The Merger Control Review: Spain
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 national sector regulatory authorities (energy, telecommunications and media, railways, postal, airports). 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 also possible 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 regulatory authority, such as banking mergers).4
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 the case of a tied vote at the Council.
In the area of merger control, the Council of Ministers (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. Renewal of various Council members, including the president, who is acting on a prorogued mandate, is still due at the time of writing.
The bulk of the CNMC is made up 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. The Competition Directorate deals with the enforcement of competition law and 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. The Competition Directorate is a professional office with career civil servants who act impartially and with a business-like attitude when addressing companies' issues.
iii 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. Shifting alliances have, in some instances, received a particular treatment in Spain, distinct from what could generally be acceptable under EU law and the European Commission Consolidated Jurisdictional Notice.
Thresholds triggering merger control in Spain
The Competition Act provides that concentrations that meet either one of the following thresholds must be notified to the CNMC for merger control purposes:
- 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
- that the aggregated turnover in Spain of the parties to the concentration exceeds €240 million in the previous 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 in Section III.
In our experience, the market share threshold poses some practical questions; for instance, the market share threshold can be met if the target company alone has a 30 per cent (or 50 per cent, as the case may be) share in a relevant market, even if the acquirer has a zero per cent market share, although this would be a candidate for a short-form merger filing and quick review. Market definition must be carried out on the basis of existing merger control practice and precedents persuasive in Spain, including those of the CNMC. Generally, the market share threshold need not be problematic; it can be dealt with expediently and in a constructive fashion.
Finally, it is worth mentioning the impact that the EC Communication on the referral mechanism (the Communication)5 is likely to have on concentrations that do not meet national thresholds but may be examined by the EC under the referral mechanism. The Communication foresees that national competition authorities may refer certain concentrations that significantly affect competition to the Commission, even though they do not meet applicable national merger control thresholds. Consequently, a concentration that is not reportable under the Spanish Competition Act may end up being examined by the Commission. This will probably cause uncertainty because the referral of the transaction can take place up to six months after the transaction has been closed.
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 actively monitors gun-jumping, including that of transactions that had to be reported pursuant to the market share threshold, which the CNMC has shown it has will to enforce (with the majority of gun-jumping investigations being triggered by the market share threshold). 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. 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 public administrations under the public procurement laws. In April 2021, the Competition Act was amended to clarify, inter alia, that the relevant turnover for the purposes of the calculation of fines is the worldwide turnover of the infringing company. It is expected that this will lead to increased enforcement in the form of higher fines.
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 2013 on the creation of the CNMC. The amount of the fee may be updated annually and is currently as follows:
- €5,502.15 when the aggregate turnover of the merging parties is equal to or less than €240 million;
- €11,004.31 when the aggregate turnover of the merging parties is between €240 million and €480 million;
- €22,008.62 when the aggregate turnover of the merging parties is between €240 million and €3 billion; and
- 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 is currently €1,545.45.
Year in review
2020 has been the year of the coronavirus pandemic, which has also affected the activity of competition authorities across the board. The CNMC has been no exception. During the first months of the pandemic, the CNMC focused on enforcement priorities other than merger control, but it quickly adopted working from home practices, and a great deal of merger control activity ensued throughout 2020 and the first part of 2021. The CNMC acquired a new presidency in autumn 2020, which is clearly moving it towards stricter merger control enforcement. This can be seen, for instance, in the substantial increase of second phase reviews, which, in 2021, will see an unprecedented number of files being processed. Noteworthy merger cases include the following.
i Acquisition of Bankia by Caixabank
The acquisition of Bankia, SA by Caixabank, SA is perhaps the most significant merger of the year, as it gave birth to the largest bank in Spain; unsurprisingly, the analysis of the transaction has been very thorough, and led to a clearance with conditions.
The CNMC merger decision of 23 March 20216 considers that the operation would not 'pose a threat to effective competition' in the markets for corporate banking, investment banking, factoring, cards, point of sale, insurance production and distribution, and fund and pension plan management. Consequently, the decision focused on several aspects in the market for retail banking services in 86 postal codes, where the resulting entity would either have a monopoly position or lead to very weak competitive pressure.
The conditions adopted can be classified in three main groups: (1) commercial conditions to prevent (consumer) financial exclusion; (2) ATM-related conditions; and (3) conditions related to common minority holdings (where the resulting entity undertakes to divest its percentage of capital stock until reaching compliance with the planned limit). The ATM-related conditions are set for 18 months and they intend to avoid leaving some third-party banks without access to ATMs, which they enjoyed pre-merger. Therefore, Caixabank undertakes to maintain access to its ATMs that were previously available to customers of entities that had an agreement with Bankia.
Additional conditions seek to prevent customers in 86 postal codes from being financially excluded (i.e., being left without any local bank retail branches). The conditions are set for three years and consist of:
- ensuring no municipality is left in a situation in which the merged entity lacks competition (unless the CNMC allows it);
- maintaining existing conditions for Bankia's customers in areas where Caixabank will be the monopolist entity;
- ensuring conditions are substantially maintained or, at least, not worsened, in the other postal code areas where competition is weakened, even if no monopoly arises;
- not charging commission for counter services to Bankia's former customers; and
- offering Caixabank's 'social' account to Bankia's customers that meet the requirements.
Finally, Caixabank must inform Bankia's customers of new fees that would apply and of products, promotions certain rights that are available to them.
ii Grupo Bimbo/Fábrica de Paterna de Siro merger
The acquisition of two of Siro's industrial facilities (for the manufacture of packaged bread) by Bimbo was cleared with commitments by the CNMC on 12 June 2020.7 The transaction resulted in Bimbo becoming the largest and undisputed leader in terms of manufacturing capacity of packaged bread.
The commitments were necessary to address the CNMC's concerns regarding Bimbo's reinforced position as a brand manufacturer for Mercadona (a large supermarket retail chain), because the transaction included an agreement between Bimbo and Mercadona (which had previously been supplied by Siro). Therefore, the main risk identified was the relationship in the bakery market between own-label bread and the manufacturer, with the merged entity becoming the first competitor with large market shares both in the wholesale market for packaged own-label bread and in terms of manufacturing capacity for industrial bread production. To gain clearance, Bimbo committed: (1) to remove any link between the Bimbo-branded and private-label bakery products supplied to Mercadona; (2) not to enter into negotiations related to Bimbo-branded products with Mercadona; and (3) not to agree to being appointed as a priority manufacturer of private-label products for Mercadona.
iii Çimsa/Activos Cemex merger
This decision8 was cleared after a lengthy Phase II review, which the CNMC decided to conduct due to potential competition issues in the markets for in-bulk white cement and bagged white cement.
The transaction consisted of Çimsa acquiring several assets from three companies within Cemex Group, specifically the white cement divisions. As a result of the acquisition, Çimsa became the largest competitor in both packaged and unpackaged white cement markets with more than 50 per cent market share in the latter. The clearance of the operation was subject to two main conditions. First, the divestiture of Çimsa's silo in Alicante, which had to be transferred to Cementos Molins before closing, along with the related goodwill, and, second, guaranteed supply to customers in Southern Spain from the Motril silo.
iv Acquisition of Ferro's business by Pigments
This transaction consisted of Pigments' acquisition of certain assets, liabilities and companies owned by Ferro. The importance of the transaction relies on the fact that innovation, and not pricing, is the main element through which companies in the ceramic tile sector compete. Thus, the main concerns raised related to potential lower investments in innovation because the resulting entity would acquire close to 50 per cent market shares in the frits, enamels and digital inks markets.
The transaction was cleared on 30 December 20209 with the following commitments: to biannually inform the CNMC of investments made; not to reduce investment in any viable research and development (R&D) project; and not to substantially modify any R&D project without the CNMC's authorisation.
v Acquisition of Autogrill by Areas
The CNMC cleared the acquisition of Autogrill by Areas subject to three commitments in Phase I.10 The transaction relates to the concession food service business in the transport sector in Spain, in which the resulting entity acquired high market shares.
To gain merger clearance, Areas committed: (1) to terminate contracts in Madrid-Atocha station and Palma de Mallorca airport; (2) not to participate in tenders for business in certain locations; and (3) not to increase the resulting market share for three years.
vi Enoplastic/Sparflex merger
This merger was cleared by the CNMC on 23 February 2021.11 The transaction consisted of the acquisition of sole control of Sparflex by Enoplastic, both of which were active in the packaging foil market for cava and sparkling wines. The CNMC conditioned the approval in view of the existing risk to competition in the relevant market, in which the resulting entity would acquire a market share of between 60 per cent and 70 per cent.
The CNMC considered the risks of unilateral effects on prices and quality, given the absence of an alternative entity capable of competing with it. The resulting entity has undertaken to divest a production unit to a purchaser considered suitable by the CNMC, alongside the related goodwill and the workers needed to operate it.
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 are referred to Phase II in-depth analysis.
Phase I proceedings last in principle for one month, counted from the date 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.
The maximum period for Phase II proceedings is two months, counted from the date the CNMC decides to open a Phase II review. 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 proceedings).
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 II CNMC 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 of the formal application for authorisation of the public tender with the Securities Exchange Commission; and that the voting rights are not exercised except 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 EC Merger Regulation. 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. These are normal dynamics in Phase II, where third parties have a relevant role and provide input that 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. An example of this is the Helios/Quironsalud merger,12 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.13
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 also acts 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.
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 dislikes transactions being 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 often grants approval within 10 to 20 days of 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 the 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 recently made it clear that it is ready to use its powers to punish individual directors and managers for competition breaches (which has hitherto not materialised in any actual fines to individuals 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. Specifically, the CNMC has initiated proceedings against Nufri, Sociedad Agraria de Transformación for having closed the acquisition of Grupo Idulleida before gaining merger clearance.14
Outlook and 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 in 2013 (see Section I). The integration was criticised at the time. In the medium to longer term, it cannot be ruled out that a future legal reform will again separate the national regulatory authorities from the Competition Authority. This possibility has been discussed, although there does not currently appear to be momentum for it.
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.
The current economic crisis has triggered considerable financial difficulty for many companies in a country where tourism and transportation-related activities are very important to the economy. In this regard, the failing firm defence is acknowledged and may well apply to concentrations in the current circumstances, provided it can be appropriately substantiated and evidenced. In the past, the CNMC has invoked the failing firm defence in restrictive circumstances only, and has avoided its use in temporary crisis situations (e.g., the Antena 3/La Sexta merger).15 However, the CNMC continues to be sceptical of this line of defence, even in the current climate.
Another area that overlaps with merger control, and that is directly related to concentrations, is that of foreign direct investment (FDI) screening. In April 2020, the government introduced a new FDI screening regime, which is very broad in scope and which, like merger control, requires clearance prior to the closing of an acquisition, under penalty of fines of up to the consideration of the transaction. The regime has been reformed twice since its inception in April 2020, with the last reform taking place in November 2020. At the time of writing, this regime poses serious issues of interpretation, pending the approval of an implementing regulation; therefore, careful advice may be required.
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 the trend in antitrust enforcement cases, and may also increase the amount of fines, in line with the apparent trend at European Commission level and in neighbouring countries such as France.
1 Pedro Callol is a partner at Callol, Coca & Asociados. The author thanks Jorge Vellido for his assistance in updating this chapter.
2 Law 15/2007 of 3 July 2007 on Competition.
3 Royal Decree 261/2008 of 22 February 2008, approving the Competition Implementing Regulation.
4 CNMC Notice of 21 October 2015 on cases where the short-form filings may be used.
5 European Commission Communication of 26 March 2021, on guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases.
6 File 1144/20.
7 Merger file C-1087/19.
8 Decision of 29 September 2020, File 1052/19.
9 File 1116/20.
10 Decision of 6 January 2021, File 1145/20.
11 File 1128/20.
12 Decision of 22 December 2016, Helios/Quironsalud, File C/0813/16.
13 For example, decision of 29 July 2010, Bergé/Maritima Candina, File R/0006/10.
14 Decision of 28 November 2019, Grupo Nufri, File SNC/DC/093/19.
15 Decision of 13 July 2012, Antena 3/La Sexta, File C/0432/12.