Addressing the Economic Impact of the COVID-19 Pandemic: Merger Control and Restrictive Agreements

While Europe is facing the second week of the crisis caused by the COVID-19 outbreak, it is, by now, clear that no aspect of business operations will remain unaffected.  In light of the current situation, the European Commission (“Commission”) proclaimed that merger notifications will be subject to a special regime.  While DG COMP endeavors to ensure business continuity in the enforcement of the EU Merger Regulation, it, however, advises companies to postpone merger notifications, wherever possible[1].  Present circumstances make merger transactions, and closing thereof, significantly more complicated.  Due to the present working conditions, the Commission also announced that it temporarily accepts and, what is more, encourages all submissions in digital format.  However, these measures should not be understood as a release from the obligation to notify.

Obligations under the Merger Regulation

It should be kept in mind that, prior to implementation of a merger transaction, and in line with the Merger Regulation, parties to the merger have an obligation to notify. Implementing mergers that fall within the scope of the Merger Regulation without notifying may lead to some negative repercussions once the crisis caused by the COVID-19 pandemic is over. In case the Commission subsequently assesses that a certain transaction is incompatible with the internal market, that merger may be subject to dissolution or other restorative measures.  Thus even during the COVID-19 outbreak, mergers that fall within the scope of the Merger Regulation are still subject to notification requirements as they were earlier.

One of the first questions that may arise regarding control of mergers during the COVID-19 outbreak is – how to deal with time limits.  Namely, Merger Regulation stipulates, in a number of provisions, that the Commission and Member States will act “without delay” or within certain time limits.  In that respect, Article 10 to the Merger Regulation prescribes that:

Without prejudice to Article 6(4), the decisions referred to in Article 6(1) shall be taken within 25 working days at most.[2]

Without prejudice to Article 8(7), decisions pursuant to Article 8(1) to (3) concerning notified concentrations shall be taken within not more than 90 working days of the date on which the proceedings are initiated.[3]

Adherence to prescribed time limits is hard to accomplish since, both the Commission staff and the interested parties in a merger may face difficulties collecting, submitting and accessing data.  Given their advice to postpone merger notifications, it is hard to expect that the Commission will be able to act in accordance with its obligation to “examine the notification as soon as it is received[4].  Moreover, present circumstances may prolong the time needed for fulfilment of certain closing conditions. However, Merger Regulation allows for extension of set time limits, stating that “[t]he total duration of any extension or extensions effected pursuant to this subparagraph shall not exceed 20 working days[5].

It should also be noted that Merger Regulation establishes presumption of a positive decision regarding all notified mergers in all cases where the Commission does not make a decision within the set time limits:

Where the Commission has not taken a decision in accordance with Article 6(1)(b), (c), 8(1), (2) or (3) within the time limits set in paragraphs 1 and 3 respectively, the concentration shall be deemed to have been declared compatible with the common market, without prejudice to Article 9.[6]

The excerpt quoted above and provisions on presumption of positive decision in case the Commission takes no action in particular, pose numerous questions regarding adherence to strict deadlines during exceptional circumstances, such as, for example, global pandemics. Given that the Commission “encouraged” companies to “delay merger notifications until further notice”, it is reasonable to expect that the Commission will adopt a flexible approach regarding time limits during the notification and review process.  In any case, notifying parties will have to use their patience and accept potential delays in the review process.

Agreements between competitors

We are all witnessing that the global economy as well as national economies are under immense pressure due to the COVID-19 outbreak. Given that desperate times call for desperate measures, it is highly likely that it will become necessary for some companies to join forces in  production and supply of some products, even if they were erstwhile competitors.

Even through the proverbial “Rome” is burning, companies must bear in mind that some agreements between competitors are still prohibited under the EU antitrust legislation.

It goes without saying that restrictive arrangements may be exempted, of course, subject to certain conditions.  By all odds, considering the current practice, it appears that competition authorities will be sympathetic and considerate in order to exempt truly necessary cooperation.  However, it would be unwise to jump the gun and assume that authorities will give final clearance to the said exemptions.  Whatever the outcome may be, it is better to err on the side of caution and consult with an antitrust expert.

Takeaways for Serbia

As for merger transactions and restrictive agreements in Serbia, the legal regime remains unchanged.  Merger transactions are regulated by the Act on the Protection of Competition (“Competition Act”) and are subject to compulsory notification, in case they reach prescribed thresholds.  The time limit within which the transaction notification needs to be made is 15 days following the day of (i) conclusion of the agreement, (ii) publication of a public bid or (iii) acquisition of control[7]. Like in the case of EU regulations, restrictive agreements are subject to individual exemption “if they contribute to the improvement of production and trade, or incite technical or economic progress, while providing consumers with a fair share of benefits[8].

Regardless of the unchanged legal regime, the COVID-19 outbreak, followed by the proclaimed state of emergency in the country, is undoubtedly posing many challenges to business operations. While Serbian Commission for Protection of Competition has not yet declared any special regime similar to that of the EU COMP, it can be expected that parties to merger transactions will face difficulties during both notification and review process. Not only could the declared state of emergency slow down fulfilment of closing conditions (since these can be related to approvals given by state/regional/local authorities), but measures adopted due to the state of emergency may create obstacles in negotiating transactions.  Negotiating and completing cross-border transactions may be particularly challenging during the COVID-19 outbreak. Therefore, merger parties should make sure they have mitigated all potential risks related to the virus outbreak.

[1] See https://ec.europa.eu/competition/mergers/news.html

[2] Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), Article 10(1)(1).

[3] Ibid, Article 10(3)(1).

[4] Ibid, Article 6(1).

[5] Ibid, Article 10(3)(2).

[6] Ibid, Article 10(6).

[7] Act on the Protection of Competition (“Official Gazette of the RS”, no. 51/2009 and 95/2013), Article 63 (1).

[8] Ibid, Article 11.

 

For more information, please contact us via covid19@geciclaw.com