1 Relevant Authorities and Legislation
1.1 Who is/are the relevant merger authority(ies)?
The relevant merger authority is the Hungarian Competition Office (Gazdasagi Versenyhivatal "GVH", website: www.gvh.hu ) and its decision-making body, the Competition Council. The GVH is a state administrative authority that is independent from the Government and only reports to the Hungarian Parliament. Decisions of the GVH may be challenged before the Metropolitan Court of Budapest ("Fővarosi Birosag").
1.2 What is the merger legislation?
The relevant merger legislation is the Hungarian Competition Act (Act LVII of 1996 on the Prohibition of Unfair and Restrictive Market Practices, "Competition Act") in particular part I chapter 6. The Competition Act sets out both substantive and procedural rules of merger proceedings. As the GVH is part of the public administration, Act CXL of 2004 on the General Rules of Administrative Proceedings and Services is applicable to the GVH's procedure when the Competition Act does not contain special provisions regarding the issue in question.
In addition, there are relevant guidelines (including so-called "position statements") and notices of the GVH such as "differentiating between concentrations subject to authorisation in simplified or full procedure" or notice on "conditions and obligations in merger clearance decisions".
1.3 Is there any other relevant legislation for foreign mergers?
There is no other relevant legislation for foreign mergers. The Competition Act applies to any transaction that meets the stipulated turnover thresholds.
1.4 Is there any other relevant legislation for mergers in particular sectors?
Sectors regulated by specific legislation include the financial, media and telecommunication, energy (electricity and gas industries), pharmaceutical and railroad transport sectors.
Merger rules for these particular sectors are partly contained in the Competition Act and partly in the sector specific regulatory acts (i.e. Act CXII of 1996 on Credit Institutions and Financial Enterprises, Act LXXXVI of 2007 on Electric Energy, Act C of 2003 on Electronic Communications, Act XL of 2008 on Natural Gas Supply). In case of a merger of financial institutions - in addition to obtaining authorisation from the GVH, if necessary - a special approval from the Hungarian Financial Supervisory Authority ("PSZAF") is required. Also, in other sectors (e.g. energy, railroad-transportation) the approval by the respective authorities (for example the Hungarian Energy Office, Hungarian Railway Office) is required in addition to the GVH's authorisation.
In August 2011 a new concept related to "key business entities for the national economy" (providing essential national public service or services of general economic interest, in the following: "key business entity") was introduced to the Competition Act. Acquiring control in a liquidation proceeding over a key business entity involves e.g. different rules for the submission obligation, or different control rights, as well as different procedural deadlines. Please see also the answer to questions 3.1, 3.6 and 3.7 for details.
2 Transactions Caught by Merger Control Legislation
2.1 Which types of transaction are caught – in particular, how is the concept of "control" defined?
According to the Competition Act, a concentration occurs when:
- two or more previously independent undertakings merge; one or more persons already controlling at least one undertaking, or
- one or more undertakings acquire, whether by purchase of shares/securities or assets, by contract or by any other means, direct or indirect control of the whole or parts of one or more other undertakings; or
- two or more undertakings create a joint venture performing on a lasting basis all the functions of an autonomous economic entity.
Control shall be constituted by rights, contracts or any other means which, either separately or in combination, confer the possibly of exercising decisive influence over an undertaking, in particular by way of:
a) holding over 50% of the shares, stocks or voting rights in the controlled company;
b) having the power to designate, appoint or dismiss the majority of the executive officers of the other company;
c) having the power, by contract, to assert major influence over the decisions of the other company; and
d) acquiring the ability to assert major influence over the decisions of the other company (de facto control).
2.2 Can the acquisition of a minority shareholding amount to a "merger"?
The acquisition of a minority shareholding amounts to a merger only if it confers (sole or joint) control over the target undertaking.
2.3 Are joint ventures subject to merger control?
A joint venture which is capable of performing all the functions of an autonomous business entity on a permanent basis (full function joint venture) is subject to merger control, except if the joint venture has as its object or effect the co-ordination of the activities of the joint venture partners. Such coordinative joint ventures must be assessed against cartel provisions.
2.4 What are the jurisdictional thresholds for application of merger control?
A merger must be notified to GVH if:
- the total net group turnover of the undertakings concerned exceeded HUF 15 billion (approximately €54 million) in the previous business year; and
- there are at least two undertakings concerned whose total group turnover in the preceding business exceeded HUF 500 million (approximately €1.8 million) each.
Please note that for the purpose of calculating the turnover thresholds:
- Intra group revenues must be disregarded. The notion of "intra group" refers to revenues from sales within the group of one undertaking concerned, and also to revenues from sales between the groups of undertakings concerned.
- In the case of foreign undertakings only the net sales revenues generated from the goods sold or services rendered in Hungary are to be taken into account.
- Special rules apply for the calculation of turnover for financial institutions and insurance companies.
- For the purposes of calculating the HUF 500 million threshold, turnovers of undertakings that were acquired from the same group within two years preceding the acquisition of control by the acquirer group must also be considered, even if such acquisitions were at that time not subject to notification.
2.5 Does merger control apply in the absence of a substantive overlap?
Yes, all concentrations must be notified to the GVH if the relevant thresholds are met.
2.6 In what circumstances is it likely that transactions between parties outside Hungary ("foreign to foreign" transactions) would be caught by your merger control legislation?
All foreign to foreign transactions that meet the turnover thresholds have to be notified. In order to avoid having to notify too many transactions without actual relevance for the Hungarian market, the Competition Act uses a special method for calculating turnover thresholds for foreign undertakings whereby only Hungarian turnover of undertakings established outside Hungary must be considered, please see question 2.4 above.
2.7 Please describe any mechanisms whereby the operation of the jurisdictional thresholds may be overridden by other provisions.
Temporary acquisitions of control for less than one year by insurance undertakings, financial institutions, investment companies or property managing organisations do not have to be notified, if the purpose of the acquisition was resale and if the exercise of control is limited to the extent to what is absolutely indispensable. The period of one year may be extended upon request, if the undertaking can prove that it was not possible to divest within one year.
Moreover, the GVH has generally no competence to assess transactions that have a Community Dimension pursuant to the European Merger Regulation ("EUMR").
2.8 Where a merger takes place in stages, what principles are applied in order to identify whether the various stages constitute a single transaction or a series of transactions?
The principles are similar to the ones under the EUMR: if the steps together constitute an economically linked (single) transaction, only one "joint" filing is necessary.
3 Notification and its Impact on the Transaction Timetable
3.1 Where the jurisdictional thresholds are met, is notification compulsory and is there a deadline for notification?
If the thresholds and other requirements of the Competition Act are met, a filing for an authorisation of the GVH is compulsory (except for transactions with a Community Dimension, see question 2.7 above).
The applicant(s) must notify the GVH of the transaction within 30 calendar days from the occurrence of the first of the following events:
- the publication of the invitation to tender;
- the conclusion of the binding contract; or
- the acquisition of the controlling right, where control is acquired through other means.
If control is acquired over a key business entity during the liquidation proceeding, the application for the authorisation for such control has to be submitted to the GVH within 15 days from the date of the earliest of the above.
3.2 Please describe any exceptions where, even though the jurisdictional thresholds are met, clearance is not required.
Please see the answer to question 2.7.
3.3 Where a merger technically requires notification and clearance, what are the risks of not filing? Are there any formal sanctions?
Failure to notify a transaction within the 30-day deadline may lead to daily fines of up to HUF 200,000 (approximately €714), with no maximum for the total fine.
The Competition Act does not contain an explicit suspension clause, i.e. that the implementation of a transaction prior to closing is forbidden (please see also question 3.7).
3.4 Is it possible to carve out local completion of a merger to avoid delaying global completion?
In the absence of a suspension clause, there is no express requirement for a "hold separate" solution. Therefore, carving out local completion may not be needed. For possible risks of closing before clearance, please see question 3.7.
3.5 At what stage in the transaction timetable can the notification be filed?
A notification may be filed as soon as (but not earlier than) the transaction agreements have been signed, the public bid announced or the controlling interest acquired. Unlike under European law, prior notification (e.g. on the basis of a good faith intention to conclude an agreement) is not permitted under Hungarian law. No formal procedure is available during which an unsigned contract could be pre-reviewed and evaluated by the GVH. As a result of a recent amendment to the merger control system a new guidance on pre-notification contacts was issued, detailing the informal rules and practice of the GVH in case of such talks. Practice shows that these talks can speed up the proceeding as the parties can incorporate the GVH's recommendations into the formal filing form, and thereby reduce the chances of an additional data request.
3.6 What is the timeframe for scrutiny of the merger by the merger authority? What are the main stages in the regulatory process? Can the timeframe be suspended by the authority?
Following the submission of a notification, the GVH may return the filing within 15 calendar days and request that the parties provide further information within a time period specified by the case handler, usually around one month (which may be extended once at the request of the parties). Issuing such data request stops the clock for the GVH until receipt of the applicant's response. Once the GVH has received the complete filing, it has 45 calendar days to assess the impact of the transaction (Phase I). Within Phase I - which may be extended by 20 calendar days - the Competition Council (on the basis of a report prepared by a case handler) decides whether to clear the transaction or open Phase II proceedings in order to assess the transaction in more detail. A final decision in Phase II has to be adopted within four months (three months in case of acquisition of control over a key business entity during a liquidation proceeding) from having received the complete filing. Phase II may be extended by another two months (and only by another 20 calendar days in case of key business entities). For the concept of key business entities please see also question 1.4.
3.7 Is there any prohibition on completing the transaction before clearance is received or any compulsory waiting period has ended? What are the risks in completing before clearance is received?
There is no specific prohibition in the Competition Act for completing the transaction before clearance is granted. Once clearance is granted, it has retroactive effect to the day of conclusion of the contract underlying the merger (until clearance contracts are provisionally considered as not having come into existence). Provided the parties have filed a notification in due time and merger clearance is granted, no sanction may be imposed on the parties simply for the reason of having completed the transaction before clearance (as opposed to imposing fines for not notifying within the required time limit).
If, however, a transaction that has been closed early is finally prohibited by the Authority, the Authority may impose all measures necessary to restore effective competition (including divestments). In addition, one may argue that contracts underlying the prohibited transaction are not enforceable.
The head of the Competition Council recently declared that the Competition Act does not prohibit implementation before clearance.
3.8 Where notification is required, is there a prescribed format?
Yes. Hungarian and English language versions of the filing form can be downloaded from the website of the GVH (www.gvh.hu ), but may only be submitted in Hungarian.
3.9 Is there a short form or accelerated procedure for any types of mergers? Are there any informal ways in which the clearance timetable can be speeded up?
The Authority issued a new filing form applicable as of 1 February 2012. This also created the availability of a short filing form (i.e. the last sections of the full filing form do not have to be completed if certain conditions - regarding the market shares - are fulfilled). As a result, less data has to be provided for non-problematic cases, which account for most cases before the Authority.
Practice shows that the informal pre-notification talks can speed up the proceeding as the parties can incorporate the GVH's recommendations and requests into the formal filing form, and thereby reduce the chances of an additional data request. Further, there are shorter deadlines for 'key business entities for the national economy'.
3.10 Who is responsible for making the notification and are there any filing fees?
The responsibility for submitting the filing rests with the acquirer. In case of a merger or a joint venture (as opposed to other types of control), both undertakings concerned are obliged to file the notification. Regardless of who is responsible for submitting the filing, a Power of Attorney has to be provided from both the acquirer and the target. Upon submission of the notification, a filing fee of HUF 4 million (approximately €14,300) is payable. An additional fee of HUF 12 million (approximately €43,000) is payable if Phase II proceedings have been opened. The Phase II fee has to be paid within eight days of the Authority's decision to open Phase II proceedings.
3.11 What impact, if any, do rules governing a public offer for a listed business have on the merger control clearance process in such cases?
The rules governing a public offer applicable to the public offer at hand are relevant in a merger control clearance process from the perspective of determining the date of the publication of a public bid (from which the notification has to be submitted within 30 days). If the public bid is published outside Hungary, the national (takeover) laws of the country where the public bid is published will be applicable. The correct application of the rules of the public bid is significant as a failure to comply with the merger notification deadline in Hungary triggers daily fines.
3.12 Will the notification be published?
The Authority does not have a clear practice concerning publication about the start of a merger control proceeding (as opposed to the initiation of cartel proceedings which are always published on its website). The Merger Control Division of the Authority decides on when a notification will be published on a case by case basis. In the last two years an insignificant number of publications (of a very short summary of the facts, not the notifications themselves) took place on the initiation of merger control proceedings. However, after final decision, press releases as well as the non-confidential version of the (final) decisions of the Authority on the concentrations are published on the Authority's website.
4 Substantive Assessment of the Merger and Outcome of the Process
4.1 What is the substantive test against which a merger will be assessed?
The GVH may not prohibit a transaction if it does not lead to a substantive impediment of competition in the affected market. The new substantive test was introduced with effect from 1 June 2009 which replaced the previously applied dominance test. The explanatory notes of the amendment introducing the effective competition test refers to both the SLC tests ("significant lessening of competition" used in the USA) and the SIEC ("significant impediment of effective competition", applied in the European Union). The new wording of the Competition Act is not identical to that of the EUMR but reflects more the SLC test: "the GVH may not prohibit the transaction if it does not lead to a substantive impediment of competition [and not the: significant impediment of effective competition - remark by the author] on the effected market, in particular as a result of the creation or strengthening of a dominant position". One may assume that this test affords the GVH with wider possibilities to take economic considerations into account when assessing a transaction.
4.2 To what extent are efficiency considerations taken into account?
The Hungarian Competition Act does not explicitly mention efficiency considerations, but they can be implicitely be deducted from the wording of the Competition Act when referring to "advantages and disadvantages must be taken into account" when assessing a merger. A guideline issued in 2010 on the general methods for assessing a merger contains a reference to the efficiency considerations and defines the criteria similarly to that of EU law: "If the concentration reduces the productions costs of the undertakings concerned, this may lead to a decrease in price. When assessing these efficiency considerations it is important that should be mergerspecific, numerically verifiable, and must benefit the consumers to the appropriate extent". The Guidelines state that it is the task of the undertakings concerned to demonstrate the above criteria. The notification form contains a section to demonstrate the above criteria. As a result, the Hungarian Authority is expected to follow European competition law with respect to efficiency considerations.
4.3 Are non-competition issues taken into account in assessing the merger?
Non-competition issues are not taken into account at the GVH's assessment. Such issues are assessed by the respective authorities (e.g. financial supervisory authority) in separate procedures. However, some acts for particular sectors (e.g. media) oblige the GVH to obtain the opinion of the special sectoral/industrial body in a merger related to that specific sector. In a recent case the special body in the industrial sector denied its consent to the transaction. The GVH signalled that it would also prohibit the transaction, as a result of which the applicant withdrew its application and the GVH terminated the proceedings.
4.4 What is the scope for the involvement of third parties (or complainants) in the regulatory scrutiny process?
Any third person may submit a complaint about alleged infringements of the Competition Act - e.g. a failure to submit a merger notification - to the GVH, which has two months from receipt of the complaint to decide whether to open proceedings. A dismissal of the complaint may be appealed before the Metropolitan Court of Budapest.
Third parties may submit (informal) comments on a notified transaction to the GVH. Such an informal comment does not confer any rights on the third party, in particular the third party will not have access to the file.
4.5 What information gathering powers does the regulator enjoy in relation to the scrutiny of a merger?
The GVH has the right to request information from the parties to the transactions and also from third parties (e.g. competitors, trade unions, customers, etc.). Failure to supply the requested information or submission of incorrect/misleading information may entail fines from HUF 50,000 (approximately €180) to a maximum of 1% of the turnover in the previous financial year. In case of a natural person, the fine may not exceed HUF 500,000 (approximately €1,820).
4.6 During the regulatory process, what provision is there for the protection of commercially sensitive information?
Third parties generally do not have access to the file. An exception applies to persons who have a right to access by law, for example official experts, prosecutors and other state authorities.
The parties to the proceeding may specifically request certain information be treated as confidential, i.e. that third parties' access to the provided documents or to the making of copies thereof be limited.
When a foreign authority provides information to the GVH, such authority may also request that part or the entire content of their response is treated as a business secret and therefore confidential. Final decisions of the GVH are always published on its website.
5 The End of the Process: Remedies, Appeals and Enforcement
5.1 How does the regulatory process end?
Both Phase I and II proceedings end with a decision of the Competition Council. In this decision, the GVH either clears (with or without conditions and/or obligations) or prohibits the transaction. The GVH's decision may be challenged by the parties within 30 days from receipt of the decision (see question 5.9). It is also possible that the applicant withdraws the filing or that the GVH establishes that no filing was required. In this case the proceeding ends with a decision of the GVH on the termination of the process.
5.2 Where competition problems are identified, is it possible to negotiate "remedies" which are acceptable to the parties?
Although in the majority of the cases unconditional authorisation is granted, the Competition Act expressly provides for the possibility of clearing a transaction subject to conditions or obligations. The Competition Act entrusts the GVH with a huge discretion to determine the conditions/obligations it wishes to impose on the undertakings. However, the Hungarian practice is in line with the European one whereby it is usually the parties (and not the Authority) who offer commitments (either already in the submission of the filing or later in the course of the proceeding when the GVH confronts them with an identified competition concern) and these remedies are informally negotiated before the GVH includes them in its final decision.
In practice the GVH will only include such remedies in its final (clearance) decision that are either suggested or accepted by the parties. As a general rule, the GVH will decide about the remedies during a Phase II proceeding, but it is not impossible for the GVH to decide in a Phase I proceeding when both the competition concern and its solution are easily identifiable.
Whether the remedies are complied with by the applicants will be observed by the GVH ex officio. In this respect the GVH initiates review-proceedings.
5.3 To what extent have remedies been imposed in foreignto- foreign mergers?
In a recent case the GVH cleared the acquisition on the cement market of a Slovak company by a Swiss group (the direct acquirer being a German subsidiary) by subject to a divesture. The GVH cleared the transaction on the precondition that both the acquirer and the target commit themselves to divest their business shares in a Hungarian subsidiary, in which they both had 35-35% of the shares each. However, although the direct acquirer and direct target were foreign companies, both had significant presence and (also in the form of subsidiaries) and sales to Hungary. Even if remedies are imposed on foreign-to-foreign mergers, they will most likely relate only to the Hungarian market.
5.4 At what stage in the process can the negotiation of remedies be commenced? Please describe any relevant procedural steps and deadlines.
Remedies may be negotiated at any stage during the proceeding (but before the Competition Council's final decision). Although a separate notice has been issued on remedies, there are no exact deadlines or procedural steps to be taken into account, only a few general "guidelines".
Identifying the competition issue itself is a task of the GVH. In case the applicants have not submitted structural or behavioural proposals along with the application itself, the case handler will signal the competition issue towards the applicants, providing help to work out the appropriate measures. Should the Competition Council identify the competition issue, then either the Council will approach the applicants, or it will decide to give the documentation. Ancillary restraints are automatically covered by the clearance decision. Although the Competition Act itself does not contain the requirement of 'direct connection' of the ancillary restraint with the merger transaction, as EU law does, the practice of the Authority requires the above connection.
5.5 If a divestment remedy is required, does the merger authority have a standard approach to the terms and conditions to be applied to the divestment?
The principles for imposing remedies - including divestments - are laid down in the GVH's notice about conditions and obligations in merger clearance decisions (Nr 1/2008). The notice mainly deals with various aspects of defining the object and the buyer in the case of a divestment remedy. The person of the buyer may be specified in the decision (buyer specified in advance) or found later within a time limit - usually not longer than six months - set by the GVH (in which case it has to be approved by the GVH).
5.6 Can the parties complete the merger before the remedies have been complied with?
If a transaction is cleared subject to a prior condition, the parties may not complete the merger before fulfilling the condition. For subsequent conditions, implementation may occur before the remedies have been complied with but the decision becomes ineffective when the condition is not fulfilled. Failure to comply with an obligation (remedy) may lead to the revocation of the clearance decisions and/or fines on the parties.
5.7 How are any negotiated remedies enforced?
The GVH conducts a follow-up investigation to verify whether remedies have been adhered to. In the case of non-compliance with the imposed remedies, the GVH may impose a fine unless the GVH establishes that, due to a change in the circumstances, compliance with the remedies is no longer reasonable. In the latter case, or if the remedy has been complied with, the GVH will terminate the follow-up investigation.
5.8 Will a clearance decision cover ancillary restrictions?
Ancillary restraints are automatically covered by the clearance decision. However, the GVH stated several times referring to the practice of the European Commission, that as a main rule, it does not examine whether the provisions on the restraint on competition contained in the transaction agreement(s) do actually constitute ancillary restraints. This has to be assessed by the applicants. Although the Competition Act itself does not contain the requirement of 'direct connection' of the ancillary restraint with the merger transaction, as EU law does, the practice of the Authority requires the above connection.
5.9 Can a decision on merger clearance be appealed?
Merger decisions may be challenged before the Metropolitan Court within 30 days from receipt of the decision.
The Metropolitan Court has not only the right to annul the decision and order new proceedings before the GVH, but it may also alter the decision. The initiation of such a procedure does not have any suspending effect on the enforcement of the GVH's decision. The decision of the Metropolitan Court may be appealed before the Metropolitan Court of Appeal. There is no further right of ordinary appeal but the parties may initiate an extraordinary review procedure before the Hungarian Supreme Court.
5.10 What is the time limit for any appeal?
The time limit for appeal is 30 days from receipt of the decision.
5.11 Is there a time limit for enforcement of merger control legislation?
The limitation period is five years.
6 Miscellaneous
6.1 To what extent does the merger authority in Hungary liaise with those in other jurisdictions?
The GVH is a member of the European Competition Network and thus cooperates closely with the competition authorities of other Member States of the European Union. The GVH is also part of the International Competition Network.
6.2 Are there any proposals for reform of the merger control regime in Hungary?
The last few years have seen various changes to the merger control regime (changes to substantive law in 2009 and 2010 and changes to the filing form and update/issuance of guidelines/notices in 2011 and 2012).
Therefore no specific new amendments are foreseen with regard to the merger control regime this year. What is to be expected is refining the practice related to the new documents adopted in the first half of 2012. This possibly includes further clarifying and resolving the problems arising from the difference between the conditions (including those related to market shares) of simplified procedure (Phase I) and a short filing form, and consequently between full procedure - Phase II - and full filing form.
6.3 Please identify the date as at which your answers are up to date.
The information set out in the above sections is up to date as of 7 September 2012.
This article appeared in the 2013 edition of The International Comparative Legal Guide to: Merger Control; published by Global Legal Group Ltd, London. www.iclg.co.uk
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
