrict supply in the relevant market, without competitors actually (or potentially) being able to counterbalance such power; (ii) the existence of barriers to entry and the factors which could foreseeably alter either said barriers, or the supply of other competitors; (iii) competitors’ existence and power; (iv) the entities and their competitors’ possibilities to access input sources; and (v) the recent behavior of the entities that participate in said market.
Also, to assess whether a concentration should not be authorized, the following factors shall be considered: (i) the relevant market, in the terms established in the competition law; (ii) identifying the main players that supply the market in question, an analysis of their power in the relevant market and the degree of concentration in said market; (iii) the effects of the concentration on the relevant market with regards to other competitors or consumers of the good or service, and regarding other related markets and entities; (iv) the equity participation of the involved parties in other entities, and the equity participation of other entities in the parties involved in the concentration, provided these economic agents engage, directly or indirectly, in the relevant market or its related markets; and (v) the information provided by the entities to demonstrate greater market efficiency as a result of the concentration and which will favorably impact the process of competition and free market access.
The authority shall consider the following as indicators of an unlawful concentration: (i) if it confers, or may confer, substantial market power to the purchaser in terms of the competition law, or if it increases, or could increase, said substantial market power, by which free market access and economic competition may be hindered, diminished, harmed or impeded; (ii) if it has or may have the purpose or effect of imposing barriers to entry, impeding third parties access to the relevant market, to related markets or to essential facilities or of displacing other entities; or (iii) if its purpose or effect is to substantially facilitate the concentrating parties to incur in practices prohibited under the competition law and, particularly, in monopolistic practices.
The SIEC ("significant impediment of effective competition") test applies across all sectors.
The test applied by the PCC is the Substantially Prevents, Restricts or Lessens Competition (“SLC”) Test. The PCC will look at the effects on competition over time in the relevant market or markets affected by the merger. A merger gives rise to an SLC when it has a significant effect on competition, and consequently, on the competitive pressure on firms to reduce prices, improve quality, become more efficient or innovative. A merger that gives rise to an SLC is likely to result to an adverse effect on consumers.
The PCC has the discretion to adapt the SLC Test by considering relevant factors in the market. For example, in PCC Decision No. 022-M-039/2018 in the case entitled “In the Matter of the Proposed Acquisition by Chelsea Logistics Holdings Corporation of Shares in KGLI-NM Holdings, Inc. Chelsea Logistics Holdings Corporation, KGLI-NM Holdings, Inc.”, PCC Case No. M-2018-002, the Commission held that the transaction will result in substantial lessening of competition in the following geographic markets for passenger shipping because:
a. The transaction eliminates a competitor that was previously a source of competitive constraint;
b. There is a strong likelihood of price increases of a magnitude that adversely affects customers; and
c. Barriers to entry are high.
 PCC Merger Review Guidelines (2017), par. 4.2.
The substantive test used by the PCA is to assess whether a merger constitutes a significant impediment to effective competition (SIEC). Mergers are therefore cleared if they do not create a SIEC in the national market or in a substantial part thereof.
The PCA reviews the horizontal, vertical and conglomerate aspects of a notified concentration, and investigates whether the transaction gives rise to coordinated effects. In this assessment, the PCA typically takes into account inter alia: the structure of the relevant market(s) and the existence of effective competition; the position of the parties and their competitors in the relevant market(s), and their economic and financial strength vis-à-vis their competitors; the market power of the acquirer, also assessed in order to prevent the creation of situations of economic dependence (abuse of economic dependence is a separate infringement under the Competition Act); potential competition concerns and barriers to entry in the market; alternatives available to suppliers, clients and users; access to suppliers or markets; the structure of existing distribution networks; supply and demand trends; special or exclusive rights granted by law or attached to the nature of the products traded or services provided; the control of essential facilities by the undertakings in question and the access opportunities to such facilities offered to competing undertakings; and technical and economic progress, to the extent that it does not create an obstacle to competition and allows efficiencies that benefit consumers.
The only situation in which sector specific tests are applied is that referred to in the next question, regarding the media sector.
FAS assesses whether or not the transaction leads to a limitation of competition in the relevant market.
A limitation of competition usually occurs when the notified transaction leads to the crea-tion or expansion of a dominant position of any entity in the relevant market. A market share of more than 35% is required for market dominance, and in case of more than 50% market share the market dominance is presumed. A market share percentage lower than 35% can suffice in case several companies together are regarded as market dominant. Sometimes a dominant market position can easily be obtained, in case the relevant mar-ket is defined very narrowly (e.g. specific spare parts, consumables, medicine). Other as-sumptions of dominance apply to financial organisations, telecom operators and certain other regulated industries.
Apart from market dominance, other effects of the notified transaction are evaluated in order to assess a potential limitation of competition:
- reduction in the number of independent participants of a certain product market;
- increase or decrease in the price for a particular product that is not connected with the relevant changes of general conditions of circulation for that product;
- refusal of market participants that do not belong to the same group to inde-pendently conduct their business activity on the market;
- determination of general terms and conditions for commodity circulation on a par-ticular goods market by an agreement between market participants; or
- any other circumstances enabling one or several market participants to affect the general conditions for circulation of goods on a market at its/their sole discretion.
A concentration shall be prohibited if its completion significantly would impede the occurrence or the development of effective competition in Sweden as a whole, or a significant part of Sweden (i.e. the SIEC-test). Factors that are taken into account include market power and economic strength, potential competition, countervailing buyer power, and potential barriers of market entry and possible counterweighing efficiencies. The circumstance that a dominant position is created or strengthen shall be especially considered in the assessment. The substantive test is thus substantially the same as in the EUMR.
Upon receipt of notification of a merger, the ComCo decides within one month whether an investiga-tion is to be carried out and informs the undertakings involved of its decision (phase 1, Initial Review). An extended review (phase II) must be carried out if there are indications that the merger creates or strengthens a dominant position.
During the extended review, the ComCo will have to verify whether the concentration creates or strengthens a dominant position liable to eliminate effective competition and does not improve the conditions of competition in another market such that the harmful effects of the dominant position can be outweighed. In this context, the ComCo also takes account of any market developments and the position of the undertakings in relation to international competition.
With regard to the dominant position, a distinction must be made between individual dominance and collective dominance:
- The question of whether an individual dominant position exists is assessed on the basis of the interaction between current competition (market shares and market concentration), poten-tial competition (barriers to entry) and the position of the opposing market.
- The question of whether a collective dominant position exists is assessed in a two-stage as-sessment. In a first step, the ComCo carries out a behavioural analysis and examines the market and the parties' previous behaviour for signs of coordinated behaviour. In a second step, the ComCo analyses whether parallel behaviour on the market is likely after the merger. In this respect, it is oriented towards the criteria of market concentration, market transparency, market stability, symmetries, the position of the opposite market side and any interdepend-encies and vertical integrations.
By concentrations of banks, the interests of creditors may be given priority. In these cases, FINMA takes the place of the ComCo, which it shall invite to submit an opinion.
The ComCo shall complete its investigation within four months. If the ComCo comes to the conclusion that the concentration creates or strengthens a dominant position, it may prohibit the concentration or authorise it subject to conditions and obligations.
The substantive test under Law N° 26876 is whether a proposed merger may have the effect of diminishing, damaging or impeding competition in the generation, transmission and/or distribution of electric power markets.
To this end, INDECOPI determines the position of companies in the market, the relevant market, the structure of the market, the possibilities of choosing suppliers, distributors and users, barriers to entry, among other criteria.
Likewise, INDECOPI must evaluate the following aspects:
a) The improvement of the production and commercialization systems, the promotion of technical progress and the efficiencies that the operation can create within the market and if said contribution is sufficient to compensate the possible restrictive effects on competition.
b) If the operation produces a significant increase in concentration in the market, significantly limiting competition.
c) If the operation facilitates the performance of anti-competitive behavior and/or generates barriers to the entry of new competitors.
d) The possible exclusion effect that competing companies may suffer in the market.
The Bill also provide the significant impediment of effective competition in the market test so is essentially the same, as the essential criteria to impose remedies. So, the authority must analyze the structure of the market involved, real or potential competition, supply and demand evolution, distribution and marketing sources, barriers to market entry, etc. In addition, the authority must take into account the productive, allocation or innovative efficiencies that the operation may generate. These must meet the following requirements:
a) They must be proven
b) They must inherent to the concentration
c) They should be aimed at compensating for the restrictive effects identified and improving the welfare of consumers
d) They must be able to be transferred to the consumer
e) They must be verifiable by the authority.
The authority will have to prove the possible anti-competitive impacts of the operation, while the parties must prove that the efficiencies they claim meet the stated requirements.
The substantive test is a typical dominance test. As a matter of Article 7 of Law No.4054 and Article 13 of the Communiqué, mergers and acquisitions which do not create or strengthen a dominant position and do not significantly impede effective competition in a relevant product market within the whole or part of Turkey, shall be cleared by the Board.
Article 3 of Law No.4054 defines a dominant position as “any position enjoyed in a certain market by one or more undertakings by virtue of which, those undertakings have the power to act independently from their competitors and purchasers in determining economic parameters such as the amount of production, distribution, price and supply”.
However, the substantive test is a two-prong test and a merger or acquisition can only be blocked when the concentration not only creates or strengthens a dominant position but also significantly impedes the competition in the whole territory of Turkey or in a substantial part of it.
There are certain other special merger control rules to be considered in respect of a number of specific sectors.
First, similarly to the EU, there are specific rules regarding turnover calculation for specific sectors such as banks, financial institutions, leasing companies, factoring companies, securities agents, insurance companies, etc. See Article 9 of Communiqué No. 2010/4.
Second, there are specific merger control provisions for banks and privatisation tenders. (i) Banks: Banking Law No. 5411 provides that Articles 7, 10 and 11 of the Law No.4054 are not applicable if the sectoral share of the total assets of the banks subject to the transaction does not exceed 20%. In practice, the Competition Board distinguishes between: (i) transactions involving foreign acquiring banks with no operations in Turkey, to which the Law No.4054 is fully applied; and (ii) foreign acquiring banks already operating in Turkey, to which the Law No.4054 is not applied if the conditions for the application of the Banking Law exception are fulfilled.
(ii) Privatisation tenders: Communiqué No. 2013/2 prescribes an additional pre-notification process. This only applies to privatisations in which the turnover of the undertaking or asset or unit intended for production of goods or services to be privatised exceeds TL 30 million (approximately EUR 5.2 million, USD 6.2 million). For this calculation, sales to public institutions and organisations including local governments made on the basis of a legislative provision should not be taken into account. If the threshold is met, a pre-notification should be filed with the Competition Authority before the public announcement of the tender specifications. The Competition Board will issue an opinion that will serve as the basis for the preparation of the tender specifications. This opinion does not mean that the transaction is cleared. Following the tender, the winning bidder will still have to make a merger filing and obtain clearance before the Privatisation Administration’s decision on the final acquisition.
Third, there are various sector-specific rules alongside the merger control rules for sectors such as media, telecommunications, energy and petrochemicals. For example:
(i) Energy: regarding electricity and natural gas, approval is required for share transfers of more than 10% (5% in case of publicly traded company shares) following the Electricity Market License Regulation the Natural Gas Market License Regulation.
(ii) Broadcasting: under Law No. 6112, the transfer of the shares of a joint stock company holding a broadcasting licence should be notified to the Turkish Radio and Television Supreme Council.
In addition, it should also be noted that Article 3 of Communique No. 2017/2 introduced a new paragraph to be included to Article 10 of Communique No. 2010/4. This new paragraph reads as follows:
“If the control is acquired from various sellers by way of series of transactions in terms of securities within the stock exchange, the concentration could be notified to the Turkish Competition Board after the realization of the transaction provided that the following conditions are satisfied: (a) the concentration should be notified to the Turkish Competition Board without delay, (b) the voting rights attached to the acquired securities are not exercised or exercised solely to maintain the full value of its investments based on a derogation granted by the Turkish Competition Board. The Turkish Competition Board may impose conditions and obligations in terms of such derogation in order to ensure conditions of effective competition.”
This newly introduced provision by Article 3 of Communique No. 2017/2 is similar to Article 7(2) of European Commission Merger Regulation. At any rate, although there was no similar specific statutory rule in Turkey on this matter until the promulgation of Communique No. 2017/2, the case law of the Board were shedding light on this matter.
The CMA has a duty to open a detailed second-phase investigation (known as 'referring' or 'making a reference' of the merger) if it has a reasonable belief, objectively justified by the relevant facts, that there is a realistic prospect that the merger will or may be expected to result in a substantial lessening of competition (SLC) in any market. By 'realistic prospect' is meant not only a prospect that has a more than 50% chance of occurring, but also a prospect that has a less than 50% chance of occurring, but is more than fanciful, though within this latter range the CMA can exercise its judgement.
If a second-phase investigation is opened, the CMA must decide whether a relevant merger situation has been created and, if so, whether that situation is likely – on the balance of probabilities – to result, or to have resulted, in an SLC in any market.
Assessment of the extent of concentration impact on competition requires comparison of market situation before and after the agreement execution or evaluation of conditions which would have existed if the concentration had never happened. Although distribution of individual and combined market shares is a useful and most obvious indicator of the market structure and the extent of the concentration participants’ and their competitors’ impact on the market, it is only one of the general criteria used to evaluate the concentration’s impact on the market competition (so the test is the same for every particular sector).
There are several noteworthy examples of economic concentration’s negative impact on the market, which may lead to ban of the economic concentration by the AMCU as follows:
- possible disappearance of potential competition or of an important market factor for competition, which existed before the concentration;
- “concentrated” business entity’s ability to control the market trade channels, to change conditions of access to resources and infrastructure;
- change in advertising, product promotion and market entry capacity and, change in access to patents or other forms of intellectual property rights (for example, trademark and brand use);
- high financial power achieved by the concentration participants in comparison with their competitors;
- the impossibility of a third-party to have market access due to vertical concentration.
Section 7 of the Clayton Act prohibits mergers or acquisitions where ‘the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.’ The 2010 Horizontal Merger Guidelines set out the agencies’ framework and general approach to determining whether a merger is likely to enhance or create market power or facilitate an exercise of market power. Merger review is forward-looking and attempts to determine whether a merger may lead to anticompetitive effects by facilitating increased prices, reducing output, diminishing innovation, or would otherwise harm consumers as a result of a reduction in competition. The agencies analyse two ways in which a merger can reduce competition: by enhancing the ability of the remaining competitors to act in a coordinated way (coordinated effects) or by enabling the merged firm to independently raise prices profitably (unilateral effects).
Regardless of the industry sector involved in a proposed transaction, the FTC or DOJ will conduct a fact-specific inquiry concerning the effects of the specific transaction on that industry. Across all industries, the FTC and DOJ apply the same test: Section 7 of the Clayton Act and the Horizontal Merger Guidelines.
A concentration is prohibited if it “creates or strengthens a dominant position on the domestic market, with the effect of eliminating or appreciably reducing competition on a lasting basis” (Article 6 ICL).
Although the substantive test formally differs from the (more extensive) “substantial lessening of competition” test adopted at the EU level, the ICA tends to interpret the “dominance test” rather broadly, similarly to the approach adopted by the Commission.
Merger Control Legislation follows the EU significant impediment to effective competition (hereinafter “SIEC”) test, pursuant to which a concentration is prohibited, if it may lead to a significant impediment to effective competition in the whole or in a substantial part of the Greek market, especially by creating or strengthening a dominant position.
In respect of horizontal mergers, a merger may lead to significant impediment to effective competition, either by eliminating effective competitive constraints in the market and, consequently, increasing the market power of the undertakings concerned (unilateral or non-coordinated effects) or by altering the nature of competition and increasing the sustainability of collusion among competing undertakings (coordinated effects). The HCC, in its recent decision regarding a notified transaction between Epal SA/ Mitilinaios SA (HCC 682/2019), considers the following elements for the purpose of the assessment of the horizontal merger at stake: the structure of all the relevant markets, the incumbent or potential competitors, the existence of legal or factual entry barriers, the market position of the participating undertakings, the countervailing power of buyers, the available sources of supply and the alternative choices to consumers. As regards coordinated effects, the ease of co-ordination as well as the possibility of deviations from that co-ordination are examined. In this respect, market shares are a useful criterion to be examined, albeit not a decisive one.
With regard to vertical mergers, the HCC considers that they could impose a threat on effective competition, by producing unilateral or coordinated effects, only in case the merged entity enjoys significant market power in the relevant market. In particular, the HCC examines in accordance with the above guidelines whether the notified concentration is expected to result in input or customer foreclosure. For instance, in the recent HCC 34/2018 Sidel Participation/Sidel Engineering case, the HCC found that the merger was not likely to result in foreclosure of downstream or upstream rivals or the strengthening of dominant position given the disperse market shares of competitors in the downstream and upstream markets.
Regarding joint ventures, the HCC does not limit its investigation to whether the joint venture concerned is full-function and long lasting, but it also examines whether its creation is likely to have coordinated effects among the parent companies outside the joint venture (see for example ΗCC Pigasos Ekdotiki/DOL 390/V/2008 and the remedies accepted in HCC 562/VII/2013 mentioned in question 29).
Lastly, concerning conglomerate mergers, the HCC assesses whether there is an overlap in the activities of the undertakings concerned, as evident in its recent decision HCC Chipita/ Nikas 638/2016.