Competition and control of business concentration

Competition and control of business concentration are not easy to digest. The question arises as to why such restrictions should be put in place, and why should unlimited growth be prevented if it is done in accordance with the law?

In a globalized world, with hardly any borders, it is important to determine when economic concentration occurs. There are interests of all kinds, not only economic, that must be protected.

What is meant by “economic concentration”?

An economic concentration is defined as a lasting or stable change of control as a result of:

• A merger of independent companies;
• The acquisition of control over one or more companies.

The applicable legislation is Law 15/2007, of July 3, 2007, on the Defense of Competition.

In Spain, the CNMC (CNMC: Comisión Nacional de los Mercados y la Competencia, in English: National Commission for Markets and Competition) is the competent body to rule on competition matters related to business mergers. It is a public law body attached to the Ministry of Economy and Competitiveness.

The CNMC has organic and functional autonomy and full independence from the Government, public administrations and market agents. It is subject to parliamentary and judicial control.

CNMC Functions

Its main function is to ensure the uniform application of sectorial and general competition regulations in the territory.

How does it do this? By coordinating with the competent bodies of the Autonomous Regions and the General State Administration. Also at the European level, on an ongoing basis with the European Commission.

Community dimension operations are governed by supranational rules as European Commission Reg. EC/802/2004 of 7/4/2004, through the Directorate General for Competition of the European Commission (DGCEC).

Mercantile operations causing economic concentrations.

1.     Mergers of companies:

When two (or more) companies merge into one, they automatically generate a concentration. If they exceed specific thresholds, the transaction will require prior notification to the competent authority for its authorization.

In Spain the thresholds are:

1. Acquisition or increase of a share equal to or greater than 30% of the relevant market for a product/service at national level.
2. Turnover in Spain of the group must exceed €240M in the last fiscal year and one of them must have a turnover in Spain of €60M.

It should be noted that there are certain exceptions to the above thresholds.

2.     Acquisition or long-term or stable acquisition of control:

The taking of control must be lasting or stable. This control can be exclusive “de iure” or “de facto”.

De Iure, when a shareholder acquires the majority of voting rights or has veto power over strategic decisions.

De facto, when the minority shareholder exercises control without holding the majority.  This occurs, for example, due to the limited attendance of the other shareholders.

As opposed to sole control, there is joint control. This is when several companies acquire the possibility of exercising decisive influence over the acquired company.

In joint control, decisive influence is shared with the possibility of blocking. It will depend on the power of the parent companies on strategic issues.

Joint ventures do not always lead to economic concentration. A concentration exists when it performs, on a stable basis, all the functions of an independent economic entity.

To this end, the joint venture must:

• Be free to make strategic decisions;
• Operate in a market and perform all the functions of a company;
• Have the necessary management and resources (assets, human, financial) to carry out the economic activity in a stable manner.

The successive purchase operations of independent companies also involve risk, because they will be treated as a whole as an economic concentration.

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 Most relevant aspects of Competition Law  

In this article we intend to make an approach to the most prosecuted conducts by the Defense of Competition. As well as the most relevant aspects of the same.

National procedure for the control of economic concentrations

Jurisdiction is determined by the limits established in EU and national legislation.

Between the European Commission and the EU member states there is no concurrence of competences. Those with a community dimension are the exclusive competence of the Commission, where EU members must abstain.

In Spain there is a market share threshold that does not exist in the EU regime.

In order to determine whether there is a concentration, the product and geographic markets must first be defined. For this purpose, the “substitutability” of demand, supply and potential competition will be taken into account.

Any merger, joint venture or acquisition of control that generates economic concentration must be notified to the CNMC before being executed. Therefore, express or tacit authorization from the CNMC is required.

The notification must meet these requirements:

• The ordinary notification form must be completed or, when applicable, the abbreviated form.
• A fee must be paid, which varies according to the turnover of the participants.

Procedure steps:

1st Step:

The Competition Directorate has one month to issue a report and proposed resolution. On them, the CNMC Board will issue a resolution:

• To authorize the transaction.
• To impose commitments to the parties.
• To agree to initiate the second phase of the procedure.
• To agree to refer the concentration to the European Commission.
• To agree to file the proceedings.

2nd Phase:

Within 2 months of its opening, the Directorate presents the statement of facts. The interested parties may make allegations and request a hearing. The Board will issue a resolution:

• Authorizing the concentration.
• Imposing commitments to the parties.
• Prohibiting the merger.
• Agreeing to file the proceedings.
• When a concentration is prohibited or conditioned, the Council of Ministers may review it for matters of general interest.

Penalties

Individuals or legal entities that carry out the actions or omissions typified as infringements in the Law may be offenders.

The actions of a Company are also imputable to the companies or persons that control it.

Our law classifies penalties as minor, serious and very serious.

The penalties may entail a fine depending on the turnover. If it is impossible to delimit the turnover, the infringements will be sanctioned with the following fines:

a) Minor infringements with a fine of 100,000 to 500,000 euros.

b) Serious infringements with a fine of 500,001 to 10 million euros.

c) Very serious infringements with a fine of more than 10 million euros.

The amount of the penalties shall be set in accordance with, among others, the following criteria:

• The size and characteristics of the market affected by the infringement.
• The market share of the company or companies responsible.
• The scope of the infringement.
• The duration of the infringement.
• The effect of the infringement on the rights and interests of consumers and users or other economic operators.
• The illicit benefits obtained as a consequence of the infringement.
• The aggravating and extenuating circumstances that concur in relation to each of the responsible companies.
• The aggravating or mitigating circumstances that have occurred will also be taken into account.

Statute of limitations

Very serious infringements are subject to the statute of limitations after four years, serious infringements after two years and minor infringements after one year. The term shall be computed from the day on which the infringement was committed. In the case of continuous infringements, from the day on which they ceased.

The statute of limitations is interrupted:

• By any act of the Administration with formal knowledge of the interested party tending to compliance with the Law; and.
• By the acts carried out by the interested parties for the purpose of ensuring, complying with or executing the corresponding resolutions.

If this article has been of interest, we also suggest you to read the following article published on our website: The 10 steps of an acquisition (Mergers and Acquisitions).