Dear Sir or Madam,
For over five years, the Russian merger control landscape has been a quiet place, occasionally disturbed by high-profile mergers which required a king-sized approach and the use of international cooperation tools. In 2021, following a change in the Federal Antimonopoly Service’s (“FAS Russia”) senior management, decisions have been taken which signal a shift within Russian merger control legislation and practice. In this newsletter, we would like to focus on a few of such changes, which might be important for both Russian and international investors and their advisors.
Merger control thresholds
At the start of July 2021, FAS Russia announced a bill which will double the filing threshold for the target’s worldwide assets, from 400 million Rubles ($5.4 million) to 800 million Rubles ($10.8 million). This bill is the FAS Russia’s response to recent announcement of President Vladimir Putin, who suggested a liberalization of the antimonopoly tests for small and medium-sized entities. As customary in Russia, legislative changes supported by the President are usually adopted rather quickly, so we may expect the relevant changes will come into force soon.
Even though these changes could hardly affect the foreign-to-foreign transactions, we expect that certain local deals will be excluded from antitrust control. This will lower the workload of the antitrust authority and will allow a redirection of the time and resources to more pressing matters, like merger control review of high-profile global transactions, or an in-depth FDI analysis.
On 11th June 2020, FAS Russia’s Presidium adopted the guidelines “On the specifics of state antimonopoly control over economic concentration” (the “Merger Guidelines”). These are the first complex guidelines on merger control procedure to have been adopted by the Russian authority. The document has been prepared and discussed for over two years, in close cooperation between the regulator and the Association of Antimonopoly Experts. Adoption of the Merger Guidelines is a significant step, which clarifies the complex cases of the merger control rules’ application and FAS Russia’s approaches to transactions’ analysis, as well as making the Russian merger control process more transparent for investors.
Among others, the document sets forth the following key clarifications:
Approaches to economic analysis of transactions
For the first time, an attempt has been made to separate the FAS Russia’s approaches for the analysis of horizontal, vertical and conglomerate transactions. The reason is that each type of transactions has its own characteristics, and the execution of such transactions can have various effects on competition.
Description of the FAS Russia’s approaches to analyzing specific types of mergers, will allow investors to mitigate the arising risks and competition concerns in the Russian market in advance, helping to make the clearance process smoother and faster.
Definition of rights enabling to determine the terms of business activities and clarification of negative control concept
Clearer criteria for defining the “rights enabling to determine the terms of business activities” have been introduced. The criteria are both control (disposition of more than 50% of shares (participatory interest), or exercising the functions of an executive body) and other grounds (appointment of a sole executive body, appointment of more than 50% of a collective executive body, issuance of instructions binding for execution, etc.).
Negative control is defined more vaguely, so legal gaps are possible. To mitigate existing uncertainty, the Merger Guidelines have introduced the concept of “individual negative control”, where the acquisition of veto rights might be notifiable only in those cases, when the acquirer receives additional veto rights that the other participants do not enjoy. This will help to narrow the cases when negative control shall trigger the merger control filing.
Currently, the JV filing test described in Competition Law is very broad. To define its scope, the Merger Guidelines have introduced specific cases, when the JV will be regarded as having influence on the Russian market, namely:
(A) a JV is formed in Russia, or shares (stakes) of a Russian company are acquired;
(B) a JV will be contributed with a Russia-based legal entity, or assets;
(C) operations in Russia will constitute the core activity of a JV (for example, a JV plan to supply goods to Russia (that are the result of joint operations / production by the parties to a JV), or fulfill joint projects in Russia, given that such activity is directly specified in the JV agreement);
(D) the parties to the JV agreement do not form a JV as a separate legal entity, but combine efforts to promote goods, or services, in the Russian market (for instance, through joint marketing programs, joint infrastructure development, or building up a common logistic system to sell goods in Russia).
A pre-notification process already exists in Russia, but is not applied often, due to absence of established procedure. The Merger Guidelines are intended to trigger the application of this provision. The procedure of pre-notification, and scope of information to be provided to the regulator, are now clarified. To facilitate further review process, applicants have the right to submit their application and documents prior to the main filing, offering to voluntarily accept behavioral obligations (for example, providing access to infrastructure), or structural ones (for example, sale of assets, business restructuring). The statement must contain both the obligations themselves and the methods of their fulfillment.
Grounds for prolongation of the review process
Currently, in its statements on prolongation of the merger control review process, FAS Russia does not explain the reasons for such a decision, which makes it difficult for investors to properly address the possible concerns of the regulator.
The Merger Guidelines specify that FAS Russia’s decision on prolongation shall be reasonable and motivated and the relevant reasons/concerns shall be indicated, within such a decision. Although this is just a recommendation, and the case teams are not obliged by law to follow this approach, we see this as a first step to making the prolongation process decision-making more transparent.
Familiarization with the case materials
Although the law does not provide for a definite procedure allowing investors to familiarize with the merger control case materials, the Merger Guidelines introduce a right for an investor to apply for such.
In its turn, having received such a request, FAS Russia has the right to provide the applicant with information on the requests for information issued to third parties, questionnaires used for the purposes of market analysis (consumer surveys), the responses received from state authorities, local governments, legal entities and individuals in respect of the proposed transaction, as well as the results of market analysis, prepared by the regulator. Clearly, all these materials might be provided, to the applicant, only in non-confidential versions.
At this stage, it is not clear how this process will work and whether the case teams would be willing to allow familiarization only in complex high-profile cases, or also in regular, simple transactions as well. Nevertheless, an introduced mechanism might be a significant step to ensuring transparency and investors’ rights, within the merger control process.
Summarizing the above, we would like to emphasize the following:
Increasing the merger control thresholds will allow FAS Russia to focus on more important and high-profile merger control cases;
The Russian Merger Guidelines offer answers to many pressing questions that arise when analyzing the reportability of the transactions;
The Russian merger control review process might become more transparent and investor-friendly, in the near future.
In addition, further significant amendments to the Russian merger control process are expected later this year, upon adoption of the Fifth Antimonopoly Package, about which we will inform you accordingly.
We hope you will find the information provided useful. If any of your colleagues would also like to receive our newsletters, please send them a link to the electronic subscription form. If you would like to learn more about our Competition/Antitrust Practice, please let us know in your reply letter - we will be happy to send you our materials.
Note: Please be aware that all information provided in this letter was based on the information from the open sources. Neither ALRUD Law Firm, nor the authors of this letter bear any liability for consequences of any decisions made in reliance upon this information.