SERGEY PUZYREVSKY: ADMINISTRATIVE PRESSURE IN THE M&A FIELD HAS DECREASED SIGNIFICANTLY

 Deputy Head of FASexplained economic and legal specifics of mergers and acquisitions

On 9 April, Deputy Head of FAS Sergey Puzyrevsky took part in the annual conference of “Kommersant” Publishing Housing on “M&A Theory and Practice”.

Under the Russian antimonopoly law, particular actions and transactions that can potentially result in restricting competition and monopolizing market are subject to agency’s control. Such control, applies, first of all, to mergers and acquisitions, in some cases – to establishing new legal entities if their registered capital is paid with stocks or shares of other companies.

Control also applies to some transactions related to acquiring stocks or part interest with regard to legal entities operating in the territory of the Russian Federation, and from 2014 – also to agreements on joint operations by companies–competitors.

According to Sergey Puzyrevsky, in the past 15 years the number of mergers subject to control by the antimonopoly authority has decreased considerably.

“At the beginning of the 2000s, around 50,000 mergers were subject to control; which either required pre-approvals from the antimonopoly body or post-merger notification. In 2019 only 1196 mergers were agreed by FAS. This dynamics shows that administrative pressure in the M&A field has reduced considerably. Now FAS controls only large mergers when companies’ assets exceed 7 billion RUB and the value of the acquired assets is more than 400 million RUB. In this case, mergers are subject to antimonopoly control”, pointed out Deputy Head of FAS.

Also, FAS nearly completely abolished merger notification. Earlier FAS had to even approve appointments of general directors in some cases; now this rule is removed from the antimonopoly law.

Sergey Puzyrevsky emphasized: “The antimonopoly law is built in such a way that it has a primarily cross-border nature, i.e., it does not matter where a merger takes place – in the Russian Federation or outside it. If it concerns establishing control over assets in the territory of the Russian Federation, such transactions are subject to antimonopoly control. Therefore, if it is a case of a foreign merger as a result of which control is established over a Russian legal entity, such merger should be approved in accord with the Russian law”.

Deputy Head of FAS explained that foreign companies also can be controlled by the antimonopoly authority if they supply goods to Russia for over 1 billion RUB in a year, preceding a merger or acquisition.

Mergers are considered promptly – in 30 calendar days, if necessary the deadline can be extended to 90 days. Having studied the documents, FAS makes one of the following decisions:

1. Approve a merger if as a result of it a company does not gain 35% of the market and the dominant position (majority of decisions);
2. Issue a warning related to observing particular rules in order to minimize possible adverse consequences for competition on the market;
3. Dismiss a merger in case of a threat of monopolizing the market.

The consequences of refusing to perform the merger approval procedures are quite serious: such mergers are recognized void and, in accord with the civil law, a new company can be reorganized or liquidated.

“Out of 1196 petitions filed in 2019, FAS issued 99 warnings (10%), and did not allow 40 mergers (4%)”, stated Sergey Puzyrevsky.

The Conference participants also discussed how exactly M&A are prepared and executed, and their sectoral, legal and economic specifics.