Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Merger Control volume discussing topics including enforcement priorities, evidence review and notable cases within key jurisdictions worldwide.
1 What are the key developments in the past year in merger control in your jurisdiction?
On 1 June 2021, a new act on the protection of competition became effective and completely replaced the existing act after 20 years, albeit with just a few notable changes to the merger control area compared to the originally planned wide-reaching changes that were dropped in the legislative process. In particular, the draft act originally proposed a new notification threshold to cover certain off-radar transactions not meeting the standard thresholds that could, however, still have an important impact on the Slovak market. The proposed threshold would have covered transactions where at least two undertakings concerned each had attained Slovak turnover as low as €4 million, provided that such transactions would also have led to a market share of at least 40 per cent on the relevant markets.
The draft act also originally included a specific review mechanism for scrutinising the transactions meeting the new threshold, whereas a formal notification in such cases would have been replaced by a request for a statement regarding the necessity to notify the transaction to the Slovak Antimonopoly Office (AMO). If the AMO decided a notification was necessary, the transactions would be scrutinised directly in the Phase II review (given the fact that the initial review of the transaction would have been performed before the issuance of the statement on the necessity of the notification).
Since the aforementioned changes were dropped during the legislative process, the new act thus primarily focuses on implementation of the European ECN+ directive (Directive (EU) 2019/1), with a focus on improving the enforcement of the competition rules, clarifying certain issues arising in practice and changes with respect to the liability regime, including the introduction of the concept of joint and several administrative liability for the payment of fines for the members of an undertaking’s group subject to proceedings, and the explicit possibility to impose sanctions on a group-wide basis in some cases.
However, the new act also introduces several noteworthy changes in merger control, including:
- the abolition of the notification obligation regarding the establishment of foreign-to-foreign joint ventures without activities in Slovakia (which triggered a significant amount of formal filings). Under the new act, for a joint venture to be notifiable to the AMO, either both parent undertakings will need to have achieved turnover in Slovakia exceeding €14 million in the preceding accounting period (and jointly in excess of €46 million), or the €14 million Slovak turnover threshold will need to be met at least by the target to be contributed to the joint venture (in addition to the worldwide turnover of at least one other undertaking concerned exceeding €46 million for the preceding accounting period);
- the introduction of a mechanism subjecting a concentration to merger clearance that would not have met the notification thresholds due to a decrease in revenues in the relevant accounting period caused by covid-19, provided that the thresholds were met for the accounting period preceding the accounting period affected by the pandemic;
- the return of the commencement of the review periods for merger filings starting only on the date on which the AMO deems the filing to be complete. Under the previous regulation, the period automatically began on the day after the filing date, regardless of the completeness of the notification. The AMO was thus put under pressure to quickly scrutinise the completeness of the filing and, if it was found to be incomplete (a relatively common occurrence), the AMO would then interrupt the proceedings until the shortcomings were rectified (however, the official Phase I review deadline would also be shortened by the number of days elapsed prior to the interruption). Such a situation was indeed not very convenient for the AMO;
- importantly, the new act also introduces a new mechanism for the calculation of gun-jumping fines which may now be calculated from the turnover of the economic group to which the ‘gun-jumper’ belongs. This means a significant increase in the negative financial implications compared to the previous situation, when the fines were calculated from the individual gun-jumper’s turnover only;
- the introduction of new procedural sanctions – penalties that the AMO may impose on an undertaking, in particular, for (a) the failure to ensure the performance of any decision of the AMO (such as decisions approving a concentration subject to specific remedies or decision on interim measures) or its cooperation obligations during a dawn raid – up to the amount of 5 per cent of its individual average daily worldwide turnover for each day of such delay (when the decision or dawn raid in question relates to a concentration, the turnover base for the calculation of the fine is the group turnover); or (b) the failure to provide an oral explanation or truthful and complete information and documents in the period requested by the AMO (such as in response to a request for information (RFI)) – up to the amount of 3 per cent of an undertaking’s individual average daily worldwide turnover for each day of such delay; and
- the introduction of new procedural sanctions – penalties that the AMO may impose on an undertaking, in particular, for (a) the failure to ensure the performance of any decision of the AMO (such as decisions approving a concentration subject to specific remedies or decision on interim measures) or its cooperation obligations during a dawn raid – up to 5 per cent of its individual average daily worldwide turnover for each day of such delay (when the decision or dawn raid in question relates to a concentration, the turnover base for the calculation of the fine is the group turnover); or (b) the failure to provide an oral explanation or truthful and complete information and documents in the period requested by the AMO (such as in response to a request for information (RFI)) – up to the amount of 3 per cent of an undertaking’s individual average daily worldwide turnover for each day of such delay; and
- the introduction of a mechanism based on which the AMO may impose interim measures appropriate for the restoration or preservation of effective competition in the gun-jumping context, that is, if it may be justifiably presumed that the rights and obligations have been implemented from a concentration before the effectiveness of approval thereof; from a concentration that has been prohibited; or from a concentration implemented in breach of the condition (remedy) imposed in relation thereto. Under this new regime, the AMO may now temporarily prohibit the appointment of members of the statutory bodies in breach of the standstill obligation. The imposition of interim measures may be challenged by a court action without a suspensory effect with respect to the interim measures imposed by the AMO.
Have there been any developments that impact how you advise clients about merger clearance?
Careful preparation and a preliminary assessment of effects are still recommended for mergers in sectors with a significant impact on consumers, or where a party holds extensive data involving more substantial overlaps. The AMO continues to be particularly interested in its prioritised sectors, namely, the automotive, e-commerce, IT and healthcare sectors.
Mainly in cases where the overlaps are substantial or reach the threshold for affected markets, the preparation of the filing may require an analysis of narrow local markets, which the AMO is likely to review. It may also be useful for a client to consider the preparation of solid economic evidence to support its case. The AMO also continues to insist on the provision of internal documents and analyses related to the notified concentration, even in less complicated cases and, therefore, the parties must be prepared to address any questions that may arise from such documentation.
It is also notable that the AMO has not yet sufficiently clarified whether it will consider the acquisition of joint control over a non-full-function joint venture (ie, a joint venture not performing on a lasting basis all the functions of an autonomous economic entity) as a notifiable transaction, but it has started to also consider meeting of the full-function criteria in cases of acquisition of joint control over existing target businesses, as compared to previously focusing on full functionality primarily in the context of the establishment of greenfield joint ventures. Assessment of (the necessity of meeting) the full functionality of the existing targets in the case of a change from sole to joint control currently appears to be performed on an ad hoc basis (eg, with a view to previous activities or the presence of the target on the market), and it is recommended that the notifiability of the transaction and approach to the filing in such cases be discussed with the AMO upfront in pre-notification.
The timing of reviews is generally predictable and follows prescribed statutory deadlines once the AMO is satisfied with the completeness of the filing and has obtained sufficient understanding of the transaction and its impact during the pre-notification process. However, the breadth and depth of information requested during the pre-notification stage vary significantly, and the pre-notification stage can greatly exceed the statutory length of a Phase I review. The timing of the pre-notification process substantially depends on the complexity of the case and the case team’s workload. Case handlers are generally cooperative, yet in complex, borderline cases it may still be difficult to predict the outcome, especially if the parties are not prepared to readily offer structural remedies.
As in the previous year, the continued presence of the covid-19 pandemic has affected a variety of businesses, and the number of transactions of which the AMO was notified over the course of 2021 has still been lower compared to pre-pandemic periods, although with a slight increase compared to 2020. However, even during the pandemic, the effectiveness of the merger clearance process remained without further delays, and the anti-pandemic measures in general have only minimally impacted the functioning of the AMO.
Given the increased focus of the AMO and other competition authorities on gun-jumping, substantial attention must be paid to the structuring of the transaction, including the formulation of pre-completion or interim covenants to prevent the emergence of control before obtaining merger clearance.
2 Do recent cases or settlements suggest any changes in merger enforcement priorities in your jurisdiction?
As in the previous year, gun-jumping remains a prioritised practice on which the AMO continues to focus. It is notable that the AMO also pursues gun-jumping cases in less obvious contexts (such as acquisitions of minority non-controlling stakes as a part of staggered transactions involving the subsequent acquisition of control).
Furthermore, the AMO has stated its readiness to thoroughly assess emerging concentrations in healthcare, since the complexity of the sector and ongoing legislative changes create space for competition concerns that justify closer scrutiny of concentrations occurring in this sector.
As mentioned above, as a matter of policy, the AMO also acknowledges that there may be certain off-radar transactions that may pose competition problems (eg, in nascent technology markets where the amount of turnover might not be commensurate with the importance of the party on the market). However, since the proposed additional filing threshold was not adopted during the legislative process preceding the adoption of the new act, those transactions are exempt from AMO merger scrutiny, at least for the time being.
3 Are there any trends in merger challenges, settlements or remedies that have emerged over the past year? Any notable deals that have been blocked or cleared subject to conditions?
Although the AMO has traditionally been very reluctant to accept behavioural remedies, in the past year it issued a merger clearance decision subject to behavioural conditions and obligations concerning the acquisition of joint control over Panta Rhei and IKAR, a significant book retailer and a significant book publisher and wholesaler, which ended a long-running concentration saga including, inter alia, a gun-jumping leg related to the premature acquisition of joint control of Panta Rhei by the group of subjects controlling IKAR.
The behavioural remedies approved by the AMO included covenants restricting Panta Rhei from forcing publishers to exclusively use IKAR as their wholesaler and discriminating against other wholesalers vis-à-vis IKAR (eg, in terms of rebates or payment maturity). Further, Panta Rhei undertakes not to discriminate against publishers outside their own distribution network on the basis of their (non-)cooperation with IKAR (eg, by making the exhibition of books published by these publishers in Panta Rhei’s brick-and-mortar shops conditional on their cooperation with IKAR). On the other hand, IKAR undertook, inter alia, to supply retailers competing with Panta Rhei with books on non-discriminatory terms (eg, with respect to ordering time or priority, or breadth of product portfolio). Both IKAR and Panta Rhei have also undertaken to implement Chinese Walls, restricting each other’s access to competitively sensitive information. Their compliance with these commitments will be subject to the supervision of a monitoring trustee. It is also notable that the published version of the remedies contains a handful of exemptions from the restrictions on Panta Rhei/IKAR (eg, a possibility to agree with a publisher on the publication of a certain item exclusively for the Panta Rhei retail distribution network with the use of IKAR distribution).
This case indeed represents a welcome deviation from the traditionally reserved position of the AMO towards behavioural remedies. Since the full version of the decision has not yet been published, it is unclear to what extent the AMO needed to take into account the special circumstances of the case and especially the possible long-running factual operation of both businesses under common control. In any event, it would be a positive step if this case opened the way to the acceptance of behavioural remedies in other (non-special) cases in which it would be sufficient to address competition concerns.
4 Have the authorities released any key studies or guidelines or announced other significant changes that impact merger control in your jurisdiction in the past year?
The AMO has not released such new studies. In a follow-up to the adoption of the new act, it has started to revise some of its merger control guidelines. Although some of the guidelines have already been updated (such as guidelines on the identification of undertakings concerned, simplified filings and the pre-notification procedure), some of the guidelines are yet to be updated (such as the guidelines for the calculation of turnover, the guidelines on the details of granting an exemption from the prohibition on premature implementation of a concentration, and the guidelines on ancillary restraints (ie, restrictions of competition that are directly related to the concentration and are necessary for its implementation, such as non-compete covenants)). In general, no significant changes to the guidelines are expected in terms of their substance compared to previous versions.
5 Do you expect any significant changes to merger control rules? How could that change your client advocacy before the authorities? What changes would you like to see implemented in your jurisdiction?
No significant changes are currently expected. However, as indicated above, the new act originally included several provisions that, if approved, would have significantly impacted merger control in Slovakia. According to the AMO, the current legislative framework, in particular, still does not sufficiently cover below-threshold transactions, which may cause problems in practice, and it will continue its effort to introduce such legislative change in the future (eg, by way of introduction of additional filing thresholds). However, there is no clear time frame for such a legislative initiative and we do not foresee any such changes for at least another year.
The Inside Track
What should a prospective client consider when contemplating a complex, multi-jurisdictional transaction?
Although not mandatory under the Slovak merger clearance process, we generally recommend that our clients initiate a pre-notification process with the AMO. A promptly initiated pre-notification process helps the AMO to better understand the background, structure and various circumstances of the transaction and more effectively address its potentially material aspects. Also, pre-notification allows the parties to clarify possible uncertainties regarding the notifiability of specific transactions and receive reassurance in this respect in advance, thus avoiding unnecessary costs associated with the preparation of a full-fledged filing. This leads to the streamlining and better predictability of the entire merger clearance process. Regarding multi-jurisdictional mergers, regular communication with the counsel handling the filings in other jurisdictions certainly helps to maintain consistency among the filings and avoid potential contradictions.
In your experience, what makes a difference in obtaining clearance quickly?
Engaging an experienced counsel and providing the essential transaction and business-related data beforehand is always helpful. This enables the merger control adviser to select a convenient filing strategy. Counsel should also establish a good and proactive working relationship with the case team, devote time to describing the markets and the parties’ activities on them (especially if the AMO does not know the relevant markets well) and be ready to push back on potentially unnecessary RFIs..
What merger control issues did you observe in the past year that surprised you?
It may still be difficult for the parties to predict the AMO’s view on a notified transaction, especially in borderline Phase I cases. As the deadline for the issuance of the Phase I decision approaches, there may still be instances where the AMO’s review results in additional extensive data requests (eg, bidding data) or even market research, which, in a better scenario, may lead to switching the case into Phase II simply to gain additional time to issue appropriately grounded decisions.
Further, the acceptance of behavioural remedies in the Panta Rhei/IKAR case could hopefully open the way to the broader use of such remedies in appropriate cases.
