Concentrations

Concentration under the meaning of the Law on Protection of Competition (LPC)


A concentration within the meaning of the Law on Protection of Competition (LLP) has been defined as any operation carried out between independent undertakings that leads to a change of control over the participating undertakings on a lasting basis. The transition from sole to joint control as well as from joint to sole control, when performed on a lasting basis, shall also be considered a concentration.

Article 22 of the LPC identifies the forms under which a concentration can be implemented.


1. The merger or takeover of two or more independent undertakings


A concentration shall be deemed to arise when one or more previously independent undertakings are transformed via infusion or merger pursuant to Articles 262 and 262а of the Commercial Act.

A concentration within the meaning of Article 22 (1) (1) of the LPC shall arise in case of a merger of two or more previously independent undertakings into an autonomous economic entity. An example of such an autonomous economic entity is the creation on a lasting basis of an autonomous joint economic management of certain activities of undertakings which have preserved their legal independence. A concentration (factual merger) shall also arise where such an agreement leads to a factual merger of the activities of the undertakings concerned into one economic entity.

2. The acquisition of direct or indirect control of the whole or parts of other undertakings


Within the meaning of the LPC control shall be constituted by rights (ownership or the right to use the entirety or part of the assets of the undertaking), contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, including on the composition, voting or decisions of the bodies of the undertaking.

A decisive influence (i.e. control) under the meaning of competition law has the person who can impose or hold back at least one of the strategic decisions of the acquired undertaking related to: adopting the budget and the business plan, making significant investments or determining the management bodies.

A concentration shall be deemed to arise even if control has not been actually exercised – the existence of an objective possibility for exercising control shall be sufficient.

The acquisition of control over ownership or the right to use the entirety or parts of the assets of an undertaking shall be considered a concentration when the acquired undertaking forms an individual turnover which represents it on the market.

Control may also be acquired on the basis of a long-term agreement (not less than three years) in which the ways of management are settled: choice of management bodies, ways of voting on specific issues, quorum and majority, policies.

Control may be acquired “in any way”, i.e. on a legal and factual basis.

Sole control is in place where a single person may exercise on its own decisive influence on a given undertaking, in other words - only to impose or hold back the adoption of strategic decisions.

Joint control is the possibility of two or more undertakings to exercise decisive influence on another undertaking. The possibility or the actual exercising of the right of veto on at least one of the strategic decisions of the company shall be sufficient for deeming joint control.

3. The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity


A joint venture is an undertaking on which joint control is exercised and which has operational independence to perform on a lasting basis the functions of an economically autonomous entity. The possibility for a joint venture to exist on a lasting basis and as an independent market entity, having its own management and being granted an individual access to the market, is a decisive factor in classifying it as full-function joint venture, and its creation – as concentration under the meaning of Article 22 (2) of the LPC.

A joint venture is economically independent when it has not been established for the sole purpose of carrying out a specific (assisting) activity, part of the business of the mother companies. The greater the dependency of the joint venture on the deliveries and sales to the persons that control it, the lesser the possibility for such a venture to function as a full-fledged undertaking and for its creation to be considered a concentration between undertakings.

When a concentration shall not be deemed to arise?

Article 23 of the LPC points out three exceptions in which the acquisition of control rights shall not be considered a concentration:


1. when companies, the normal activities of which include transactions in securities for their own account or for the account of any third party, have acquired securities within the frame of these operations and will hold them on a temporary basis.


2. when control is acquired by a person, who according to the law in force performs functions related to the winding up or declaring the insolvency of the undertaking (liquidator, syndic).


3. when control is acquired by financial holding companies, provided that the control acquired by the holding is exercised solely to preserve the value of the investment made and not to determine directly or indirectly the competitive conduct of the undertakings in which the holding participates.


Those operations which do not lead to a lasting change in the quality of the control exercised on the undertakings shall not be considered concentrations. A merger, infusion or acquisition of control implemented between: undertakings of one and the same economic group, undertakings controlled by one and the same person, undertakings managed by the same persons, or undertakings holding a relation mother company – subsidiary company, shall lead to inter group restructuring and not to a concentration.

When shall the Commission for Protection of Competition (CPC) be notified of the concentration? Who shall notify it?


When?


When the operation constitutes a concentration that falls within the scope of Article 24 (1) of the LPC and not within the competence of the EC, it shall be notified to the CPC.

After Bulgaria joined the EU on 1 January 2007, the Community law became part of the national legislation and gained primacy over it. In the field of control over concentrations Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings introduced the principle of giving exclusive competence to one competition authority (a national competition authority or the EC) to review the concentration. The concentrations that fall within the scope of Article 1 of Council Regulation (EC) No. 139/2004 have a Community dimension and the EC has the exclusive competence of appraising them. The concentrations that do not have a Community dimension fall within the jurisdiction of the respective Member States and shall be reviewed in accordance with the national law and the legislation on the control on concentrations.


Concentrations with a Community dimension


A concentration has a Community dimension when the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5000 million, and the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State (Article 1 (2) of Council Regulation (EC) No. 139/2004).

A concentration that does not meet the thresholds laid down Article 1 (2) of Council Regulation (EC) No. 139/2004 has a Community dimension where the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 2500 million; in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million; in each of at least three Member States included for the purpose of point (b), the aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25 million; and the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 100 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State (Article 1 (3) of Council Regulation (EC) No. 139/2004).


National dimension of the concentration. Calculation of turnover.


Concentrations shall be subject to mandatory prior notification to the CPC where the aggregate combined turnover of all undertakings participating in the concentration in the territory of the Republic of Bulgaria in the preceding year exceeds the threshold pursuant to Article 24 (1) (1) of the LPC - BGN 25 million and the turnover of each of at least two of the undertakings participating in the concentration or the turnover of the undertaking – subject to acquisition in the territory of the Republic of Bulgaria during the preceding fiscal year exceeds BGN 3 million.

For the purpose of calculating turnover, the economic group to which the respective undertaking – participant belongs shall be regarded as one affected undertaking concerned. The turnover of the undertaking participating in the concentration shall be calculated in accordance with the provisions of Article 25 of the LPC.

- the aggregate turnover shall include the net income from sales of goods and services of an undertaking participating in the concentration during the preceding financial year, reduced with commercial discounts, cutbacks, rebates and value added tax; turnover shall not include income from sale of products, goods and services between undertakings belonging to the same economic group;

- where concentration comprises acquisition of part or parts of one or more undertakings, only the turnover relating to the part or parts which are the subject of the concentration shall be taken into account;

- the aggregate turnover of the undertaking shall be calculated as a sum of the respective turnovers of the respective undertaking-participant; the undertakings controlled directly or indirectly by the undertaking-participant; the undertakings controlling directly or indirectly the respective undertaking-participant; other undertakings controlled directly or indirectly by an undertaking exercising control over the respective undertaking-participant; the undertakings jointly controlled by or controlling the undertaking participant.

In the calculation of turnover of credit and other financial institutions, and insurance undertakings there are a number of specific provisions indicated in Article 25 (3) (1) and (2) of the LPC.


Prior notification of the CPC


Pursuant to Article 24 (2) of the LPC, the undertakings shall be obliged to notify the CPC following the conclusion of the agreement, the public announcement of the bid or the acquisition of control, but before any actual actions are taken to implementing the transaction.

While the decision of the CPC is pending, no actions in fact and in law related to the intended concentration shall be allowed (Article 82 (5) of the LPC). For infringement of this provision a sanction may be imposed on the undertakings participating in the concentration amounting up to 10% of their aggregate turnover for the preceding financial year.

Who?


Pursuant to Article 78 (1) of the LPC, the notification of concentration shall be submitted jointly by the undertakings that are parties to the merger or infusion, or have created a joint venture, respectively by the party acquiring sole control.


Contents of the Notification


The notification of concentration shall contain information about:

* the undertakings participating in the concentration and persons, exercising direct or indirect control over them (ascending, descending);
* the nature , the legal form and the rationale of the concentration;
* the relevant markets, in which the undertakings participating in the concentration operate (all markets on which the undertakings carry out economic activity and not only the markets that the concentration will exert impact on);
* the market shares of the undertakings participating in the concentration on the relevant markets which the concentration will exert impact on;
* the aggregate turnovers of the undertakings participating in the concentration which shall include the turnovers of the economic groups to which they belong;
* the barriers to entry in the relevant markets;
* the main competitors, suppliers, customers;
* rationale that the implementation of the concentration will not result in the creation or strengthening of a dominant position that might impede the effective competition on the relevant market, or that although the concentration will result in the creation or strengthening of dominant position on the whole the positive effect of the transaction will get the upper hand over its negative influence on competition.

The parties shall be obliged to provide to the CPC accurate information. The CPC may revoke its decision with which it authorises the concentration where the decision has been based on incomplete, incorrect or misleading information

The notification form as well as guidelines for its completion shall be published on CPC website.


Proceedings


The proceedings on the appraisal of a concentration shall be instituted within three days after the receipt of notification of concentration by the CPC or after all the required information has been submitted.

The notification shall be announced in the electronic register of the CPC and thus any interested party shall be given the opportunity to submit information or express a statement on the effect of the concentration on the competition in the relevant market.


Preliminary investigation


The preliminary investigation shall start after the CPC has initiated proceedings to assess a concentration under a submitted notification and shall be accomplished within 25 working days. Within this period the CPC shall assess the concentration and shall issue a decision.

Being monitored by the supervising member, the appointed case team shall assess the concentration taking into consideration the position of the undertakings in the relevant market (before and after the concentration), their economic and financial power, their access to supply markets and markets of the relevant goods and services, the legal, administrative or any other barriers to entry.

The case team shall have the right to request information, material, written, digital and electronic evidence, irrespective of the media on which they have been stored, take oral or written statements, entrust the conducting of expertise by external experts. The CPC shall have the right to request information or assistance by other national competition authorities of other Member States and by the European Commission.

The notifying parties may request extension of the time limits with up to ten working days to allow drafting of proposals for changes to the concentration

After completion of the preliminary investigation at a closed sitting the CPC shall issue a decision whereby it shall: pronounce that the operation does not constitute a concentration or does not fall within the scope of Article 24 of the LPC; authorise the concentration; launch an in-depth investigation as laid out in Article 83 of the LPC.


In-depth investigation

On the grounds of Article 83 (1) of the LPC an in-depth investigation on the effect of a concentration on the relevant market shall be carried out by way of decision of the CPC when, as a result of the assessment during the preliminary investigation, it has been established that the concentration raises serious doubts that its implementation may result in the creation or strengthening of a dominant position and the effective competition on the relevant market would be significantly impeded.

The decision to launch an in-depth investigation shall not be subject to appeal. It shall be published in the electronic register of the CPC and the parties concerned shall be prohibited to take any factual or legal actions in relation to the envisaged concentration until the completion of the in-depth investigation of the concentration.

At this stage of the investigation additional written and oral evidence shall be collected from the notifying parties and third parties with a view to clarifying the factual rationale and issuing a lawful and well-grounded decision. In the in-depth investigation the case team and the supervising member shall have the right to conduct on-site checks (the so called inspections).

Within 30 days of the publication of the decision to launch an in-depth investigation any interested third party may submit information or observations to the effect of the concentration on competition in the relevant market, and may submit a substantiated request to the CPC to be constituted as a party in the proceedings.

The in-depth investigation shall be completed within four months of the publication of the decision in the electronic register of the CPC. In cases of factual or legal complexity, the time limits may be extended by no more than twenty-five working days. The time limits shall be further extended by fifteen working days in case the parties propose to take commitment in direct relation to the implementation of the concentration and which are necessary to maintain effective competition.

In case the CPC considers, on the basis of collected evidence, that the notified concentration leads to creating or strengthening existing dominant position and hinders the effective competition on the relevant market, in a closed sitting it shall adopt a ruling to submit the statement of objections to the parties, containing the main facts and legal arguments for the negative effect of the future concentration on the market.

The ruling with which the preliminary conclusions have been adopted shall be sent to the participants in the concentration who within a period of 14 days may submit their observations and evidence.

The parties are given the opportunity to get acquainted with the evidence collected under the case, with the exception of information containing production, commercial or other secret protected by law and the internal documents of the CPC.

The parties shall be given the opportunity to be heard in an open sitting of the CPC.

The participants in the concentration may propose to the CPC to take commitment, the so called remedies, which have to be implemented within a short period of time for the purpose of reducing the extent of influence of the concentration on the market and to maintain the conditions for effective communication.

Pursuant to Article 86 of the LPC the CPC may impose remedies or adopt remedies which have been proposed by the parties, directly related to the implementation of the concentration, which are necessary to maintain effective competition and mitigate the negative impact of a concentration on the affected market.

After the hearing, the CPC shall adopt a decision with which it shall terminate the proceedings on the appraisal of the concentration.


CPC Decision


In assessing the effect of the notified concentration the CPC shall use the dominance test. In accordance with this test, for a given concentration to be prohibited, two conditions have to be cumulatively fulfilled: the concentrations shall lead to creating or strengthening of dominant position thus affecting the effective competition on the relevant market.

The CPC shall authorise the concentration provided that the latter does not result in the creation or strengthening of a dominant position that would significantly impede effective competition on the market concerned. Such an unconditioned authorisation can be granted by the CPC as a result of either a preliminary investigation (Article (3) (2) of the LPC), or an in-depth investigation (Article 88 (1) (1) of the LPC).

The CPC may authorise a concentration which, although creating or strengthening a dominant position, aims at modernization of production or of the economy as a whole, improvement of the market structures, better satisfying the interests of the customers, and as a whole outweighs the negative impact on competition in the market concerned

The CPC may authorise the concentration, taking into account the changes proposed by the participants in the preliminary investigation (Article 82 (3) (3) of the LPC) or under conditions/ remedies imposed in the in-depth investigation (Article 88 (1) (2) of the LPC).

If the concentration creates or strengthens dominant position on a relevant market and no remedies can be implemented for maintaining the effective competition on that market, the concentration shall be prohibited for the purpose of protecting the business and customers from negative consequences (imposing higher prices, offering goods of lower quality, limiting the choice of goods and services).

The parties shall be notified of the decision taken by the Commission as laid down in the Code of Administrative Procedure. The decision shall be published in CPC electronic register and shall be subject to appeal before the Supreme Administrative Court. The decision for prohibition of the concentration shall be subject to immediate implementation.


What happens if a concentration has not been notified or if it has been implemented under conditions different from the conditions analysed by the CPC?


The CPC may initiate proceedings for appraisal of a concentration under its own initiative with a decision pursuant to Article 1 (1) (1) of the LPC and to investigate:

1. Concentrations subject to notification as laid down in the LPC which have been implemented without an authorisation.

In those cases the CPC shall collect all necessary evidence to prove that the implemented operation is a concentration which, as a result of turnover, was subject to mandatory prior notification. For a concentration implemented without an authorisation shall also be considered a concentration which has been authorised under certain conditions provided that the conditions have not been implemented;

2. Concentrations implemented in a manner and under conditions, different from those under which it has been authorised.

In case the concentration has been implemented under conditions significantly different from those under which it has bee authorised, a new concentration is in place which is subject to a new notification and authorisation. Such are the changes in the legal form of the concentration, in the quality of the acquired control, in the participants, etc.

3. Concentrations which have been authorised by the CPC but the decision authorizing the concentration has been revoked

The CPC may revoke its decision by which its has authorised a concentration where the decision is based on incomplete, inaccurate, untrue or misleading information as well as when the parties have failed to implement the remedies directly related to the concentration and necessary to maintain effective competition and mitigate any negative effects of the concentration on the affected market.

The CPC decision may be revoked by the Court.


The proceedings have been instigated against persons obliged to carry out the notification – undertakings acquiring control or undertakings undergoing a transformation – and follows the order of Chapter Eight of the LPC: the case team shall have the right to implement any action necessary for establishing the relevant facts, including conducting inspections at the offices of the undertakings. Pursuant to Article 47 (6) of the LPC, the CPC may hold that the facts, in respect of which the party has hindered the gathering of information requested from it, have been proven.

Having collected sufficient evidence, at a closed sitting the CPC shall adopt a decision that no infringement has been committed or to submit the Statement of objections for an alleged infringement with a ruling thereby giving the defendant the opportunity to access and get acquainted with the evidence collected under the case (except for production, commercial or other secret protected by law), to submit objections (within 30 days) and to be heard in an open sitting of the CPC.

After hearing the parties, in a closed sitting the CPC shall adopt a decision whereby it shall establish that an infringement has been committed through non-performing the obligation under Article 24 and shall impose pecuniary sanctions under Article 100 (1) of the LPC. The CPC may impose other remedies to the participants in the operation required to restore effective competition pursuant to Article 90 of the LPC.

The parties shall be notified of the decision taken by the Commission as laid down in the Code of Administrative Procedure. The decision shall be published in CPC electronic register and shall be subject to appeal before the Supreme Administrative Court.


Remedies to restore effective competition pursuant to Article 90 of the LPC are subject to immediate implementation since their purpose is to “remedy” the damages on the structure of the market caused by implemented concentrations which have not been authorised by the CPC. In substance they “repeal” the concentration and more specifically the consequences of the concentration, in the case of a transaction which cannot be authorised. These measures shall be imposed irrespective of the pecuniary sanctions in the following cases:

1. when a concentration has been implemented in breach of the CPC decision to prohibit the concentration;

2. when a concentration, which should be prohibited or authorised subject to conditions, has been implemented;

3. when the concentration has taken place in a manner and under conditions, which differ from the ones which were taken into consideration in issuing the decision to authorise the concentration in the CPC’s preliminary and in-depth investigation as well as its ruling for approving the preliminary conditions on the effect of the concentration on competition.

4. when the parties in a concentration which was authorised under certain conditions fail to implement measures/ remedies directly related to the concentration and necessary to maintain effective competition;

5. when the CPC revokes its decision to authorise a concentration where the decision is based on incomplete, untrue or misleading information.