Merger Control

1. Merger Control

2. � 2012 Baker & McKenzie 2 Summary Global merger control � a snapshot 4 steps of merger control Recent developments in EU merger control Minority stakes and intra-group transfers

3. � 2012 Baker & McKenzie 3 Global merger control � a snapshot What is it? Merger control is the process by which certain transactions are notified to one or more competition authorities for clearance, i.e.: will the specific deal raise competition concerns? Why do I need to know? Most corporate transactions, e.g. M&As, JVs, amalgamations and even minority shareholdings and intra-group transfers can trigger merger control Where do I file? Transactions can trigger a merger notification in many countries � now more than 80 regimes worldwide! How do I file? Submit a merger notification form setting out details of the deal, the parties, the markets, any overlaps and competitive issues When do I file? Usually need to file soon after binding deal is signed

4. � 2012 Baker & McKenzie 4 Global Merger Control: State of Play

5. � 2012 Baker & McKenzie 5 Merger control � 4 main steps Step 1: Identify countries in which a filing is triggered In general, filing usually required in countries where both parties have significant sales or assets or market shares but some countries have low thresholds (e.g. Austria, Germany, Ukraine) Step 2: Consider your filing strategy In most countries, you will need to file but in some cases you may take a business decision not to file, e.g. if filing voluntary or if target has no sales Step 3: Consider timing implications When do you need to file by and how long is the review period? Are there any other time constraints, e.g. public takeover rules? Draft the transaction documents with appropriate conditions precedent Step 4: Consider substantive issues In reality, you would consider this issue early on� Is the deal do-able, i.e., are there significant overlaps between the parties, e.g. high combined market shares, or not? Any other competition concerns?

6. � 2012 Baker & McKenzie 6 Step 1 � Where do I need to file? Be aware of the different types of regimes: Mandatory � if thresholds are met, parties are legally obliged to notify the deal and deal cannot complete without clearance, e.g., China, India, EU, USA Voluntary � there is no legal obligation to notify and a deal can be completed without filing but parties run the risk of an investigation or a blocked deal post-closing, e.g., Australia, UK Suspensory � most merger control regimes are suspensory, i.e., a deal must be �suspended� and cannot be completed until clearance is obtained ? transaction timing becomes crucial

7. � 2012 Baker & McKenzie 7 Step 1 - Where do I need to file? - Thresholds Does the deal meet the thresholds? Your external lawyers carry out a multi-jurisdictional assessment using both parties� turnover on a country-by-country basis as a starting point Thresholds usually based on one or more of the following: Turnover � e.g. global and domestic turnover thresholds (India, EU) Market share - based on market definition in that country (Spain) Asset value: based on value of assets owned (South Africa, India) Deal value: based on value of the deal (USA, Canada, Mexico) Key Issues Some countries have very low thresholds (e.g. if one party makes �1m of sales in Ukraine, a filing is triggered) Thresholds can be triggered by just one party (e.g. Nigeria, Egypt) Filing can be triggered where target has low/no presence (e.g. Russia) Are there exemptions that could apply? (USA, India)

8. � 2012 Baker & McKenzie 8 Step 2 � Filing strategy - should I file? In nearly all countries with a mandatory merger regime, if a merger notification is triggered, parties will be advised to file However, in some countries, filing may be triggered where the target has little presence � some companies may want to take a business decision not to file In some countries where thresholds are very low or can be met by just one party alone, the competition authority has taken a sensible approach to enforcement and developed a practice to filter out deals which have no impact: Tunisia � competition authority states no filing required unless both companies have branches in Tunisia Nigeria � practice shows that competition authority does not apply the merger control rules to foreign deals and local counsels advise that filing is only required where a Nigerian company is involved Kazakhstan � guidance from competition authority states no filing required where target has no physical presence or low turnover or market share Tip: even if the law / rules suggest that a deal is notifiable, it is worth checking with local counsel / the competition authority, in case a practice has developed

9. � 2012 Baker & McKenzie 9 Step 2 � Filing strategy � should I file? For each country, consider these factors in your strategic assessment: Penalties for not filing? Fines, unwinding of the deal - does the competition authority actively police deals / enforce fines for not filing? Is the regime suspensory, i.e. can the deal close without obtaining clearance (e.g. Argentina, Brazil) or not? Parties� turnover in the country? If it is low or even zero, this may encourage a business decision not to file Parties� physical presence in the country? Is there a subsidiary, a branch office or only warehouses? Typical timeframe for clearance? If clearance usually quick, parties may be more inclined to file than take the risk of not filing (e.g. India) Political issues? Do parties have ongoing relationships with government agencies, e.g. re telecoms licensing? Is country of strategic importance to you so you need to keep government on your side? Risk of complaints? Are competitors or customers in that country likely to notify the authority with a complaint if a filing is not made?

10. � 2012 Baker & McKenzie 10 Step 3 � Consider timing implications Timing and a delay to the deal timetable is often the biggest concern when it comes to merger control (e.g. debate about India�s �210 day" clearance period) Some countries have a short deadline for submitting a filing, e.g. Brazil (15 days from signing first binding agreement) Phase 1 and Phase 2 � Phase 1 typically 30-45 days; phase 2 can be 6 months or more In practice, timing varies on a country-by-country basis because of backlog, resources, staffing issues Argentina - officially within 45 days but in practice 6 months � 2 years; Brazil, usually 2 � 6 months from filing; India, made impressive start on timing How can you reduce risks of delay? Provide a complete filing, provide robust market definition, anticipate questions/issues by authorities, consider pre-filing discussions (if possible), avoid filing in holiday periods Competition authorities can and do �stop the clock� by asking questions � this can add on time to the clearance period (we have seen it used to buy more time!)

11. � 2012 Baker & McKenzie 11 Step 4 � Snapshot of a substantive competition analysis Step 1: Define the market Competition authority will review your economic evidence � if it is reliable and robust, this could persuade the competition authority This is crucial in a merger control assessment - if you can show there is a broad market (as a rule), market shares will be lower and so less concern Step 2: Market shares The higher the combined market shares, the more problematic the deal In the EU, horizontal deals with 15% market share and vertical deals with 25% market share are unlikely to raise issues and are cleared in phase 1 Step 3: Other factors in the market Barriers to entry Strength of competitors Customer buyer power Step 4: Are remedies required? If there are concerns, commitments such as divestments may be required

12. � 2012 Baker & McKenzie 12 Step 4 - Substantive analysis � key tips Competition authority will request all board presentations, internal reports created for the deal - so avoid sensitive topics such as market shares, dominance, motives! Avoid making any statement on market definition in public, e.g. on websites, in corporate materials Consider preparing a robust market definition assessment early on, especially if market shares likely to be high, may need economist input Distribute guidelines to your business people in relation to document creation and internal/external communication Consider pre-filing discussions (if possible)

13. � 2012 Baker & McKenzie 13 Overview of recent EU mergers In 2011, 328 deals notified to the European Commission (�Commission�) In total, Commission has blocked 21 deals out of 4,500 final decisions Commission prepared to clear deals at Phase II even with high market shares Votorantim / Fischer / JV: orange juice - although they were market leaders with only 2 competitors, deal cleared due to spare capacity and easy access to oranges UPM / Myllykoski / Rhein paper: paper - although high market share in satin-finish paper for magazines, deal cleared due to spare capacity and competition from neighboring segments In June 2007, blocked Ryanair/Aer Lingus - merger would lead to dramatically reduced choice for consumers, likelihood of lower quality and higher fares In January 2011, blocked Aegean Airlines/Olympic Air � merger would result in a quasi-monopoly on Greek air transport market (9 routes to/from Athens), higher fares and no realistic prospect that a new airline would enter the routes and restrain the merged entity�s pricing

14. � 2012 Baker & McKenzie 14 Minority stakes and intra-group transfers Minority stakes can trigger filings / potential review in a number of countries even if there is no control, e.g. Australia, Germany, India and the UK In some countries, minority stakes will only trigger a filing where there is an acquisition of control, e.g. the EU, but EU considering �plugging the gap� Purely intra-group transfers (i.e., mergers of two wholly-owned subsidiaries) are not usually caught by merger control as there is no ultimate change of control between two separate undertakings 2007 ICN Report on Defining �Merger� Transactions for Purposes of Merger Review ��merger review statutes and regulations are directed at business transactions in which two or more previously independent economic undertakings are combined in some fashion that involves a lasting change in the structure or ownership of one or more undertakings concerned� restructurings or reorganizations that occur within the same group are typically not subject to merger review� Contrast with the CCI�s recent literal interpretation of the exemption for intra- group transfers (Alstom, Tata Chemicals)

15. Merger Control