Spain: Merger Control

Marcos Araujo, Konstantin J Jörgens and Crisanto Pérez-Abad

Garrigues

Since 1 September 2007, merger control procedure in Spain has been governed by the new Antitrust Law (Ley de Defensa de la Competencia 15/2007, of 3 July, (LDC)), which replaced Ley de Defensa de la Competencia 16/1989 of 17 July. Royal Decree 261/2008, of 22 February implemented the LDC, also in relation to merger control matters.
The Spanish competition authority is the National Competition Commission (CNC). The CNC is composed of two parts, one investigative (the Investigation Directorate (DI), headed by a director), and the other decision-making (the Board, chaired by the CNC president). Both are supervised and coordinated by the president of the CNC. The president, the six members of the Board and the director of investigation are appointed for a non-renewable six-year term by the government, following a proposal made by the minister for economic and fiscal affairs.
The Board is responsible for deciding whether or not to clear concentrations. As explained in more detail below, the Council of Ministers only has the right to clear transactions that are blocked or made subject to conditions by the CNC, on the basis of public interest criteria other than purely antitrust considerations.

Mandatory notification

Concentrations that are not subject to mandatory filing pursuant to the EC Merger Regulation (ECMR) should be notified to the CNC if the thresholds specified in the new LDC are met.

Existence of a concentration

Concentrations are transactions that have a lasting effect on the structure of control of an undertaking or a part of an undertaking, namely: a merger between two or more formerly independent companies; the acquisition of control of the whole or part of one or more undertakings; and the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity.
Like EU legislation, control is defined as the possibility of exercising decisive influence over an undertaking. This could exist on the basis of rights, contracts or any other means, either separately or in combination.
Internal restructuring and reorganisations involving the mere redistribution of securities or assets between companies of the same group are not concentrations. The same applies to certain temporary holdings¹ and to acquisitions by an office-holder in relation to bankruptcy proceedings.

Thresholds

The LDC provides two sets of alternative thresholds for mandatory merger notification, based on turnover and market shares. A notification which is not subject to a mandatory EC filing is therefore required where:
• a share of 30 per cent of the national market, or of a defined geographical market within it, for a given product or service is acquired or increased as a result of the transaction; or
• the aggregate turnover in Spain of the companies involved in the transaction exceeded €240 million during the last financial year and the turnover in Spain of at least two of the parties exceeded €60 million.

The decision-making practice of the Spanish competition authorities confirms that, even if there is no overlap between the parties’ activities, the concentration should be notified if a market share exceeding the threshold is acquired through the activities of the target company. Foreign-to-foreign mergers might therefore also be subject to compulsory notification if the acquiring company has no activities in Spain and acquires a business with a Spanish market share above 30 per cent.
The CNC may be consulted for its opinion on whether a transaction exceeds the thresholds for mandatory filing, or whether a concentration within the meaning of the LDC exists. The consultation request, which is free of charge, should provide a description of the concentration and the parties involved. The LDC does not stipulate a time period within which the CNC will have to decide on a consultation request; in the past, a consultation could take between two and four weeks.
There is no deadline for filing transactions other than takeover bids. Public bids should be notified before five days have elapsed from the date of filing of the application for authorisation of the public bid with the National Stock Exchange Commission, unless they have been notified in advance.
Another exception to the absence of deadlines for filings exists where the CNC requests notification. The parties should then notify within 20 days of the CNC request. If a concentration has not been notified within the deadline, a fine of up to 1 per cent of annual turnover and periodic penalty payments of up to €12,000 per day until notification may be imposed.

Standstill obligation

Under the LDC, a concentration cannot be implemented until the CNC has given its approval. Provision is made for the possibility of derogating from the obligation to suspend the implementation of concentrations upon request at any time during the proceedings. In particular, the LDC allows for the implementation of a public bid, provided that the acquirer does not exercise the voting rights attached to the securities or does so only to maintain the full value of its investments.
The CNC may impose a fine of up to 5 per cent of the annual turnover of the infringing undertaking for implementing a merger agreement before the notification form has been submitted or before clearance is granted. A limitation period of two years is applied to this infringement. Under the former LDC, fines were imposed on a number of occasions (ACS/Dragados, Sacyr/Vallehermoso and Gas de Asturias/Gas de Figueres).

Procedural issues

Notifications in Spain are time-consuming and cumbersome, since the form is similar to that used by the EU. The documentation to be attached to the form should include a copy in Spanish of the final or most recent version of the documents bringing about the agreement, contract or acquisition of rights arising from the transaction; a copy of the management reports and annual financial statements of the undertakings participating in the operation and their parent companies for the last financial year; and, analyses, reports or studies considered of relevance. If the notification is made through representatives, their capacity to represent the notifying parties must be evidenced through a power of attorney, together with a translation by a sworn translator if the power of attorney is in a language other than Spanish. A notarised power of attorney is no longer required.²
The LDC allows the parties to file an abbreviated form in cases where:
• none of the parties is active in the same geographic and relevant product market (horizontal relationship), or in a market that is upstream or downstream from a product market in which any party to the concentration has a presence (vertical relationship);
• the activities of the parties in the relevant markets are not significant. Royal Decree 261 considers that this would be the case if the parties’ market shares are below certain thresholds;
• a party is to acquire sole control of an undertaking over which it already has joint control; or
• regarding joint ventures, in cases where the joint venture is not active in Spain and the parties do not intend it to be active in Spain, or where its activities in Spain are of only marginal importance.

Unlike the European Commission, whose authorisation decision in a simplified procedure is limited to a very brief description of the parties, the CNC continues to publish its assessment of the case filed on the short form. It is also for this reason that the CNC may ask the parties for additional information during the process. The fact that a report will be issued also requires the parties to submit a request for confidentiality in the same way as in the context of the ordinary notification procedure.
In situations where the requirements for an abbreviated form are met, the CNC may still request that the parties file a complete form if this is necessary to assess the competitive impact of the transaction. In this case, the time period will start afresh from the submission of the full form. Like EU filings, parties are expected to resort to pre-notifications contacts with the CNC not only before an abbreviated form is filed. This pre-notification phase may take 5 to 10 days depending on the complexity of the case and has also proved to be beneficial for the parties, giving them the possibility of clarifying issues before the actual filing.

Merger decisions

The Board decides both first and second-phase investigations based on competition law criteria. The test for the assessment is whether there is ‘a substantial lessening of competition’. The Council of Ministers may only intervene in very limited cases (ie, only if the Board prohibits the merger or imposes conditions or commitments) pursuant to general interest criteria (see below).

Phase I and Phase II

If the operation does not raise competition concerns, the Board may authorise it without adopting an express decision within one month (first phase), on the basis of a report prepared by the DI. The Board can also authorise the transaction through a formal decision.
In turn, if the Board has doubts about the concentration because it may impede effective competition in the Spanish market, the DI report may make first-phase approval conditional on commitments proposed by the parties. The DIA/PLUS merger was the first time that the CNC Council has resolved a merger file in the first phase, accepting the commitments proposed by the notifying firm.
In this case and in many other cases over the last year, the CNC made use of its extended powers to suspend the maximum time periods to resolve merger cases. Under article 37.1(b) of the LDC, the maximum periods for resolving a case may be suspended ‘when third parties or other public entities must be requested to disclose documents and other matters needed to decide the case.’ Applying this provision, in DIA/PLUS the DI requested a non-binding report from the Directorate General of Commercial Policy, thus suspending the maximum time period.
By the same token, the mandatory involvement of sectoral regulators may also result in delays even in those cases which a priori would not give rise to competition problems. Under the LDC, the CNC must ask the sectoral regulators to issue the corresponding non-binding report where the parties to the merger carry out activities in the sector of its competence. This may result in suspension of up to three months. Since the notion of sectoral regulators is not defined, the application of this provision continues to create confusion.
Additionally, in the first phase, the CNC now often carries out market tests involving the parties’ customers and suppliers and this is not limited to market testing any commitments the parties may have submitted. As a result, there is a significant number of cases in which the time periods have been suspended (third parties may respond in a period of up to 10 days). For these reasons, notifying parties should therefore bear in mind that there is often a risk that the first phase will last more than one month, even in relatively straightforward cases.
If the Board considers that, despite the commitments proposed (if any), the transaction may still impede competition, it will open second-phase proceedings. The DI will issue a succinct report describing the competition issues, which will then be made public to interested parties for their comments.³ At the request of the notifying parties, an oral hearing will be held before the Board. If it is still thought that the concentration could impede competition, the DI will issue a statement of objections, which is notified to the interested parties, who may make submissions. The DI will deliver its final proposal to the Board, on the basis of which the latter will adopt its decision. After a two-month period, the Board may authorise the concentration (expressly or implicitly), authorise it subject to commitments, or prohibit it by express decision.
In the case of a prohibition or second-phase approval subject to commitments, the Ministry of Economic and Fiscal Affairs has 15 days to refer the concentration to the Council of Ministers. If referred, the Council of Ministers has one month to adopt its final ruling. If neither the Ministry nor the government reaches a decision within these respective periods, the Board’s decision becomes final.
In the event that the case is referred to the Council of Ministers, it may adopt an express final decision confirming the Board’s decision prohibiting the concentration, or authorising the concentration, with or without conditions. The latter should be based on an open set of public-interest criteria (different from competition-related criteria). These would include the following:
• defence and national security;
• protection of public health or security;
• free movement of goods and services within the national territory;
• environmental protection; and
• promotion of research and technological development.

Before the LDC entered into force, there was much discussion about how the residual powers of the Council of Ministers would be used in the future. As a matter of fact, to date there has been no second-phase decision under the new LDC. This may suggest that, in practice, the possibility of a referral to the Council of Ministers is of even more limited relevance. It seems to be a fair assumption that there will not be many second-phase cases that will ultimately qualify for a referral.
As regards prohibition decisions or conditional clearances, the Board has wide-ranging powers to order any appropriate measures to restore effective competition, including divestiture. If the final decision is not complied with, fines of up to 10 per cent of the Spanish turnover of undertakings involved may be imposed. Periodic penalty payments of up to €12,000 can also be imposed per day of delay in failing to comply with any decision of the CNC or the Council of Ministers.

Remedies

The parties may submit commitments both during first- and second-phase merger proceedings. This brings Spanish legislation into line with the ECMR, as it allows parties to propose commitments capable of removing competition concerns both in the context of first-phase and second-phase proceedings. The proposal of commitments by the merging parties will lead to clearance deadlines being extended (by 10 and 15 days in the first and second phase, respectively) and may be market-tested with third parties in order to ensure that the remedies proposed dispel the competition concerns raised by the authorities.

Notes

1 The exceptions are broadly similar to article 3(5), (a) and (c), of the ECMR.
2 In addition, the notifying party or parties must pay filing fees which currently range from €3,005 to €60,000 depending on the aggregate turnover in Spain of the parties to the transaction. The simplified form fee is limited to €1,500.
3 At the end of Phase I, the CNC may also decide to refer the case to the European Commission under article 22 of the ECMR.

An extract from The European Antitrust Review 2009