This article is written by Aarushi Seth pursuing a Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho.
Mergers and acquisitions are responsible for significant changes in the internal management of the concerned entities, but they might also pose a threat to the economic stability of a country by sabotaging competition and creating a monopoly in the market. To avoid this possibility, an increasing number of countries have started adopting competition laws to ensure a system of checks & balances on the prospective merger of the concerned entities. An upward trend of mergers in recent years has led several countries to adopt and constantly amend merger control regimes. This article studies the merger control regime of one such country, namely, Portugal, which, according to reports, witnessed a 15% surge in M&A transactions in the past year.
Understanding merger control
In any market, competition helps to ensure price stability and product diversity to the consumers and mergers tend to restrict such competition in that market. Merger control regimes, therefore, scan the corporate mergers and acquisitions for any breach in the competition or anti-trust laws of the country. It is essentially a pro-competition regime that seeks to prevent the businesses from creating a monopoly in the market by way of a merger.
Merger control regimes can either be mandatory or voluntary. Mandatory Merger Control Regime requires that the parties compulsorily submit the deal to the authorities for review if the transaction crosses a prescribed threshold. The parties to the transaction are prohibited from closing the deal until they obtain a merger clearance. The majority of the countries and organizations, including The European Union Merger Control, have adopted this form of merger control regime. Voluntary Merger Control Regime, on the contrary, allows the parties to the transaction to close the deal even before obtaining merger clearance. The UK is amongst a handful of countries which has adopted a voluntary form of merger control regime.
Portuguese Merger Control Regime: a summary
- Regulatory Framework and Regulatory Authority
The Competition law in Portugal is guided by the new Competition Act (Law 19/2012 of 8 May 2012), which came into force on 7th July 2012, thus revoking the earlier and the principal piece of the legislature regarding merger control in Portugal. This was done in furtherance of one of the reforms in the Troika Memorandum of Understanding, the purpose of which was to bring Portugal’s regime in line with that of the European Union Merger Control Regime. However, in addition to the Competition Act, merger control in Portugal is also governed by – The Statutes of PCA (Portuguese Competition Authority), Regulation 60/2013, regarding notification norms, Regulation 1/E/2003, for the filing fees for merger control, and by Regulation 823/2016, on payment of fees for other services provided.
Autoridade da Concorrencia, widely recognized as the Portuguese Competition Authority, was set up in 2003. It is an autonomous body that is responsible for enforcing and regulating the merger control regime in Portugal.
The Competition Act extends the jurisdiction of PCA to ‘concentrations’ which are formed on the Portuguese territory or which are likely to impact its economy, and which trigger the events specified in Article 37(1) of the Competition Act. The Competition Act, through Article 36, also clearly delineates the ambit of ‘concentrations’ which are subject to merger control review by the competition authorities. Essentially, only the following concentrations are recognized by the Competition Act –
- The merger between two or more independent undertakings,
- The acquisition of any undertaking by a dominant undertaking, by acquiring either a majority of the share capital or the assets of that undertaking, or
- An independent joint venture.
However, the concept of concentration mainly revolves around the ‘change of control on a lasting basis.’ This means that only those mergers or acquisitions or joint ventures qualify as a concentration, the formation of which results in a ‘change of control’ in the whole or any part of the concerned undertakings. While the Competition Act defines ‘control’ under Article 36(3), it is important to note that the Portuguese Parliament borrowed this definition from the European Merger Control Regulation. ‘Control’ primarily suggests a sole or joint exercise of decisive influence over the activity of an undertaking.
- Triggering events/thresholds
The Competition Act requires a mandatory notification from the concentrations which trigger one of the three alternative thresholds:
- Turnover threshold – A concentration has to mandatorily notify the authorities if the aggregate turnover of the undertakings concerned, after the deduction of taxes directly related to such turnover, exceeds €100 million in the preceding financial year, provided the individual turnover of at least two of the undertakings concerned exceeds €5 million in Portugal.
- Market share threshold – A mandatory notification is required from a concentration if it results in the acquisition, creation, or reinforcement of a market share of more than 50% of the domestic market in a particular product or a substantial part of it.
- De minimis market share threshold – If as an outcome of the concentration, a market share between 30% and 50% of the domestic market in a specific product or a substantial part of it is acquired, created, or reinforced and if the individual turnover of at least two of the undertakings concerned, after the deduction of taxes directly related to such turnover, exceeds €5 million in the preceding financial year in Portugal, then the concentration is subject to mandatory notification.
The concentrations may also voluntarily notify the Competition Authority if the parties concerned express a ‘serious intention’ to conclude an agreement, or where a public offer of acquisition is involved, the parties concerned publicly announce their intention to make such an offer.
- Suspension of the concentration
The Competition Act specifies that the implementation of a concentration subject to a mandatory notification is suspended until a non-opposition decision is issued by the Competition Authority. However, Articles 40(2) and 40(3) mentions two exceptions to this standstill provision –
- The implementation of a public bid will not be suspended if it has been notified to the PCA, provided the acquirer agrees not to exercise the voting rights acquired, and
- Subject to a reasoned request by the concerned parties to the Competition Authority, either before or after the notification, the Competition Authority may allow the implementation of the concentration after weighing the consequences of such exemption.
- The procedure starts with the parties submitting a notification to the Competition Authority. However, the new Competition Act does not prescribe any time limit within which the parties are required to comply with this provision.
- The notification submitted must be according to the form approved by the PCA under Regulation 60/2013 along with the proof of payment of filing fees and shall contain all the essential information and documents requested by the PCA. The notification becomes effective after compliance with the aforementioned provision.
- After receiving the notification from the parties concerned, the PCA shall publish the essential elements of the concentration in two national newspapers within five (5) working days, inviting the persons legally interested in or who may be affected by the implementation of the concentration to submit their observations within ten (10) working days from the date of the publication.
- Proceedings must be concluded by the Competition Authority within thirty (30) working days from the effective date of the notification. During this period, PCA may request additional documents or information from the notifying parties. Even the notifying parties are given an option to submit commitments for maintaining effective competition in the market.
- The deadlines concerning the conclusion of proceedings are suspended every time PCA requests additional information or documents. The submission of commitments also pushes the deadline up to twenty (20) working days.
- If after the preliminary proceedings the PCA finds ‘serious concerns’, it has to open an in-depth investigation, which must be concluded within ninety (90) working days from the effective date of the notification. However, upon a reasoned request by the notifying parties, the authorities may extend the deadline up to twenty (20) working days. It is also imperative to note that the suspension of deadline upon a request for additional information or submission of commitments applies to this phase of proceedings as well.
- The notifying parties have a right to be heard, both in the preliminary and in the in-depth investigation stages, before any decision is taken by the Competition Authority.
- If the concentration falls within the domain of sectoral regulations, then it becomes the duty of the Competition Authority to seek an opinion of the sectoral regulatory authority before reaching a final decision.
- The PCA enjoys the authority of initiating ex-officio proceedings if it comes to its notice that any concentration in the preceding 5 years has been implemented without submitting a notification to the Competition Authority.
- The aggrieved parties may prefer an appeal against any decision issued by the PCA to the new Competition, Regulation, and Supervision Courts. The decisions of the Competition, Regulation, and Supervision Courts may be appealed against in the Appeals Court of Evora.
- An extraordinary appeal, as is given under the Statues of PCA, may be preferred by the parties aggrieved, against the decision of the PCA prohibiting a concentration, to the Minister for Economy, who may authorize the implementation of such concentration if, in his opinion, the national economic interests outweigh the negative effects of such concentration to competition.
- Filing fees
The Competition Act makes the payment of filing fees compulsory for the notification to become effective. It is important to note that even though the Competition Act remains silent with this respect, Regulation 1/E/2003 specifies the number of filing fees to be paid by the notifying parties. The principal factor which determines the amount of fee is the aggregate turnover in Portugal of the undertakings concerned. Based on the turnover, the notifying parties are required to pay one of the following amounts –
- €7,500 for an aggregate turnover of up to €150 million,
- €15,000 for an aggregate turnover between €150 million – €300 million,
- €25,000 for an aggregate turnover above €300 million.
An additional fee equaling 50% of the basic fee is imposed if the proceedings reach the in-depth investigation stage. Interestingly, the filing fee is doubled up in case of the initiation of ex-officio proceedings or when the Competition Authority concludes that the clearance was obtained through false information.
The Competition Act identifies all the infringements of the regulations of merger control as administrative offenses. It explicitly provides the penalties which will be imposed on the parties and concentrations acting in contravention of the law. Broadly, the following penalties are laid down –
- If any concentration is implemented without submitting a mandatory notification, or where the notification has been submitted, without being issued a non-opposition decision by the Competition Authority, then a maximum fine of 10% of the aggregate turnover of the undertakings concerned in the year immediately preceding the final decision of the Competition Authority will be imposed on the notifying parties.
- Additionally, the notifying parties may be personally made liable by way of a fine of up to 10% of their annual income derived from the concentration in the last year.
- If the notifying parties obtain the clearance from the Competition Authority, by providing any false, inaccurate, or incomplete information, then they will be liable to a fine of up to 1% of the aggregate turnover of the undertakings concerned in the year immediately preceding the final decision of the Competition Authority.
- Furthermore, the implementation made in contravention of any measure provided under the Competition Act will be invalid.
Recent examples of concentrations under review
- Acquisition of Grupo Fundão by Transdev Group
In February 2020 PCA opened an in-depth investigation after uncovering serious concerns about the proposed transaction between Transdev Group and Grupo Fundão, following which PCA, bearing in mind the dominance of both Grupo Fundão and Transdev Group in the central Portugal region, prohibited the acquisition by arriving at the conclusion that the particular concentration will adversely impact the competition in the future transport services.
2. Acquisition of Hospital de S. Gonçalo de Lagos S.A by Hospital Particular do Algarve
The Portuguese Competition Authority imposed a penalty of €1,55,000 on Hospital Particular do Algarve as it failed to mandatorily notify the acquisition of Hospital de S. Gonçalo de Lagos S.A. even after crossing the market share threshold. However, PCA later cleared the acquisition after it was ultimately notified to the authorities.
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