Polish merger control, in terms of substance and procedure, is becoming increasingly aligned to that of the EU, and the Polish competition authority, the President Office for Competition and Consumer Protection (OCCP), often draws benefits from the decisional practice of the European Commission and the EU courts. However, in spite of the above tendency, in some important aspects where Polish merger control rules continue to differ from those provided by EU law. Capturing those differences is particularly important considering the relatively low notification thresholds triggering the merger filing obligation in Poland.
In 2015 the amendments to the Polish Act on Competition and Consumer Protection (ACCP)2 came into force and introduced several important modification to the Polish merger control system, both in terms of procedure and substance. We have observed how the key amendments materialised in practice, including rationalisation of the notification obligations aimed at excluding concentrations without an actual impact on competition within Poland, the introduction of two-phase proceedings or a statement of objections. As explained in detail below, merger control in Poland experienced the OCCP issuing several statements of objections followed by the parties' withdrawal of the notification, most likely in anticipation of a prohibition decision. In addition, the introduction of the 2015 amendments shortened the review period in simple cases. At the same time, although the OCCP cleared the vast majority of the cases in Phase I, an increasing number of complex merger cases are decided in Phase II. It was also interesting to note the impact of views presented by customers, competitors and suppliers, which were requested by the OCCP in relation to notified concentrations, on the final outcome of its decisions.
An analysis as to whether a prior merger clearance of the OCCP for a given transaction is necessary requires a short assessment and answers to the following questions:
- whether a transaction amounts to a concentration, i.e., whether it constitutes:
- a merger of two or more independent undertakings;
- the acquisition by one or more undertakings, whether by purchase or subscription of shares or securities or through any other means, of direct or indirect control over one or more other undertakings;
- the creation of a joint venture;
- the acquisition of part of a business of another undertaking (i.e., an asset sale of part of a business);3
- whether turnover thresholds are exceeded:
- the combined worldwide turnover of the undertakings involved in the concentration and their entire groups exceeds €1 billion for the year prior to notification; or
- the combined Polish turnover of the undertakings involved in the concentration and their entire groups exceeds €50 million for the year prior to notification;
- whether notification exemption applies:
- de minimis exemption – no filing is triggered if the Polish turnover of the following does not exceed €10 million in any of the two financial years preceding the concentration:
- the target – in the case of the acquisition of control; or
- none of the undertakings participating in the concentration (their capital groups) – in the case of a merger or the creation of a joint venture; or
- the part of the business to be acquired.
- de minimis exemption – no filing is triggered if the Polish turnover of the following does not exceed €10 million in any of the two financial years preceding the concentration:
In the case of an acquisition of control or an acquisition of part of the business between the same parties in a series of transactions executed over two years, the total turnover of the undertakings to be acquired and the acquired business is taken into account. The purpose of this provision is to prevent avoiding merger notification by slicing the transaction into parts each falling within the notification exemption.
In addition, specific types of transactions fall outside merger control review:
- an acquisition or holding of securities by a financial institution with a view to reselling them, provided that the resale takes place within one year and the financial institution does not exercise the shareholder's rights;
- an acquisition or holding of securities on a temporary basis, with a view to securing claims, provided that the undertaking does not exercise the shareholder's rights;
- a concentration during bankruptcy proceedings, unless control is taken over or part of the business acquired by a competitor; or
- intra-group concentrations.
ii Joint ventures
In Poland, in contrast to the EU Merger Regulation, a joint venture does not have to provide on a lasting basis all the functions of an autonomous economic entity for its creation to be caught by the merger notification obligation. Thus, if the relevant notification thresholds are met, all joint ventures are notifiable to the OCCP, irrespective of whether they are 'fully functional' or not.
Furthermore, the ACCP does not require JV parents to exercise joint control over a joint venture being created. As a result, a joint venture is deemed to arise even if only one undertaking will exercise (sole) control while the remaining undertakings establishing the joint venture will have non-controlling stakes. Given that a joint venture can also be created on the basis of an existing company, this may lead to practical problems distinguishing between an acquisition of a minority shareholding in an existing company (which is not notifiable to the OCCP) and the acquisition of joint control, and the creation of a joint venture.4 This issue was noticed by the OCCP, which in its guidelines on the criteria and procedure for notifying the intention of concentration as updated in 2015 (the OCCP Procedural Guidelines)5 stated that a creation of a joint venture on the basis of an existing company takes place when the company, although existing, was not operational, or it is intended that post-acquisition an already operational company will substantially change or expand its business profile. Otherwise, the transaction should be viewed as an acquisition of joint control (which may be notifiable to the OCCP) or as an acquisition of a minority shareholding that does not constitute a concentration.
A notification obligation may also arise if an existing joint venture, which could have been previously cleared by the OCCP, is to substantially change or expand its scope of operations.
iii Domestic effect
Foreign-to-foreign transactions meeting the Polish jurisdictional thresholds are subject to notification to the OCCP unless they have no (even potential) effect in Poland. According to the OCCP Procedural Guidelines, a concentration has an effect in Poland if at least one of the capital groups taking part in the concentration achieves turnover on the territory of Poland.
ii YEAR IN REVIEW
In 2017, fines were imposed by the OCCP for breach of the standstill obligation in three cases (i.e., Bać-Pol,6 Fermy Drobiu Woźniak7 and MO).8 Moreover, the OCCP instigated an explanatory proceedings pertaining to the alleged implementation of the concentration without required clearance by Gazprom and five other companies. The cases show that the OCCP's increased attention on cases pertaining to concentrations closing before required clearance.
In Bać-Pol, the OCCP concluded that Bać-Pol had infringed Polish competition law by acquiring control over Klementynka without the required OCCP clearance. The proceedings were instigated as a result of a complaint submitted by the previous co-owner of Klementynka. The evidence gathered indicated that Bać-Pol had acquired the main business assets of Klementynka, such as key employees, contracts with key suppliers and customers, and goods designated for immediate shipment. Although the proceedings did not reveal any written contract confirming the concentration, the OCCP found that the acquisition of those assets constituted a concentration based on other evidence such as mail correspondence and statements of witnesses. The OCCP fined Bać-Pol 527,000 zloty, which is the highest fine imposed for breach of the standstill obligation in Poland so far. While determining the amount of the fine, the OCCP took into consideration both aggravating circumstances such as lack of cooperation in the course of the proceedings as well as mitigating factors such as no significant impediment of competition on the relevant market (i.e., non-specialised food wholesale) resulting from the completion of the transaction.
Fermy Drobiu Woźniak was also fined 339,000 zlotys for a similar infringement of the competition law. The OCCP concluded that Fermy Drobiu Woźniak acquired assets of Fermy Drobiu Borkowski without notifying the OCCP of its intention to concentrate, and thus violated merger control provisions laid down in the Act. Acting upon a complaint from Fermy Drobiu Woźniak's competitiors, the OCCP collected evidence supporting the fact that Fermy Drobiu Woźniak acquired a part of Fermy Drobiu Borkowski's assets on the basis of a lease agreement of six poultry farms of Fermy Drobiu Borkowski. The OCCP was of the view that Fermy Drobiu Woźniak, as a professional market participant, should have been aware of the existence of the Act and have had a general knowledge of its provisions regarding merger control. The OCCP concluded that the gravity of the infringement was significant. This follows from the fact that the whole merger control system is based on the duty to notify an intention to concentrate, and Fermy Drobiu Woźniak failed to fulfil this obligation. The gravity of the infringement was also affected by the fact that both Fermy Drobiu Woźniak and Fermy Drobiu Borkowski were major players on the Polish market for egg production. As a mitigating factor the OCCP considered the lack of the negative impact of the merger on the relevant market. In the case, the OCCP confirmed that entering into the lease agreement should have been classified as a form of notifiable concentration.
In MO, an undisclosed individual was fined 22,120 zlotys for the acquisition of joint control over Empik Media & Fashion. The OCCP concluded that MO intentionally breached the obligation to notify the intent to concentrate and acquired control at the moment of signing the shareholders' agreement, under which two major shareholders of Empik Media & Fashion agreed, among others, to act in concert as to the exercise of their voting rights at the company's shareholders' meeting. When setting the amount of the fine, the OCCP took into account that gravity of the infringement was not significant, since the MO did not achieve any turnover from activity of his companies in Poland in the financial year before the concentration and that markets on which these companies operate did not overlap with any of the markets on which Empik Media & Fashion is active, so the conducted concentration did not significantly restrict the competition on any market. As a mitigating factor the OCCP also considered the fact that MO provided information on concentration to OCCP and cooperated with it during proceedings.
No fines were imposed by the OCCP in 2018, but one ongoing proceeding is worth mentioning due to the possibility of imposing a fine and precedent character. The OCCP alleges that Gazprom and five other companies breached Polish competition law by financing the creation of Nord Stream 2 gas pipeline without obtaining prior merger clearance. In December 2015, the companies notified the OCCP of their intention to create a joint venture in the form of a company: Nord Stream 2 AG, responsible for designing, financing and constructing Nordstream. Having conducted a detailed analysis and market study, the OCCP raised objections against the notified transaction in July 2016. The OCCP was of the view that the notified transaction might lead to a significant impediment to competition. This is because at that time, Gazprom already had a dominant position in gas supplies to Poland and the proposed joint venture would significantly strengthen Gazprom's transmission capacity in Europe, and thus also its market and negotiating position in relation to Polish customers. Following the OCCP's objections, the companies withdrew the merger notification in August 2016 and the proceedings were discontinued. In April 2017, the OCCP instigated preliminary proceedings to re-examine the case. The OCCP learned from public sources that the companies signed the contract to finance the construction of Nordstream. This, in the OCCP's opinion, could constitute an attempt to circumvent the obligation to obtain consent to create a joint venture. This is because, both the creation of a joint venture and the conclusion of a financing agreement had the same purpose: financing the construction of Nordstream. Should the OCCP conclude that the companies breached the obligation to obtain a merger clearance, it may impose on each of them a fine of 10 per cent of the annual turnover in the financial year preceding the year in which the fine is imposed.
ii Phase II cases
In 2017 the OCCP opened 12 Phase II proceedings. In the majority of cases, the reason for this was a need to conduct a market survey to define the relevant market. In cases reviewed in Phase II in one case in 2017 the OCCP issued a conditional decision, five concentrations were cleared unconditionally and in one case the notifying party withdrew its notification. In 2017 the OCCP issued four statements of objections but no concentration was blocked.
The above statistics confirm the relatively high number of complex cases dealt with by the OCCP in 2017.
In 2018, the OCCP opened 7 Phase II proceedings and similarly to 2017, in the majority of cases the reason for this was the need to conduct a market survey to define relevant market. In three cases the notifying parties withdrew their notifications.9 In one case the OCCP issued statement of objections. So far, the OCCP has not blocked any concentration and has not issued any conditional decision.
iii Conditional decisions
The OCCP issued one conditional decision in 2017, which concerned PGE's acquisition of EDF assets in Poland consisting of a power plant in Rybnik and eight heating plants.10 The OCCP's assessment was that PGE may have a share in excess of 40 per cent of the Polish market for the generation and wholesale of electricity in Poland post-transaction, and pointed out that it could gain a dominant position in the electrical power generation market. The OCCP therefore issued an SO, and PGE submitted its remedy proposals. PGE committed itself to selling additional power through the Polish Power Exchange in an amount effectively equal to the volume of power generated in EDF's power plant in Rybnik. Interestingly, in 2011, the OCCP rejected the same kind of a remedy in a case concerning another concentration contemplated at the time by PGE, and concerning Energa as a target.11 In 2017, the OCCP concluded that the proposed behavioural remedy removes the threat of a significant restriction of competition because it limits the possibility of PGE abusing its market power post-transaction and also reduces other risks resulting from the vertical relations between PGE and EDF in Poland. The commitment will be in force until the end of 2021 or until the acquired power plant in Rybnik ceases to belong to PGE.
So far in 2018, the OCCP has not issued any conditional decisions.
iii THE MERGER CONTROL REGIME
i Responsibility for filing
Once the jurisdictional test is met, the notification to the OCCP and subsequent obtaining the OCCP's clearance for the transaction is mandatory and the latter must be obtained prior to closing. A notification can be filed as early as the actual intention of the parties to concentrate can be shown. Filing can be made based on a conditional agreement, but also based on a memorandum of understanding, letter of intent, heads of terms or a similar document sufficiently expressing the intention of the parties to the transaction. In turn, press releases or a statement of one party are not sufficient.12 Pre-notification consultations with the OCCP are possible in problematic cases, albeit rare.
Which party (parties) is responsible for filing depends on the type of concentration:13 in the case of a merger or the creation of a joint venture, all parties to the transaction must notify; and if the concentration constitutes an acquisition of control or an acquisition of part of a business, the acquiring undertaking is responsible for filing.
In the event of the acquisition of joint control, all undertakings acquiring such control must notify (but not the undertaking already exercising joint control or changing its control from sole to joint control). The notification can be made jointly or separately by each of the undertakings acquiring joint control.
ii Review period
In line with the EU merger control rules, the amendment to the ACCP introduced two-phase proceedings.14
The Phase I review period is one calendar month. Phase II lasts an additional four calendar months. The OCCP may decide on Phase II by way of a procedural, non-appealable decision that requires justification. Such decision may be issued in the event of:
- particularly complex matters;
- matters where there is a reasonable likelihood that the concentration will result in a significant impediment to competition; or
- matters requiring a market survey.
In light the above, unlike at the EU level, the OCCP may instigate the Phase II even without specifying any competition concerns potentially raised by a concentration.
Any additional questions from the authority15 stop the clock until answers are given by the notifying parties. Thus, the actual review period (both in Phase I and Phase II) may last longer than the statutory periods.16 In fact, in particularly problematic cases the proceeding may last six to nine months.
iii Suspension obligation
The parties are prohibited from closing a notifiable transaction without the OCCP's clearance. A breach of this suspension obligation or a failure to notify at all may result in fines imposed on undertakings obliged to notify a transaction17 amounting to up to 10 per cent of their worldwide turnover. In practice, the fines imposed by the OCCP are lower than the maximum amount permitted by law, and to date have typically ranged from €2,000 to €20,000. However, recent fines in cases such as Bać-Pol and Fermy Drobiu Woźniak where fines reached significantly higher amounts (€125,000 and €80,000 respectively) show that the gun jumping is one of the OCCP's growing concerns. There is no sanction of invalidity; however, if an implemented concentration results in a significant restriction of competition, the OCCP may, in addition to fines, impose remedial measures (e.g., divestment).
There is an exemption from the suspension obligation that relates to a public offer for the acquisition or exchange of shares notified to the OCCP, provided that the acquirer does not exercise the voting rights attached to those shares, or exercises those rights only with a view to maintaining the full value of its capital investment or to avoid serious harm to the undertakings involved in the concentration.
iv Third-party rights
Third parties (e.g., competitors, customers and suppliers of the parties to the concentration) do not have a right to formally intervene or participate in the merger control proceedings (e.g., they do not have access to a case file or the right to lodge an appeal from the clearance decision). However, they may submit unsolicited comments in relation to an intended concentration or have the opportunity to present their observations on the occasion of a market survey conducted by the OCCP in the course of the merger proceeding.
v Substantive assessment
The substantive test applied by the OCCP is whether the intended concentration would lead to a significant impediment to competition,18 in particular by creating or strengthening a dominant position on the market. There is a rebuttable presumption that an undertaking enjoys a dominant position if it has a share exceeding 40 per cent of the market. In principle, in relation to horizontal mergers, the OCCP does not identify a significant impediment to competition below a 40 per cent market share threshold.19 In its guidelines on assessing notified concentrations,20 the OCCP distinguishes between horizontal, vertical and conglomerate effects and, in relation to all three categories of effects, the OCCP may take into account both unilateral and coordinated effects.
vi Resolution of competition concerns
In matters where there is a reasonable likelihood that the concentration will result in a significant impediment to competition, the OCCP presents a statement of objections together with its justification. The OCCP may also propose conditions upon which it will clear the concentration. The conditions may also be proposed by the notifying party or parties. The OCCP gives preference to structural remedies, while behavioural ones play a secondary role.
During the subsequent 14 calendar days an undertaking may submit its position in relation to the statement of objections or conditions proposed by the OCCP. Upon an application of the notifying party or parties, the 14-day period may be extended by the OCCP by no more than an additional 14 days.
A statement of objections allows an undertaking to become acquainted with the OCCP's view of the case in question, and therefore make it possible to propose modifications to the planned concentration so as to ensure its compatibility with competition law. When proposed solutions are not satisfactory to the OCCP, a notifying party can withdraw the notification. In recent practice, statements of objections resulted in such withdrawals to avoid the issuance of a prohibitive decision.
A lack of response from the notifying party or parties to the conditions proposed by the OCCP or the refusal of their acceptance, as well as the OCCP's refusal to accept the conditions proposed by the undertaking, results in the issuance of a prohibitive decision.
vii Appeals and judicial review
A decision of the OCCP is appealable to the court of competition and consumer protection21 (via the OCCP) within one month from the date of that decision having been served. The appeal may be filed by the party or parties to the concentration, the public prosecutor or the Ombudsman.
Where the OCCP considers an appeal justified, it may revoke or change the decision in its entirety or in any part without sending the case files to the court, and it will immediately notify the party concerned by sending a new decision that may be appealed by that party.
The court of competition and consumer protection issues a new ruling concerning the concentration and is not bound by the OCCP's findings made during the administrative proceedings. Judgments of the court of competition and consumer protection are appealable to the Appeal Court, which verdicts are final.
Final rulings of the Appeal Court may be subject of cassation appeal to the Supreme Court.
IV OTHER STRATEGIC CONSIDERATIONS
i Joint ventures
As explained, the approach to joint ventures in the Polish merger control regime happens to create an obligation to notify a transaction that is actually not capable of impacting competition in Poland in a way that would justify intervention from the competition authority. As an example, the creation of a joint venture established and active in another part of the world by large capital groups may technically require notification to the OCCP. This is due to the broad notion of 'joint venture' (which includes both full function and non-full function joint ventures), the wide scope of the 'domestic effect' test in Poland and the relatively low turnover thresholds. The 2015 amendments to ACCP, particularly the introduction of the de minimis exemption for concentrations in the form of a joint venture,22 did not provide much support in this respect.
This issue is particularly important given that the definition of a joint venture is not related to the notion of joint control. For this reason, sometimes even the acquisition of a minority stake might lead to a notifiable concentration. Unfortunately, the OCCP is not willing to change its approach and interprets the ACCP provisions in this respect in a strict manner.
The 2015 amendments to the ACCP in relation to introducing two-phase merger control proceedings were designed specifically to allow the OCCP to better allocate its resources and focus on cases with competition concerns. The OCCP's practice between 2016 and 2018 confirmed that the review period for simple, non-problematic concentrations reviewed in Phase I remains relatively short, lasting approximately five weeks on average. At the same time, proceedings in cases with competition concerns in which the OCCP issues statements of objections remain long, lasting seven to 10 months. This is partially due to the absence of pre-notification in Poland.
In the merger control processes, the OCCP continues to heavily rely on third parties' views on a transaction under review. In complex Phase II cases, competitors, customers and suppliers are approached by the OCCP and their views, including justified criticism, if expressed, affect the OCCP's perception of the market definition and the notified transaction's impact on competition.
iii Substantive assessment
Although the greater involvement of the OCCP's internal economists in merger control cases is observed, this does not result in an effects-based analysis of complex cases. Definition of the relevant market is the necessary and most important step in the analysis, and the market shares remain decisive in the assessment of the concentrations' impact on competition.
In the conditional decision issued in December 2016 in Eurocash/Eko Holding case, the OCCP ordered a simple divestiture remedy instead of a carve-out one for the first time since 2014. Moreover, the OCCP accepted a behavioural remedy in the PGE/EDF case. However, it is not expected that the OCCP will significantly modify its general preference towards the structural remedies.
v OUTLOOK & CONCLUSIONS
The 2015 amendments to the ACCP continue to prove its positive effects in a form of shorter merger control review for simple cases. Nevertheless, the proceedings concerning more complex transactions still remain lengthy and prone to the opinions shared in the market surveys conducted by the OCCP. The improved regime has not resulted in changes to the substantive assessment of concentrations, which still focuses on market-share analysis instead of effects-based analysis. At the same time, the OCCP's practice with regard to merger remedies continues to be notably conservative.
Recent case law of the OCCP show its increased attention to gun-jumping cases, which is expected to continue in the coming years.
1 Małgorzata Szwaj is a partner and Wojciech Podlasin is a senior associate at Linklaters C Wiśniewski I Wspólnicy Sp K.
3 Differently from the EU Merger Regulation, under the ACCP an acquisition of part of a business constitutes a form of concentration separate from the acquisition of control over an undertaking.
4 A distinction between an acquisition of joint control and an establishment of a joint venture may be relevant given different undertakings whose Polish turnover is taken into account for the purposes of an assessment of the de minimis exemption.
6 Decision of the OCCP No. DKK - 86/2017 of 5 June 2017.
7 Decision of the OCCP No. DKK – 145/2017 of 19 September 2017.
8 Decision of the OCCP No. DKK – 2010/2017 of 29 December 2017 (MO is an individual).
9 As at 31 May 2018.
10 Decision of the OCCP No. DKK 156/2017 of 4 October 2017.
11 Decision of the OCCP No. DKK – 1/2011 of 13 January 2011.
12 Because the OCCP mandatorily publishes in a Public Information Bulletin information that a filing was made, information about the transaction becomes publicly available. In certain situations (e.g., public tenders), this may have an impact on the decision of when to file.
13 If the concentration is conducted by a parent undertaking through at least two of its subsidiaries, the parent undertaking is responsible for filing the notification. Similarly, the parent undertaking may file if the concentration is conducted by a 'corporate vehicle'.
14 Prior to the amendment to the ACCP the statutory review period was two calendar months.
15 The OCCP is permitted to make additional information requests even if the notification is formally complete, and it often benefits from this right.
16 In 2016, the average review period in Phase I was 38 days (i.e., the level comparable to 2015), while almost half the length it was in 2014 (i.e., before the 2015 amendments to the ACCP).
17 Fines are not imposed on vendors.
18 The equivalent of the 'significant impediment to effective competition' test applied at the EU level.
19 There was one exception where the OCCP prohibited a horizontal merger even though the combined market share of the undertakings concerned was below the 40 per cent threshold (Decision DKK-12/11, Empik/Merlin).
21 Regional court in Warsaw.
22 Namely the exclusion from the notification obligation of transactions where none of the capital groups involved in the creation of the joint venture held more than €10 million in Poland in any of the two financial years preceding the concentration.