Determinations on economic concentration: Russian and European experience

On 19 December 2014, the Federal Antimonopoly Service (FAS Russia) and Non-Profit Partnership for Competition Support in the CIS organized a Round Table in Moscow regarding “Determinations on Economic Concentration Transactions”.

The Round Table focused on structural and conduct requirements in the practice of foreign competition authorities. Attendees included representatives of Russian associations of legal practitioners: Non-Profit Partnership for Competition Support in the CIS, Non-Profit Partnership for Competition Support, the “Corporate Counsel Association” Non-Profit Partnership as well as representatives of competition authorities from other countries, the CIS Executive Committee and the Eurasian Economic Commission.

Deputy Head of FAS Anatoly Golomolzin and the Head of FAS Analytical Department Alexei Sushkevich discussed the practice of issuing determinations by the Federal Antimonopoly Service. The objective of Russian antimonopoly authority in economic concentration enforcement is to prevent restricting competition. As Anatoly Golomolzin pointed out, the percentage of petitions that are not granted is rather small - just 1%. Only those transactions are not approved that can lead to restricted competition, particularly, due to emerging or strengthening dominance of large companies on the market.

Making decisions on antimonopoly cases the antimonopoly authority conducts ex-post market analysis; while to make a decision on economic concentration, FAS carries out ex-ante economic analysis. “It is also necessary to take into account whether the situation on the market, and the market structure would change”, emphasized Anatoly Golomolzin.

Determinations and conditions play a considerable role in economic concentration control. Alexei Sushkevich explained the difference. Conditions are a list of requirements set by the antimonopoly body. If a company meets all requirements, FAS approves a merger.

Determinations are issued along with decisions on petitions. According to Alexei Sushkevich, “any determination includes a requirement to inform the antimonopoly authority about completing a petitioned transaction, changing prices, buying-and-selling conditions, members of the group of persons involved in a transaction, particular transactions with shares (stock) of economic entities. FAS may also obligate merger participants to sell assets; devise, coordinate and approve their “sales (or trading) policy) and follow it selling the goods; offer goods to all buyers under equal conditions; continue production and sales of the goods; maintain production capacity; sell some of the goods through an exchange or even do not complete an earlier approved merger.

“Russian antimonopoly authority also can change a determination in the course of its execution, mainly the time-frame”, added Alexei Sushkevich.

Claire Jeffs, a partner with “Slaughter and May”, talked about the practice of issuing determinations in the European Union. Negative effects of horizontal economic concentration include unilateral effects (a considerable increase of market power of the parties as a result of a merger; possibility by the parties to weaken competition regardless of the actions by other market players) and concerted actions (a significant easement of coordination between all market participants; possibility of “latent collusions” in the industry leading to increased prices).

The European Commission presents a new view on possible problems to the parties at working meetings. The parties also have a possibility to give explanations with regard to the main difficulties and devise their own variants of determinations (the main requirement at the first stage is to eliminate combining different fields of activities by alienating some business of one of the parties in the controversial sector). The Commission discusses the proposed determinations during consultations with consumers / competitors.

The key role in supporting cooperation between the European Commission, a manager of a standalone enterprise and the merger parties is played by a trustee who is responsible for enforcing compliance with the obligations for separate possession and providing a sound estimate whether a buyer (buyers) meet(s) the requirements. A trustee also must see that the alienation procedures take place in accordance with the undertaken obligations.

The European Commission gives around six months to complete a transaction since the date of making a decision. When the deadline is expanded, there is a danger that a trustee may sell assets (shares) at a different price.

An economic expert of RBB Economics, Vitaly Pruzhansky, outlined the main principles of horizontal economic concentration. “In practice the threat of unilateral effects emerges more frequently than coordinated effects”, stated Vitaly Pruzhansky. Out of 100 cases around 80% concern unilateral effects.

Adverse merger consequences are corrected by the antimonopoly authority issuing structural and conduct determinations. Structural determinations are designed to alienate tangible and intangible assets (product lines, intellectual property rights) or exit from a joint venture. Conduct requirements limit possible actions of market players. For instance, if there is an intention to change prices, it must be justified.

According to Vitaly Pruzhansky, structural determinations in horizontal mergers have numerous pluses in comparison with the conduct ones: they neutralize not only a possibility but the incentives to weaken competition by the parties upon completing a transaction. Also there is no need for long-term control by the antimonopoly authority.

Concluding the Round Table, in line with the European practices Vladimir Rudomino suggested to form a Working Group that shall comprise representatives of the Federal Antimonopoly Service and Non-Profit Partnership for Competition Support in the CIS to devise proposals on formalizing the procedures for factoring in the opinions of the merger parties in the course of considering it by the antimonopoly authority. In his opinion, business-community should take place in devising determinations like it is organized in Europe. Deputy Head of FAS Anatoly Golomolzin supported the idea of creating a Working Group and invited the competition authority of the Kyrgyz Republic (its representatives were present at the Round Table) and the antimonopoly authorities of other CIS member-states to join the discussions on the issue.