I INTRODUCTION

i Regulations

The merger control regime is regulated by the Competition Act2 and its implementing regulation3 and interpretative guidelines.

Authorities

The national competition authority is the National Competition and Markets Commission (CNMC).

The CNMC was created in 2013 bringing together under a single roof the pre-existing National Competition Commission and various sector national regulatory authorities (energy, telecommunications and media, railways, postal, airports).4 This had an impact over mergers in regulated sectors, hitherto subject to the need for a cross-report from the relevant regulatory authority. The creation of the CNMC eliminated the need for cross-reports from regulators in industry sectors that are now dealt with by the CNMC. Hence, the CNMC modified its Notice on Short Form Merger Filings in October 2015, to eliminate the rule that short-form merger filings were not available when a cross-report from the competent regulatory Authority was required. Reduced form filings are now possible also in industry sectors where the CNMC has authority (although standard merger filing forms will still be required in industry sectors where the CNMC has no authority, such as banking mergers).5

The CNMC has a dual structure, which reflects on its regulatory and competition enforcement rules. A collegiate body, the Council, is the decision-making organ of the CNMC. The Council has 10 members divided into two chambers of five members each, one chamber dealing with competition matters and presided over by the President of the CNMC; the other dealing with regulatory supervision and led by the Vice-President. The chambers may meet separately or jointly in a plenary session. The President has the deciding vote in case of a tied vote at the Council.

In the area of merger control, the Council of Ministers (the Cabinet) has a role in problematic mergers where the CNMC either considers prohibition or submission to conditions. This role of the Council of Ministers is further described below.

Appointment of the CNMC Council members, including the President and Vice-President, is entrusted to the government upon proposal of the Ministry of Economy. CNMC Council members are appointed for non-renewable terms of six years. The bulk of the CNMC is made of the various directorates, which deal with the investigations and provide the substantial back office research and knowledge required for the day to day work of the CNMC. One of those directorates is the Competition Directorate, which is in turn divided into various sub-directorates of industry and energy, information society, services, leniency and cartels and, finally, a monitoring sub-directorate. There is no specific merger task force, which means that mergers are allocated internally.

Pre-merger notification and approval

Which transactions qualify as a merger

A concentration takes place when a stable change of control of an undertaking takes place as a result of a merger of two previously independent undertakings; an acquisition of control of an undertaking or a part thereof by another undertaking; or the creation of a joint venture or the acquisition of joint control of an undertaking, provided the joint venture is full-function and performs its economic activity on a long-term basis.

An acquisition of control results from contracts, rights or any other means that, taking into account the circumstances of fact and law, confer the possibility of exercising decisive influence over the acquired undertaking. The concept of control encompasses ownership of shares or assets, contracts, rights or other means that provide decisive influence over the composition, deliberations or decisions of the governing organs of the company.

Purely internal restructurings within a company group do not constitute a change of control. Likewise, the acquisition of control must involve a business having access to the market and therefore a business to which a market share or market turnover can be assigned. Hence an acquisition of a business previously providing an internal service solely to the selling group will not amount to a merger, provided that no sales from the acquired business take place to third parties within a start-up period from the acquisition (start-up period of generally three years). Temporary shareholdings by financial entities, holding companies and receiverships are excluded in the circumstances described by the Competition Act.

Thresholds triggering merger control in Spain

The Competition Act orders that concentrations that meet either one of the following thresholds must be notified to the CNMC for merger control purposes:

    1. That, as a result of the concentration, a market share of 30 per cent or more of the relevant product market in Spain, or a relevant geographic market within Spain, is acquired or increased. A de minimis exemption applies if:
      • the turnover of the acquired undertaking in Spain does not exceed €10 million; and
      • the concentration does not lead to acquiring or increasing a market share of 50 per cent or higher in the relevant product or service market or in any other market affected by the concentration; or
    2. That the aggregated turnover in Spain of the parties to the concentration exceeds €240 million in the last accounting year, if at least two of the parties to the concentration each have an individual turnover exceeding €60 million in Spain.

    If either one of the above thresholds is met, filing is mandatory and the concentration cannot be implemented prior to having been authorised. The Competition Act provides for a derogation system that enables total or partial closing of a merger prior to having gained merger control clearance. This is further discussed under Section III, infra.

    Consequences of failing to notify a reportable transaction

    Closing a transaction without having obtained the required merger control approval is a serious infringement under the Competition Act. The CNMC has been quite active in recent years in monitoring gun jumping, particularly of transactions that had to be reported pursuant to the market share threshold, which the CNMC has shown it has will to enforce. Closing a reportable transaction without having gained merger control approval may carry fines of up to 5 per cent of the turnover of the acquiring group.6 Closing in contravention of the terms of a merger control decision may result in fines of up to 10 per cent of turnover. Fines are imposed following a separate administrative investigation on gun jumping. Furthermore, companies condemned for gun jumping, may potentially be disqualified from supplying goods and services to the public administrations under the public procurement laws.

    Filing fee

    A filing fee must be paid and proof of payment included as part of the merger filing. The amount of the fee is determined in an Annex to Law 3/2013 of 4 June, on the creation of the CNMC. The amount of the fee may be updated annually and is currently as follows:

      1. €5,502.15 when the aggregate turnover of the merging parties is equal or less than €240 million;
      2. €11,004.31 when the aggregate turnover of the merging parties is between €240 million and € 480 million;
      3. €22,008.62 when the aggregate turnover of the merging parties is between €240 million and €3 billion; and
      4. a fixed amount of €43,944 when the aggregate turnover of the merging parties is above €3 billion, adding €11,004.31 to the fee for each additional €3 billion of aggregate turnover of the parties up to a maximum fee amount of €109,906.

    The filing fee for short form filings currently amounts to €1,530.15.

    II YEAR IN REVIEW

    Although more active than in some of the prior years in terms of deal flow, 2017 has been a rather standard year in merger review terms, with no transaction having been subjected to Phase II. Conversely, we see some innovative and interesting Phase I reviews in exciting sectors, including some transactions in the 'new' economy. In addition, the CNMC has been quite proactive in approving merger transactions, even highly problematic ones, in Phase I, when necessary, subject to commitments.

    Overall, roughly 100 concentrations were subject to merger control in 2017,7 in all sectors including advertising spending, retail distribution of automotive fuels, waste treatment, e-commerce, computer programs, pharmaceutical sector and manufacturing operations of automated teller machines. We set out below some significant merger cases.

    i Acquisition of the newspaper business of Publicaciones y Ediciones de Alto Aragón, SA (PEASA) by Heraldo Aragón, SA (Heraldo)8

    The acquisition by Heraldo of the exclusive control of PEASA implied the market exit of the main operator in the printed newspaper business in the province of Huesca, and the advertising associated with it, including advertising in local radio and television in Huesca. The main effects of the operation occur in the regional or local advertising market in daily printed press in the province of Huesca, where the concentration is a three-to-two merger, with the resulting entity acquiring 90–100 per cent of the market.

    The notifying party presents the transaction as the only viable outcome to preserve the acquired business, due to the continuous decline of the printed daily press business.

    The CNMC cleared the merger unconditionally, based on the substantial decline of sales of printed newspaper copies in recent years.

    ii Acquisition of Mallinckrodt Chemical Holdings (Mallinckrodt) By Glo Bidco, SARL (Glo Bidco)9

    The operation consists in the acquisition of exclusive control of the business of radiopharmaceuticals for nuclear images of Mallinckrodt.

    There are two types of diagnostic technologies in nuclear medicine: single-photon emission computed tomography (SPECT) and positron emission tomography (PET). The operation results in an overlap in the market of industrial SPECT and a vertical relationship between the industrial SPECT market and the downstream market for SPECT unit doses preparation.

    The transaction led to substantial market concentration and this was a three-to-two merger in various relevant markets. However, the CNMC granted unconditional, Phase I, clearance, on the basis of a number of powerful merger defences. The barriers to entry to these markets are basically regulatory, the technology is well known and has not evolved significantly, industrial SPECT products are not generally protected by patent and although it is necessary to make an investment to establish a manufacturing plant, which requires specific equipment for industrial SPECT, such investment is perfectly viable for companies operating in the pharmaceutical industry. Furthermore, market shares in the relevant markets are volatile as these are bidding markets where opportunity windows to compete are opened with each tender called by hospitals of the public sector, with contracts not exceeding four years, the most usual being the concession for periods of one year renewable for one extra year. Regulated cap pricing and monopsony power of the public health system were important factors taken into account to afford quick clearance.

    iii Acquisition of Codman Neurosurgery Business by Integra Lifesciencies Holdings Corporation (Integra) subject to commitments10

    The transaction consisted of the acquisition by Integra of the exclusive control of Codman Neurosurgery Business (CNS), this being a business division of Depuy Synthes Inc, a 100 per cent subsidiary of the Johnson & Johnson Group, active in the field of medical devices for neurosurgery.

    The transaction involved the acquisition by Integra of new assets complementary to its business such as antimicrobial catheters and programmable valves that are key products in the area of neurosurgery involving access to the brain or other parts of the central nervous system. There were overlaps in the following markets: (1) intracranial pressure internal monitoring (ICP); (2) external ventricular drainage (DVE); (3) DVE collection bags; (4) valves for the treatment of hydrocephalus; (5) dura repair products; (6) bipolar electrosurgical forceps; and (7) cranial access instruments.

    In the ICP market, Integra reinforced its position and posed a risk to effective competition. Therefore, Integra put forward the possibility to: (1) divest the PIC business of Integra, or (2) divest the PIC business of CNS.

    The commitments included already a description of the features the buyer should comply with in order to be adequate, as well as the procedure and periods to carry out the divestment. Integra also committed not to reacquire the divested business and to preserve the viability of the business.

    iv Merger of Servired, Sistema 4B and Euro 600011

    The CNMC has authorised with commitments the combination of the three card payment service companies operating in Spain: Servired, Sistema 4B and Euro 6000 (SMP), of which practically all the banking entities in Spain were shareholders. The operation was subordinated to the fulfilment of a series of requirements aimed at guaranteeing greater competition in card payment applications in Spain for the benefit of financial entities, business and end users.

    With the operation, one of the peculiarities of the Spanish card payment sector disappears (in other countries of the European Union the most usual is that there is a single SMP). In addition, the shareholder's agreement foresees that the resulting entity will face the necessary investments to develop its own payment application that will offer a domestic payment system with all the functions in competition with other payment systems, including international systems. The commitments are aimed at ensuring the proper functioning of the competition in the card payment systems in Spain as well as its openness and accessibility by banking operators subject to objective terms, and including a dispute resolution system for entities to which access to the system is denied.

    v Gun jumping – CNMC fines Consenur, SLU (Consenur) for failure to notify the acquisition of certain assets of Cathisa Medioambiente, SL (Cathisa)12

    The CNMC fined Consenur, SLU (Consenur) for having closed the acquisition of Cathisa Medioambiente, SL (Cathisa) in August 2015 without having notified nor gained the relevant antitrust approval.

    According to the decision, the CNMC and Consenur agreed on considering relevant the product market for the treatment and disposal of hazardous sanitary waste. However, Consenur argued that the geographic market was national, while the CNMC concluded that the geographic market was limited to the Canary Islands where Consenur had a market share of 79 per cent in 2014.

    Consenur was found to have acted negligently as, in case of doubt, Consenur could have applied for formal guidance to the CNMC for a ruling on whether or not the transaction was reportable (see Section IV, below, for a discussion of this formal guidance procedure).

    Consenur has been fined a low figure (€20,000), taking into account factors such as the irregular situation being maintained only shortly (a merger filing was carried out quickly upon notice) and that the merger did not raise any substantive issues.

    III THE MERGER CONTROL REGIME

    i Waiting periods and time frames

    Pre-notification is customary and is advised when possible. Pre-notification is not subject to statutory deadlines. In most cases, two or three weeks should be allowed, although it can take longer if the transaction is complex from a competitive standpoint, or if the CNMC requires additional information to be included in the notification form.

    The formal merger control investigation is divided into Phase I and Phase II proceedings. The majority of files are cleared in Phase I, whereas only a fraction is referred to Phase II in-depth analysis.

    Phase I proceedings last in principle for one month, counted from the date when a complete notification is filed with the CNMC. Where the notifying party submits commitments (this possibility exists during the 20-day period after the filing), the Phase I statutory maximum period is extended by 10 additional days.

    Phase II proceedings maximum period is of two months, counted from the date when the CNMC decides to open a Phase II. The maximum period is extended for 15 additional days if commitments are submitted in Phase II (the notifying party can offer commitments up to 35 days after the start of Phase II).

    In the event of Phase II decisions blocking or imposing obligations, the Minister of Economy is entitled to refer the case to the Council of Ministers within 15 days of the Phase II decision being issued. If referred to it, the Council of Ministers has one month to issue a final decision, which may confirm the Phase IICNMC decision or may authorise the merger, with or without conditions.

    All maximum periods can be interrupted by the CNMC in regulated events such as formal information requests.

    ii Parties' ability to accelerate the review procedure, tender offers and hostile transactions

    As discussed, pre-notification in practice normally makes the review easier.

    The merger cannot be closed prior to having gained the prerequisite merger clearance. It is possible to request a derogation from the suspension effect of the merger filing. This derogation is nowadays very rarely granted. In the past, the exception has been used in limited instances to enable quick closing of a merger in non-problematic geographic areas, while enabling a Phase II review limited to problematic areas (for instance in supermarket, gas station and other mergers with local geographic markets). As a general rule, the CNMC in practice has a preference not to use this derogation procedure, as it entails considerable analysis; rather, where possible, the CNMC prefers to move towards quick merger clearance if the circumstances merit it.

    Public offers can be launched including as condition for the validity the merger control clearance. The Competition Act enables launching of a public tender without having gained merger control provided that the CNMC is notified the merger within five days from the formal application for authorisation of the public tender with the Securities Exchange Commission (CNMV); and that the voting rights are not exercised save when required to preserve the value of an investment, with the authorisation of the CNMC.

    Hostile public offers are rare in Spain. Past experience shows that hostile takeovers particularly in strategic sectors can be extremely complex. The hostile bid for Endesa launched by Gas Natural in the prior decade was not successful, and competing offers required intervention from the European Commission under Article 21 of the ECMR. On that same transaction, the initial merger control authorisation gained by the first bidder (Gas Natural) was frozen by the Supreme Court on interim review.

    iii Third-party access to the file and rights to challenge mergers

    Third-party access is expressly contemplated in the Competition Act in Phase II merger proceedings. Parties with a legitimate interest have the possibility to access the merger file and submit comments to the statement of objections and proposed commitments. This is normal dynamics in Phase II, where third parties have a relevant role and provide inputs which help shape the outcome of the merger proceedings.

    The law does not foresee the possibility that interested parties have a role in Phase I. Phase I proceedings are confidential and the file cannot be accessed by third parties. However, as there is no express provision banning participation of third parties in Phase I merger proceedings, it is accepted, and has become quite standard, that third parties make representations and submissions to the CNMC regarding a merger also during Phase I merger proceedings. A recent example of this is the Helios/Quiron merger,13 where the participation of a third party in the proceedings was expressly discussed in the merger decision.

    Indeed, the CNMC will listen to third parties concerns and if these have merit, the CNMC should be expected to raise the level of scrutiny of a given merger.

    Third parties also play a role in reporting mergers that should have been filed for merger review but were not.14

    iv Resolution of authorities' competition concerns, appeals and judicial review

    The CNMC should, at least in theory, solve most initial concerns in pre-notification. The CNMC will make use of formal information requests stopping the clock when necessary. Once the proposed transaction has been formally filed, the CNMC may be keen, depending on the circumstances, to deal with any questions informally, without stopping the clock (particularly if the transaction has been pre-notified).

    Merger decisions by the CNMC may be appealed within two months before the High Court. In instances where the Council of Ministers decides on the merger, the Supreme Court is competent to review the merger decision.

    v Effect of regulatory review

    Mergers reviewed by the CNMC may be reviewed concurrently by other administrative agencies dealing, for instance, with regulatory and licensing issues. The potential friction and lack of coordination between the CNMC and sector regulators has been minimised in some instances in economic sectors where the CNMC acts also as a regulatory authority. In areas such as banking, where the regulator is not within the CNMC, merger review is suspended while the sector regulator completes its review.

    IV OTHER STRATEGIC CONSIDERATIONS

    Generally speaking, it is far better to pre-notify transactions if at all possible. The CNMC has in the past recommended pre-notification and it clearly does not like that transactions are notified for merger control without pre-notification. Furthermore, pre-notification enables discussion on a preliminary basis on many strategic issues, including the recurrent usage of the short-form filing, occasionally even in situations not expressly foreseen by the applicable regulation.

    Another benefit of pre-notification is expected timing for approval. Even though initially pre-notification implies additional delay, in practice the CNMC will reduce the time dedicated to the review and often issue speedier approval if pre-notification has taken place. In non-problematic cases, recent experience shows that the CNMC is often granting approval in 10–20 days from filing.

    It is possible to apply for formal guidance from the CNMC regarding whether or not a change of control arises as a result of the projected merger and the merger thresholds are met. One issue here is the lack of a binding deadline for the CNMC to act on a request for formal guidance, an area that might change in the future.

    Merger control is an important tool and CNMC has in the past vigorously investigated and pursued gun jumping or closing of reportable transactions without having obtained the necessary merger clearance. The CNMC has made it clear recently that it is ready to use its powers to punish individual directors and managers for competition breaches (which has hitherto not been the case in situations of gun jumping, a situation that may change). Likewise, new legislation that entered into force recently arguably makes it possible to exclude from public tender those companies that have been condemned for gun jumping.

    V OUTLOOK & CONCLUSIONS

    The current CNMC is the result of the integration of Spain's main national regulatory authorities in various network industries and regulated sectors into the Competition Authority back in 2013 (see above). That integration was criticised at the time. In the short to medium term, another legal reform might be expected to separate, again, those national regulatory authorities from the Competition Authority.

    The CNMC is well aware that the formal guidance procedure enabling it to give clarity on the reportability of a merger is impaired by the lack of a binding deadline. This may perhaps change by dealing with the matter in the new legislation that will possibly be introduced to revert to the previous model of separation between competition enforcer and sector regulators.

    In conclusion, no radical changes are in principle to be expected in the merger control arena in Spain, with the qualification of the limited changes likely to arise (primarily but perhaps not exclusively) at the institutional enforcement level if the CNMC goes back to its previous form (with the competition and regulatory authorities separated again). The CNMC or its successor is likely to continue to enforce competition policy vigorously, including merger control laws. Going forward it cannot be ruled out, perhaps, that the CNMC will include individuals in fines for gun jumping, in line with what is the trend in antitrust enforcement cases, and may also increase the amount of fines, in line with what seems like a trend at European Commission level and in neighbouring countries such as France.


    Footnotes

    1 Pedro Callol is a partner at Callol, Coca & Asociados.

    2 Law 15/2007 of 3 July on Competition.

    3 Royal Decree 261/2008 of 22 February, approving the Competition Implementing Regulation.

    4 For more details on the combination of regulators resulting in the CNMC, see my article in The European Competition Law Review, September 2013 edition, 'Ever doubted the “convergence” of competition and regulation? Spain integrates its sector regulators and the Competition Authority under a single agency roof.'

    5 CNMC Notice of 21 October 2015 on cases where the short-form filings may be used.

    6 It is to be noted that, in some cases, worldwide turnover of the infringing group has been used as a basis for the calculation of the fine (Decision of 26 January 2010, Abertis/Inarlia, SNC/0003/09). Also occasionally turnover of both acquirer and target are taken into account for the calculation of the fine (Decision of 22 July 2011, Dorf/Ketal, file SNC 0009/11).

    7 At the moment of editing this chapter the CNMC had not yet published its memory of activities for 2017.

    8 Decision of 5 May 2016, HERALDO/PEASA, file C/0734/16.

    9 Decision of 3 November 2016, GLO BIDCO/MALLINCKRODT, file C/0803/16.

    10 Decision of 13 July 2017, Integra/Codman Neurosurgery Business, file C/0865/17.

    11 Decision of 1 February 2018, Servired/Sistema 4B/Euro 6000, file C/0911/17.

    12 Decision 14 March 2017, Consenur, file SNC/DC/0074/16.

    13 Decision of 22 December 2016, Helios/Quironsalud, file C/0813/16.

    14 For example, Decision of 29 July 2010, Bergé/Maritima Candina, file R/0006/10.