28-07-2014

Notification Of Concentrations/ Merger Control

What is the relevant legislation and who enforces it?

The Control of Concentrations Between Undertakings of 2014 (the Law) is the legislative instrument regulating concentrations in Cyprus. The Law provides the legal framework for merger control procedures and has repealed and replaced the previous statute in place since 1999.
Enforcement of the legislation rests with the Commission for the Protection of Competition (CPC), initially established in 1990 and re-established pursuant to the provisions of the Protection of Competition Law No. 13(I) of 2008, as amended by Law No. 4(I) of 2014. The CPC has overall responsibility for implementing the Law and is the competent independent authority for the control of concentrations and the assessment, investigation and procedural aspects of the notification of concentrations are carried out by civil servants constituting the service of the CPC (the Service).
 

What kinds of mergers are caught?

The Law is applicable to concentrations of major importance, as these are defined under s. 3(2) of the Law, a definition further discussed under question 5 below.
 

What types of joint ventures are caught?

Joint ventures performing all functions of an autonomous economic entity in a permanent manner are caught under the Law.
 

Is there a definition of ‘control’ and are minority and other interests less than control caught?

Pursuant to section 6(2) of the Law, ‘control’ is defined as control stemming from any rights, agreements or other means which, either severally or jointly, confer the possibility of exercising decisive influence over an undertaking through:
  • ownership or enjoyment rights over the whole or part of the assets of the undertaking; or
  • rights or contracts that confer the possibility of decisive influence on the composition, meetings or decisions of the bodies of an undertaking.

What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?

For the purposes of the Law, a concentration of undertakings is deemed to be of major importance and therefore meet the jurisdictional thresholds if:
the aggregate turnover achieved by at least two of the undertakings concerned exceeds, in relation to each one of them, the amount of €3.5 million; 
  • at least two of the undertakings concerned achieve a turnover in the Republic of Cyprus; and
  • at least €3.5 million of the aggregate turnover of all undertakings concerned is achieved in the Republic of Cyprus.
The Law vests the Minister of Energy, Commerce, Industry and Tourism with the power to declare a concentration as being of major importance even where the thresholds are not met.
 

Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

Filing of concentrations of major importance is mandatory.
However, notification is not required in the following cases, where, pursuant to section 6(4)(a) of the Law a concentration between undertakings is not deemed to arise:
  • a credit or financial institution or an insurance company, the normal activities of which include transactions and dealing in securities on its own account or for the account of third parties, holds on a temporary basis securities that it has acquired in an undertaking with a view to reselling them, provided that the institution does not exercise voting rights in respect of those securities with a view to determining the competitive behaviour of that undertaking or provided that it exercises such voting rights only with a view to facilitating the disposal of all or part of that undertaking or of its assets or the disposal of those securities, and that any such disposal takes place within one year of the date of acquisition – a period which can be extended with the leave of the CPC;
  • control is exercised by a person authorised under the legislation relating to liquidation, bankruptcy or any other similar procedure;
  • the concentration of undertakings between one or more persons already controlling at least one or more undertakings is carried out by investment companies;
  • property is transferred due to death by a will or by intestate devolution; or
  • it is a concentration between two or more undertakings, each of which is a subsidiary undertaking of the same entity.
 

Do foreign-to-foreign mergers have to be notified and is there a local effects test?

Foreign to foreign mergers are caught under the Law where the jurisdictional thresholds are met. The test as to whether a foreign-to-foreign merger is caught as a concentration of major importance is essentially satisfied where the jurisdictional thresholds are met, with the local effects dimension being the achievement of a turnover of at least two undertakings concerned in Cyprus and the Cyprus-achieved turnover of all undertakings concerned is at least €3.5 million.
 

Are there also rules on foreign investment, special sectors or other relevant approvals?

Notwithstanding the exceptions discussed under Question 6 in relation to credit and financial institutions or insurance companies, there are no specific competition rules on foreign investments, special sectors or other approvals.
 

What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?

Concentrations of major importance must be notified to the Service prior to their implementation, following the conclusion of the relevant agreement or the publication of the relevant takeover or the acquisition of a controlling interest. Notification can also take place where the undertakings concerned prove to the Service their bona fide intention to conclude an agreement or, in the case of a takeover offer or of an offer for the acquisition of a controlling interest, following a public announcement of an intention or final decision to make such offer.
Upon becoming aware of a concentration of major importance that ought to be notified but the undertakings concerned have failed to do so, the Service notifies the undertakings concerned of their obligation to proceed with notifying such concentration in accordance with the provisions of the Law. The assessment of the concentration would then commence at the time of the Service receiving such notification.
Although failure to notify a concentration does not by itself give rise to sanctions, where the concentration has been partially or entirely implemented in the absence of clearance by the CPC, administrative fines may be imposed. These fines are discussed in detail under Question 12.
The CPC has the power to order the partial or whole dissolution of a concentration of major importance that has been implemented by the undertakings concerned in violation of their obligation to notify the concentration.
 

Who is responsible for filing and are filing fees required?

Concentrations of major importance must be notified to the Service in writing, either jointly or separately by the undertakings participating in a merger or in the joint acquisition of control of another undertaking. In all other cases, the party responsible for notification is the undertaking acquiring control.
Filing fees are fixed by the Law at €1.000. Where a concentration becomes subject to a full investigation (phase II), the undertakings concerned are bound to pay a fee of €6.000 to the CPC.
 

What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?

The Service shall, within one month from the date of receipt of the notification and the filing fees or from the date on which the Service receives additional information necessary towards achieving conformity of the notification to the requirements of the Law, inform the notifying undertaking(s) of whether the concentration is cleared or it shall proceed to a full investigation of the concentration. 
If owing to the volume of work or the complexity of the information contained in the notification the Service is unable to comply with the aforementioned timeframe, it shall within seven days prior to the lapse of the one month period inform the notifying undertaking of an extension to the said period by a further period of fourteen days.
The Law expressly prohibits the partial or entire implementation of the concentration prior to clearance, infringement of which prohibition entails administrative fines, as discussed under Question 12 below.
 

What are the possible sanctions involved in closing before clearance and are they applied in practice?

Where a concentration is either partially or entirely implemented prior to the clearance of the CPC or prior to the lapse of the timeframe within which the Service ought to inform the notifying undertaking of whether the concentration is cleared or shall be fully investigated but the Service has not so informed, administrative sanctions may be imposed by the CPC.
An administrative fine of up to ten per cent of the aggregate turnover achieved by the notifying undertaking during the immediately preceding financial year may be imposed to the notifying undertaking for the discussed infringement, which fine may be followed by additional administrative fines of €8.000 for each day the infringement persists.
The CPC has in a plethora of cases exercised its powers to impose administrative fines under the previous legislative framework, now repealed by the Law. It remains to be seen how the administrative fines under the Law shall be applied in practice but, judging from its approach under the previous framework, it is expected that the CPC shall exercise its powers in relation to the implementation of concentrations in violation of the statutory provisions in an equally rigorous manner.
Moreover, the CPC has the power to order the partial or complete dissolution of a concentration that has been implemented prior to obtaining clearance by the CPC.
 

Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers? 

Closing before clearance could lead to administrative fines being imposed, as discussed under Question 12 above, irrespective of whether such concentration is a foreign-to-foreign merger or not.
 

What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?

Closing prior to clearance is not possible unless the Service fails to inform the notifying undertaking of whether the concentration is cleared or a phase II investigation will be carried out within the one month period discussed under Question 11 supra, in which case the concentration is deemed as cleared. 
Nevertheless, a temporary approval of a concentration is possible pursuant to the provisions of s. 31 of the Law, in the case where a full (phase II) investigation is decided by the CPC, where the undertakings concerned can establish, upon a relevant 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.
 

Are there any special merger control rules applicable to public takeover bids?

There are no special merger control rules applicable to public takeover bids.
 

What is the level of detail required in the preparation of a filing?

The notification of a concentration of major importance should include the information prescribed in Appendix III to the Law. The notification must be made in Greek and must be accompanied by various supporting documents and other information, including but not limited to the following:
  • a copy of all final or most recent documents that brought about the concentration either by agreement or following a public bid;
  • in the case of a public bid, a copy of the public bid document;
  • copies of the most recent annual reports and audited financial statements of all the undertakings participating in the concentration;
  • copies of reports or analyses prepared for the purposes of the concentration;
  • a list and short description of the contents of all analyses, reports, studies and surveys that were prepared by or for any of persons responsible for notification for the purpose of evaluating or analysing the proposed concentration in relation to the market and competition conditions;
  • details of the concentration (including the nature and scope of the concentration, the financial and structural details of the concentration, and details regarding the turnover in Cyprus and worldwide of each undertaking);
  • details of relationships of ownership and control as between each participant in the concentration and the undertakings connected with it;
  • personal and economic ties as between each group of undertakings and any other undertaking operating within the affected market in which such group holds, inter alia, at least 10 per cent of the voting rights or shares; and
  • a description and analysis of the affected relevant markets.
 

What is the timetable for clearance and can it be speeded up?

The Service shall, within one month from the date of receipt of the notification and the filing fees or from the date on which the Service receives additional information necessary towards achieving conformity of the notification to the requirements of the Law, inform the notifying undertaking(s) of whether the concentration is cleared or it shall proceed to a full investigation of the concentration. 
If owing to the volume of work or the complexity of the information contained in the notification the Service is unable to comply with the aforementioned timeframe, it shall within seven days prior to the lapse of the one month period inform the notifying undertaking of an extension to the said period by a further period of fourteen days.
In the case where a phase II investigation is initiated by virtue of s. 25 of the Law, the Service is bound to prepare a report of findings to the CPC within three months as of the date of receipt the notification, provided that the fees payable towards a full investigation are settled. In the case of full investigation, the notifying party or parties must be informed of the CPC’s decision no later than four months from the date of receipt by the Service of the original notification application or, in the event that additional information is requested by the Service, within four months of receipt by it of the additional information requested, as the case may be.
 

What are the typical steps and different phases of the investigation?

Phase I entails the preparation of a written report by the Service to the CPC and an assessment of the concentration by the CPC upon receiving the said report by the Service. The CPC’s assessment shall either lead to a decision that the concentration is not one of major importance and therefore does not fall within the scope of the Law, that the concentration is of major importance yet does not raise any doubrs as to its’ compatibility with competition in the market and is therefore declared compatible and cleared, or that doubts as to such compatibility are raised and a full investigation must be initiated.
Phase II entails the preparation of a report of findings by the Service, which is submitted to the CPC within three months as of the date of receipt of the notification, provided that the fees applicable in the case of a full investigation are paid. The CPC is then bound to assess the concentration under the light of the findings of the Service and accordingly declare the concentration as compatible, subject to conditions which it may decide to impose upon the undertakings concerned, or incompatible with competition in the market and thus not cleared.
19 What is the substantive test for clearance?
The substantive test for compatibility of a concentration with competition in the market is for such concentration not to substantially obstruct competition in the Republic or in a part thereof, particularly as a result of the creation or strengthening of a dominant position. 
In assessing such compatibility or not 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 it in a manner prescribed under Annex II to the Law;
  • 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.
 

Is there a special substantive test for joint ventures?

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, this coordination is examined in accordance to provisions of s.s. 3 and 4 of the Protection of Competition Law No. 13(I) of 2008, as amended by Law No. 4(I) of 2014. In assessing a joint venture the Service shall particularly take into account:
  • whether two or more parent companies substantially carry out activities in the same market or in a market of a previous or next level to that of the joint venture or a market closely linked to such 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 large part of the relevant products or services. 
 

What are the ‘theories of harm’ that the authorities will investigate?

While the Law is silent in this regard, it can be inferred that 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.
 

To what extent are non-competition issues (such as industrial policy or public interest issues) relevant in the review process?

The CPC only takes competition issues into account when considering the Service’s report and issuing its decision.
However, the minister of energy, commerce, industry and tourism can, by issuing a justified order, declare a concentration as being of major public interest with respect to the effects it might have on economic and social progress, technological development, employment or the sale of goods or the provision of services essential for the public security of the Republic.
 

To what extent does the authority take into account economic efficiencies in the review process?

In reviewing a concentration as to its compatibility with the competitive market, the CPC takes into account the following:
  • the structure of the affected markets;
  • the market position of the participants;
  • the economic power of all the undertakings in the market; 
  • any barriers of entry to the affected market;
  • the interests of the intermediate and end consumers of the products and services; and
  • the alternative sources of supply of the products and services that are traded in the affected markets and of their substitutes.
 

What powers do the authorities have to prohibit or otherwise interfere with a transaction?

Before reaching its final decision and subject to the time limits provided by the Law, the CPC may, if it considers it expedient to do so, carry out negotiations, hearings or discussions with any of the interested parties or other persons.
Furthermore, authorised CPC has wide investigative powers when assessing a concentration, including access to any premises, property, means of transport, books or records in the possession of the undertakings concerned or third parties.
 
In declaring a concentration as being compatible with the operation of competition in the market, the CPC may impose conditions or remedies in relation to the implementation of the transaction, thus having the ability to interfere with the essence of the transaction.
 
The CPC has at any given time the power to revoke decisions related to the compatibility of any concentration and to amend any of the terms of its decision if it determines that:
  • its initial decision was based on false or misleading information or that necessary information relating to the concentration at hand was withheld by the notifying party or by any other undertaking concerned or by any interested person; or
  • any condition attached to the decision and imposed on the participants to the concentration has not been satisfied or has ceased to be satisfied.
  • Where the CPC exercises its power of revocation, it may, following a study of the Service’s report, order either a full or a partial dissolution of the concentration to secure the restoration of the competitive market.
The CPC may order the partial or complete dissolution of the concentration in order to ensure the restoration of the operation of competition in the market, either in the course of exercising its’ powers of revocation of a previous decision of clearing a concentration or upon establishing that a concentration has been implemented in violation of an obligation to notify such concentration to the CPC or is duly notified but implemented prior to clearance by the CPC.
 

Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?

Competition issues can be remedied through the CPC exercising its discretionary power towards such direction. In the course of remedying competition issues, the CPC may order  the dissolution or partial dissolution of the concentration concerned to secure the restoration of the competitive market, through the deprivation of any participation, shares, assets or rights acquired by any person participating in the concentration, or by the cancellation of any contracts that created the concentration or that arose from it, or by a combination of the two, or any other way the CPC deems necessary.
If the CPC ascertains that the notified concentration falls within the scope of the Law and raises doubts as to its compatibility with the competitive market, it will inform the Service of the need to conduct a full investigation. In such an event, the Service will request further information from the participants for the purpose of completing its investigation. If, following its review of the additional information provided to it, the CPC’s doubts as to compatibility have not been removed, the Service will consider which of the circumstances giving rise to its concerns may be removed and will make suggestions and subsequently undertake negotiations with the parties to resolve the issues.
 

What are the basic conditions and timing issues applicable to a divestment or other remedy?

The CPC is required to provide written notification to the undertakings concerned of any remedies as part of its decision, which it is bound to issue within four months as of the date of receiving the notification of the concentration and payment of the filing fees. Should the merger be cross border the CPC may liaise with the relevant foreign authority in relation to applicable remedies. Furthermore, any remedies have to be limited to those that are reasonably necessary for the protection of the competitive market.
 
 
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