I INTRODUCTION

The general authority for merger control in Croatia is the Croatian Competition Agency (Agency). Contrary to popular public perception, the Agency is not a regulator, but rather a public entity vested with public authority powers to ensure the application of the competition law regulation.2

There are specific authorities in Croatia authorised to oversee a broad variety of issues arising in a specific market within their purview, including matters of market regulation and control over the undertakings acting in the specific market. Examples of these markets include the energy market, supervised by the Croatian Energy Regulatory Agency; the telecommunications sector, supervised by the Croatian Regulatory Agency for Network Industries; the financial sector, supervised by the Croatian Financial Services Supervisory Agency; and the electronic media sector, supervised by the Agency for Electronic Media.

However, the Agency is the sole entity authorised to ensure compliance with the relevant provisions of competition law in any sector.

This means that irrespective of the role each market regulator has within its respective field, the supervision of mergers and other competition issues remains firmly under the authority of the Agency.

The main legal provisions on merger control are set out in the Competition Act (Official Gazette No. 79/2009, 80/2013). This legislation provides very detailed procedural provisions, and the Act provides for the subsidiary application of the General Administrative Proceedings Act (Official Gazette No. 47/2009).

The Amendments to the Regulation on the Criteria for Setting of Fines were passed by the Croatian government in February 2015. The main purpose of the amendments is to grant the Agency the authority to impose fines to the participants of the cartel, in a way that ensures the final amount of fines is proportional to the severity of the violation of the Competition Act, the consumer interests and the market strength of the undertaking involved in the breach.

The Croatian competition law regulations must be applied and interpreted in accordance with the legal provisions of the competition law of the European Union.

With regard to merger control, specific requirements may need to be fulfilled to gain approval by specific market regulators. Accordingly, relevant licences must be obtained by undertakings wishing to participate in the energy market, as stipulated by the provisions of the Energy Act.

In a similar fashion, undertakings must obtain adequate approvals to participate in the financial services sector. Hostile takeovers are particularly scrutinised by the Croatian Financial Services Supervisory Agency.

Pursuant to the provisions of the Electronic Media Act, any change in ownership in broadcasting companies must be notified to the Council for Electronic Media. Additionally, all concentrations in this sector must be notified to the Agency, whether the relevant thresholds are met or not.

In general terms, pre-merger notification is required whenever there is a change of control occurring on a lasting basis, and certain thresholds are met.

The Croatian Competition Act does not set out a specific definition of a concentration, but defines the various legal forms a concentration may take in practice.

A concentration occurs through:

  1. a merger of undertakings;
  2. an acquisition of undertakings; or
  3. an acquisition of direct or indirect control or prevailing influence of one or more undertakings over another undertaking or a part or several parts of an undertaking, in particular by:
    • the acquisition of majority shares;
    • the acquisition of majority voting rights; or
    • any other means pursuant to the provisions of the Companies Act and other regulations.

An acquisition of control occurs by the transfer of rights, contracts or other means through which one or more undertakings, whether acting separately or jointly, taking into account all the relevant legal and factual circumstances, acquire the possibility to exercise decisive influence over one or more undertakings on a lasting basis.

A joint venture may also fall within the scope of the merger control regime, provided it constitutes an independent economic entity, acting on a lasting basis. This legal concept corresponds to the idea of the 'full function merger', as understood by the EU Merger Regulation.

Not all concentrations are caught by the merger control provision. The obligation of pre-notification arises only in those instances where the required thresholds are met.

The aforesaid shall occur only when the following criteria are cumulatively met:

  1. the combined aggregate worldwide turnover of all the undertakings concerned, arising from the sales of goods or services, is at least 1 billion kuna in the financial year preceding the concentration, provided that at least one party to the concentration has a registered seat or a branch office in the Republic of Croatia; and
  2. when the aggregated turnover of each of at least two participants of the concentration arising from the sales of goods or services on the market of the Republic of Croatia is at least 100 million kuna.

The calculation of the turnover is fully compliant with the applicable provisions of the European Union and the Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No. 139/2004.

Accordingly, the total turnover must be calculated, taking into account the aggregated turnovers of all the associated companies of the undertaking on the group level, other than the turnover arising out of the sale of goods and services of the companies forming part of the group.

In the event that the concentration consists of a merger or acquisition of part or several parts of one or more undertakings, irrespective of their legal status, only the turnover of the parts that are subject to the concentration is calculated.

Two or more transactions consisting of the acquisition of part or parts of an undertaking executed within a time period of one year shall be deemed to be a single concentration, executed on the day of the last acquisition.

Notification of mergers in the broadcasting sector is mandatory, whether the thresholds are met or not.

As an exception, even if the applicable merger control thresholds are met, the concentration is not subject to the jurisdiction of the Agency, provided that notification to the European Commission is mandatory in the same instance.

The obligation of merger pre-notification to the Agency arises following the signing of the agreement acquiring the control or prevailing influence over an undertaking or parts of an undertaking, or the making of a takeover bid, but before the implementation of the concentration.

The merger pre-notification must be made immediately, and within a maximum of eight days.

The aforementioned deadline does not prevent the parties to the concentration from approaching the Agency to pre-emptively discuss certain issues that may arise should a merger be executed. However, the opinions the Agency states during these informal consultations are not legally binding and the position of the Agency may differ from the official position the Agency will take following an official notification.3

II YEAR IN REVIEW

During 2019, the Agency continued to actively promote the importance of competition law policies. In their report for 2018, published in September 2019, the Agency stated that numerous activities marked 2018, not only in implementing market protection regulations, prohibiting competition and unfair trading practices in the food supply chain and the continued promotion of the culture of competition, but also in the development of competition protection generally.4

Much of the activity related to the prohibition of anticompetitive agreements between undertakings. In these cases, the Agency monitored and investigated anticompetitive practices by carrying out preliminary examinations of the situation in a number of relevant markets. After considering the facts and circumstances, and carrying out legal and economic analyses of these markets, in one case the Agency accepted the undertaking's proposed commitment for eliminating the negative effects on competition. The Agency did not find evidence of abuse of dominant position in initiated cases, despite the existence of certain indications.

Much of the activity during 2018 was also characterised by the effective promotion of law and competition policy, which is closely linked to the strengthening of a competitive culture and knowledge levels among undertakings and the general and professional public.

The preconditions for the effective implementation of regulations falling within the jurisdiction of the Agency are knowledge of the manner in which many markets function and their reciprocal relationships, as well as analysis of the regulatory framework for individual activities. Therefore, a significant part of the activities in 2018 relates to in-depth sectoral market analyses and individual market practices. Hence, the Agency establishes the basis for initiating proceedings against the undertakings, and also the opportunity to illustrate the need to change specific regulations that do not comply with provisions of competition law. The Agency conducted and completed four sectoral surveys in 2018.5

In the framework of international activities and international cooperation, the Agency participated in the negotiation process of Directive (EU) 2019/1, cooperating with various international organisations, forums and working groups.

The Agency also provided key expert assistance to the State Attorney's Office of the Republic of Croatia and a foreign law team representing the Republic of Croatia in international law arbitration proceedings before the Arbitral Tribunal of the International Centre for Settlement of Investment Disputes in Washington. The proceeding had been initiated against the Republic of Croatia by a Dutch owner of the Croatian trading company CityEX. On 5 April 2019, the Arbitral Tribunal rejected most of the plaintiffs' claims, including a claim for payment of the required amount of money. The Competition Authority issued a decision determining that there had been no predatory pricing by HP as dominant undertaking and that, consequently, the financial difficulties of CityEX had not been caused by a breach of competition rules. In 2019, this decision of the Competition Authority was effectively confirmed by the Arbitral Tribunal, which accepted the views of the Competition Authority in this matter.

According to the publicly available documents on the scope of activities undertaken by the Agency, there has been an increase in the number of merger and acquisition deals being notified and addressed by the Agency, with all the notified concentrations of 2018 being cleared by the Agency. Decisions in merger control cases are made publicly available on the Agency's website.

In 2018, the Agency handled 688 cases, with 17 cases continuing in 2019. Below is a brief outline of the most notable merger control cases in 2019.

i Mondo Inc/Adria Media Group/Adria Media Zagreb

The Agency cleared the concentration between the undertakings in the first phase, stating that it would have no anticompetitive effects on the relevant market.

In this business transaction, Mondo Inc d.o.o., through Adria Media Group d.o.o., acquired direct control over Adria Media Zagreb d.o.o., by acquisition of a majority interest in the latter, on a permanent basis.6

ii YELLO/E2E4MUSIK/Yammat

The Agency cleared this concentration between the undertakings concerned in the first phase, stating that it would have no anticompetitive effects on the relevant markets.

The concentration was created in the form of the acquisition of a 51 per cent interest in Yammat d.o.o by YELLO d.o.o., through special purpose entity E2E4Musik d.o.o., on a permanent basis.7

iii Maca LM/Radio Trsat, Maca LM/Miroslav Kraljević and Maca LM/Radio Brod

The Agency cleared all three concentrations between the undertakings concerned in the first phase stating that it would have no anticompetitive effects on the relevant markets.

The concentrations were created by Maca LM acquiring a 100 per cent interest in Radio Trsat d.o.o. and thus indirectly over Vanga d.o.o., a 51.29 per cent interest in Miroslav Kraljević d.o.o. and a 70 per cent interest in Radio Brod d.o.o. All three concentrations create an effect on the radio and radio advertising markets.8

iv Viro Tvornica Šećera/Tvornica Šećera Osijek

The Agency cleared the concentration between the undertakings in the first phase, stating that it would have no anticompetitive effects on the relevant markets.

The concentration was created in the form of a new joint venture in which Viro Tvornica Šećera d.d., Tvornica Šećera Osijek d.o.o. and Sladorana Tvornica Šećera d.d. (the undertaking under direct sole control of Viro) have direct control.9

The concentration would have effects primarily in the sugar production market (which is closely linked to the upstream sugar beet production market) and wholesale sugar market in the segments of sales to industrial customers and retail chains. Specifically, with respect to both segments of the wholesale sugar market, after conducting analysis of all the circumstances and facts, the Agency found that the territorial size of the market in question extends beyond the territory of the Republic of Croatia. The foregoing arises primarily from the pattern of customer behaviour. The behaviour pattern of the buyers in the purchase of sugar indicates that their purchase depends on the price that has been offered on the market and not on the registered seat of the supplier. It is therefore clear that in this particular case competition in sugar production and wholesale is present in an area wider than the Croatian market, covering at least the European Economic Area.

v Studenac/Istarski Supermarketi

The Agency cleared the concentration between the undertakings in the first phase, stating that it would produce no anticompetitive effects on the relevant markets.

The concentration was created by Studenac d.o.o. acquiring permanent direct control of Istarski supermarket d.o.o.10

vi CE Invest 2P Sarl/H-Abduco/Dohel

The Agency cleared the concentration between the undertakings in the first phase, stating that it would have no anticompetitive effects on the relevant markets.

The concentration was created by CE Invest 2P Sarl acquiring direct sole control on a permanent basis of H-Abduco d.o.o. and Dohel d.o.o.11

vii RTL Hrvatska/Telegram Media Grupa

The Agency cleared the concentration between the undertakings in the first phase, stating that it would have no anticompetitive effects on the relevant markets.

The concentration was created by RTL Hrvatska acquiring permanent direct sole control of electronic publication Net.hr from Telegram Media Grupa.12

viii Mondo INC/TVC Hungary Kft

The Agency cleared the concentration between the undertakings concerned in the first phase, stating that it would have no anticompetitive effects on the relevant market. The concentration was created by Mondo Inc's acquisition of 100 per cent of TVC.13

ix Petrol/Crodux Plin

The Agency cleared the concentration between the undertakings in the second phase, as understood by the provision of Article 22, Paragraph 7 of the Competition Act.

The concentration was created by Petrol d.o.o. acquiring direct control on a permanent basis of Crodux Plin d.o.o.'s liquefied petroleum gas business. In the second phase of the proceedings, the Agency considered publicly available sources, received data, documents, direct market participants and the applicant's statements, and found that implementation of the concentration in question would not produce significant uncoordinated effects on the relevant market. Also, the analysis did not determine the existence of criteria for initiating a procedure to determine conditions for addressing coordinated actions that would lead to a negative effect on competition.14

x Pozavarovalnica Sava/Zavarovalnica Triglav

The Agency cleared the concentration between the undertakings in the first phase, stating that it would have no anticompetitive effects on the relevant markets.

The concentration was created by way of the undertakings forming a new joint venture, acting as an independent undertaking on a more permanent basis.15

xi Geoplin/Crodux Plin

The Agency cleared the concentration between the undertakings in the first phase, stating that it would have no anticompetitive effects on the relevant markets.

The concentration was created by Geoplin d.o.o. acquiring direct sole control on a permanent basis of Crodux Plin d.o.o.'s natural gas business.16

xii Studenac/Sonik Trgovina

The Agency cleared the concentration between the undertakings in the first phase, stating that it would have no anticompetitive effects on the relevant markets.

The concentration was created by Studenac d.o.o. acquiring direct sole control on a permanent basis of Sonik Trgovina d.o.o.17

xiii Triglav Skladi Družba Za Upravljanje d.o.o./Alta Skladi Družba Za Upravljanje d.d.

The Agency dismissed the notification of the proposed concentration between Triglav Skladi d.o.o. and Alta Skladi, both with seats in Ljubljana, Slovenia, due to the fact that within the meaning of Article 17, Paragraph 6 of the Competition Act, the criteria for initiation of the compatibility assessment proceeding in this particular case had not been satisfied.

Specifically, after having examined the notification that had been submitted by Triglav Skladi, the undertaking acquiring permanent direct control over Alta Skladi by acquiring 100 per cent of the latter, the Agency found that the criteria under Article 17, Paragraph 1 of the Competition Act had not been cumulatively met.

Specifically, the total turnover in the Republic of Croatia of Alta Skladi, the undertaking to be acquired in this particular concentration, did not meet the second criterion stipulated under Article 17, Paragraph 1, item 2 of the Competition Act. Therefore, the Agency dismissed the notification of the proposed concentration concerned.18

III THE MERGER CONTROL REGIME

A merger notification must be made within eight days of the day of the signing of the agreement acquiring a majority share or prevailing influence over an undertaking, or making a takeover bid. The parties to the concentration may, as an exception to the general rule, file a pre-notification before the signing of the agreement or the publication of a takeover bid if they, acting in good faith, prove a real intention to enter into an agreement or make a public offer.

The notification is given in a detailed form, set out by the Regulation on the manner of notification and the criteria on the assessment of the concentration of the undertakings (Official Gazette No. 38/2011). The following should be enclosed with the concentration notification:

  1. the original or a notarised copy, or if the original document is not drafted in the Croatian language, a certified translation of the document constituting the legal grounds for the concentration;
  2. annual financial statements of the parties to the concentration for the financial year preceding the concentration; and
  3. other legally mandatory documentation and data.

When filing the notification, it must be stated whether the concentration notification must also be filed to a competition authority in a jurisdiction other than the Republic of Croatia, and if any such body has previously made a decision regarding the concentration, the aforesaid decision must be sent to the Agency.

A simplified form of the notification may be submitted to the Agency, in the following instances in particular: (1) no party to the concentration competes in the same relevant product market or the same geographical market, and no horizontal overlap occurs, and no party to the concentration is engaged in business activities in a product market that is upstream or downstream from a product market in which any other party to the concentration is engaged, resulting in a lack of vertical integration; (2) two or more parties to the concentration are engaged in business activities in the same product and geographic market, but their combined market share is less than 15 per cent, or one or more parties to the concentration are engaged in business activities in a product market that is upstream or downstream from a product market in which any other party to the concentration is engaged, but their sole or combined market share in a single market is less than 25 per cent; (3) a party to the concentration acquires independent control over an undertaking over which they had previously exercised joint control; or (4) in the event that two or more undertakings acquire control over a joint venture with no significant activities in the Republic of Croatia, or such significant activities are not planned in the foreseeable future.

The applicable thresholds for simplified merger notification are lower than those proposed by the Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No. 139/2004.

When submitting the notification, certain data may be designated as a trade secret.

The participants of the concentration jointly make the pre-notification. However, if a single undertaking acquires control over an undertaking or parts of an undertaking, the notification of the concentration must be made by that undertaking.

When the notification is filed to the Agency, a temporary prohibition of the concentration implementation enters into force.

The concentration may only be implemented either following the lapse of 30 days from the day of the receipt of the full merger notification or, in the event that a decision to initiate the concentration clearance proceedings was rendered, on the day of the delivery of the Agency decision granting the approval or conditional approval of the concentration.

The notification is considered filed on the day of the receipt of the required documentation in full. The Agency shall issue appropriate confirmation of the receipt of the complete documentation.

When the Agency receives the complete merger documentation, they publish a public invitation, asking all interested parties to submit their written remarks and opinions on the proposed concentration within eight to 15 days.

The merger will be assessed in respect to the effect of the potential concentration on the relevant market. The concentrations are prohibited when they may significantly restrict, impair or distort the competition, in particular if the concentration creates or strengthens the dominant position of one or more undertakings, whether individually or jointly.

The Agency may request any additional information from the parties to the concentration at all times, and the parties to the concentration are free to deliver to the Agency any data they may consider relevant to the assessment of the concentration, as the burden of proof of the existence of the positive market effects of the concentration is upon the parties to the concentration.

If, following a review of the submitted documents, the Agency finds that it may not reasonably assume that the concentration impairs, restricts or distorts the competition in the relevant market, then the concentration will be considered to be cleared after 30 days. The Agency will immediately issue the appropriate decision stating the concentration is allowed, and deliver it to the party that submitted the notification. The decision is also published on the Agency's website.

However, if the Agency finds that the concentration may have a significant effect on competition in the relevant market, then the Agency shall initiate Phase II proceedings on the assessment of the concentration, launching an in-depth review.

The in-depth assessment of the concentration may be concluded by a decision stating the concentration is prohibited, allowed or conditionally allowed. This decision must be rendered within three months following the day of receipt of the complete notification of the concentration. This three-month period may be extended by an additional three-month period if the Agency deems it necessary for determining the full facts of the case and the assessment of the submitted evidence. During the entire course of the proceedings, the parties may approach the Agency and suggest the implementation of measures and conditions to alleviate the negative effects the concentration may have on competition.

A hearing, which the general public is not permitted to attend, may be scheduled during Phase II of the proceedings should the Agency consider it to be useful.

Prior to the hearing, the parties to the concentration may request an insight into the Agency's case file. Drafts of the decisions, minutes from the meetings of the Competition Council, internal notes and instructions, and correspondence between the Agency and the European Commission may not be reviewed.

A notice on the preliminary determined facts will be delivered to the parties to the concentration prior to the scheduling of the oral hearing. The parties may respond to the notice in writing, within one month of the day of receipt of the notice.

A stop-the-clock provision is in effect in this instance, and the three-month time period for the rendering of the decision of the Agency is halted from the day the notice on the preliminary determined facts is delivered to the parties until the day the agency receives the written response from the parties proposing adequate measures and conditions.

The participation of third parties is limited, for example, to the submission of their opinions on the proposed concentration upon the Agency's invitation.

Even in instances where third parties have proven their legal interest, and have been granted certain procedural rights, they are not authorised to review the case file during the pending procedure, but only to receive a written notice on the preliminary determined facts in simplified form, upon request.

There is no appeal of an Agency decision, but the parties may lodge an administrative claim against the decision before the High Administrative Court of the Republic of Croatia within 30 days of receipt of the decision.

Only parties to the proceedings, or persons the Agency granted the same rights as the party in the course of proceedings, are entitled to lodge an appeal against the Agency's decision.

Initiation of the judicial review proceedings does not have a suspensory effect, unless it pertains to imposed fines.

The Agency may annul a decision on the assessment of a concentration if the decision was made with inaccurate or false data, and such data were material to the decision; or if any participant to the concentration has failed to fulfil their obligations as set out in the Agency's decision.

Measures, conditions and deadlines for the parties to the concentration to restore competition in the relevant market will be outlined in the new decision, and the appropriate fines will be imposed.19

The statute of limitations for review of mergers is five years. Each procedural action of the Agency in this respect halts the statute of limitations, but in any case the period may not exceed 10 years.

The maximum fine for failure to notify a merger to the Agency is 1 per cent of the annual turnover of the undertaking, according to the last published financial statements.

The maximum fine for participation in a prohibited concentration is 10 per cent of the annual turnover of the undertaking, according to the last published financial statements.

IV OTHER STRATEGIC CONSIDERATIONS

It has been an ongoing goal of the Agency to align and equalise the practice of undertakings assuming obligations to repair the damage to competition, through acceptance of measures and conditions.

The measures and conditions to alleviate the negative effects to the competition are already rooted in the merger control regime, and have been successfully used in the past.

The Croatian legislator facilitates the use of these measures by encouraging the participants of the concentration to take a proactive approach and propose measures and conditions during the entire course of the proceedings.

This concept is further reinforced by the fact that the parties to the concentration are explicitly invited to submit their written proposals of the measures and conditions to the Agency within one month of the receipt of the notice on the preliminary determined facts.

The measures and conditions proposed to alleviate the negative impact of concentration may be divided into three groups: behavioural remedies, structural measures and quasi-structural measures.20

Behavioural remedies determine whether the participants comply with the set conditions in a designated time frame. The length of this time frame is determined on a case-by-case basis, usually depending on the state of the relevant market. In several prominent cases, the Agency has appointed an independent trustee to oversee participants' adherence to the conditions.

Structural measures are far more complicated, but are also considered to be more effective by the Agency. These measures may include sale of company assets (divestiture); sale of the overlapping assets of the concentration's participants (mix-and-match remedies); carve-out; or sale of the most valuable assets of the participants of the concentration (crown jewels).21

Quasi-structural measures provide for a combination of structural or behavioural measures.

Increase in the adoption of these measures may prove to serve to the mutual benefit of both the undertakings involved in the concentration and the Agency, as the undertakings themselves, in cooperation with the Agency, assume the obligation to alleviate potentially harmful effects to competition, which could also contribute to the reduction of the length and the associated costs of the concentration assessment proceedings.

V OUTLOOK and CONCLUSIONS

Throughout 2019, the Agency continued its endeavours to improve competition in Croatia. This is done in particular through ongoing education, as well as following trends and new developments in the region and in the European Union. The Croatian competition law aims to be fully harmonised with the acquis communautaire and any changes thereof should expect to be promptly reflected in the Croatian national legislation.

The increased dynamic of merger control cases in Croatia continues to highlight the importance of the role of the Agency in addressing and monitoring market competition issues. The fact that this will indeed continue to be the focus of the Agency is highlighted by the Agency's statement citing market competitiveness as one of its main concerns.


Footnotes

1 Goran Durmiš is a partner and Tea Ivančić, Izabela Beber and Ivana Ostojić are senior associates at Law Firm Bekina, Škurla, Durmiš and Spajić Ltd.

2 Annual Report of the Croatian Competition Agency for 2015, Zagreb, p. 10.

3 Instructions pertaining to the Concentration Assessment Proceedings, The Croatian Competition Agency, (Zagreb, 2004) p. 21, www.aztn.hr/uploads/documents/tn/zakonodavni_okvir/Naputak_1.pdf.

4 Annual Report of the Croatian Competition Agency for 2018, Zagreb, p. 10.

5 id., p. 13.

19 In the event of the implementation of the prohibited concentration, the Agency may order the sale or transfer of the acquired shares, or prohibit or restrict the use of voting rights associated with the acquired shares.

20 V Butorac Malnar, J Pecotić Kaufman and S Petrović, Pravo tržišnog natjecanja (University of Zagreb, 2013), p. 337.

21 ibid.