The International Comparative Legal Guide To: Merger Control 2013 - Czech Republic - M&A/Private Equity

1 Relevant Authorities and Legislation

1.1 Who is/are the relevant merger authority(ies)?

The authority responsible for applying merger control legislation is the Office for the Protection of Competition (Uřad pro ochranu hospodařske soutě~e) (the "Office"). Please see www.compet.cz.

1.2 What is the merger legislation?

Since the Czech Republic is a Member State of the European Union, all concentrations are potentially subject to the EC Merger Regulation where the relevant financial thresholds are met. If the EC Merger Regulation does not apply, the Czech merger regime may be applicable, i.e. the Act on the Protection of Competition (Act No. 143/2001; the "Act"), particularly section IV. An unofficial English translation of the Act is available at the Office's website.

Decree No. 252/2009 implementing the Act provides for a merger notification form and lists other documents necessary for filing a concentration.

The Office has also published several notices, i.e.: (i) the Notice on the calculation of turnover; (ii) the Notice on pre-notification contacts; (iii) the Notice on the concept of merger control; (iv) the Notice on the concept of undertakings; (v) the Notice on implementation of a concentration prior to the approval of the Office; (vi) the Notice on the application of the failing firm defence concept in the assessment of concentration of undertakings; and (vii) the Notice on simplified procedure.

1.3 Is there any other relevant legislation for foreign mergers?

There is no other relevant legislation for foreign mergers.

1.4 Is there any other relevant legislation for mergers in particular sectors?

The merger control regime applies across all industry sectors. For certain sectors, however, specific approvals are necessary. This is particularly true for the financial sector, where the approval of the Czech National Bank may be required.

2 Transactions Caught by Merger Control Legislation

2.1 Which types of transaction are caught – in particular, how is the concept of "control" defined?

The Act applies to the following types of transactions:

merger (consolidation) of two or more previously independent undertakings;
transactions where an undertaking acquires an enterprise of another undertaking or a part thereof on the basis of an agreement, in a public auction or in another manner;
transactions where one or more persons already controlling at least one undertaking, or one or more undertakings directly or indirectly acquire control over another undertaking (target undertaking) either by acquisition of shares or ownership interest or by an agreement or by any other means, which enables the acquiring undertaking(s) to control the acquired undertaking; and
the creation of joint control by more undertakings over another undertaking, which performs, on a lasting basis, all the functions of an autonomous economic entity.

The Act defines "control" as the possibility to exercise decisive influence over another undertaking, in particular by:

ownership or the right to use an enterprise of the controlled undertaking or a part thereof; or
rights or other legal facts which confer decisive influence on the composition, voting or decisions of the organs of the controlled undertaking.

The Act does not stipulate a fixed shareholding threshold, the meeting of which would constitute a control. The Office always assesses the actual situation.

Not only the acquisition of control, but also the change in the quality of control (from joint control to sole control and vice versa) is deemed a concentration within the meaning of the Act.

2.2 Can the acquisition of a minority shareholding amount to a "merger"?

There is no explicit regulation of this question in the Act. Based on the case law of the Office, the acquisition of a minority shareholding can also amount to a concentration. The condition is that by the acquisition of a minority shareholding, a decisive influence over the applied undertaking can be exercised either on a de jure or a de facto basis. De jure decisive influence may be conferred upon a minority shareholder who is granted preferential shares on the basis of which the minority shareholder holds the majority of voting rights or is vested the power to decide on the commercial behaviour of the target undertaking. De facto decisive influence may be obtained by a minority shareholder if the remaining voting rights are widely spread. A minority shareholder may also exercise de facto decisive influence if the shareholder has the right to determine the target undertaking's market behaviour.

2.3 Are joint ventures subject to merger control?

The creation of a joint venture performing on a lasting basis, all the functions of an autonomous economic entity (concentrative joint ventures), is subject to merger control.

Joint ventures whose purpose is the coordination of behaviour of the parties controlling them (cooperative joint ventures) are not considered mergers. However, they may be subject to the scrutiny of the Office as potential cartel agreements.

2.4 What are the jurisdictional thresholds for application of merger control?

A concentration is subject to approval by the Office, if:

the aggregate net turnover of all parties to the concentration in the last completed accounting period within the market of the Czech Republic exceeds CZK 1.5 billion (approximately USD 84,800,000; EUR 61,000,000) and the aggregate net turnover of each of at least two of the parties to the concentration for the last completed accounting period within the market of the Czech Republic exceeds CZK 250 million (approximately USD 14,100,000; EUR 10,100,000);

the aggregate net turnover of: (i) at least one undertaking being a party to the merger (consolidation); (ii) an enterprise or its part being acquired; (iii) an undertaking whose control is being acquired (target); or (iv) at least one of the undertakings creating a concentrative joint venture, for the last completed accounting period within the market of the Czech Republic exceeds CZK 1.5 billion (approximately USD 84,800,000; EUR 61,000,000) and the aggregate worldwide net turnover of the other party to the concentration for the last completed accounting period exceeds CZK 1.5 billion (approximately USD 84,800,000; EUR 61,000,000).

Aggregate net turnover is comprised of the net turnover:

of all parties to the concentration;
of all persons which control the parties to the concentration and persons which will be controlling the parties to the concentration after completion of the concentration;
of all persons controlled by the same person that will control the parties to the concentration after completion of the concentration; and
of all persons jointly controlled by two or more persons referred to in the previous items.

For the purpose of calculating the turnover, the turnover resulting from the sale of products between the parties to the concentration and those persons listed above in respect of the calculation of the net turnover, shall not be taken into account.

If only part of an undertaking is subject to the concentration, only that portion of the turnover achieved by this part shall be taken into account when calculating the turnover.

Two or more concentrations which take place within a 2-year period between the same parties to the concentration are treated as one and the same concentration.

For banks, the net turnover is understood as the sum of the incomes, particularly interest incomes, incomes from securities, incomes from participating interests, commissions receivables and incomes from financial operations. For insurance undertakings, the net turnover should be understood as the total sum of premiums written resulting from all concluded insurance contracts.

2.5 Does merger control apply in the absence of a substantive overlap?

Yes, concentrations that meet the turnover thresholds set out in the Act require notification to the Office irrespective of their impact on competition.

2.6 In what circumstances is it likely that transactions between parties outside the Czech Republic ("foreign-toforeign" transactions) would be caught by your merger control legislation?

The Act stipulates that it also applies to concentrations abroad if these have, or may have, an impact on competition in the Czech market.

If the turnover thresholds in the Act are met, it is presumed with regard to the turnover thresholds taking into account primarily Czech turnover of the parties to the concentration, that a foreign-toforeign concentration might have an impact in the Czech Republic and must therefore be notified to the Office.

2.7 Please describe any mechanisms whereby the operation of the jurisdictional thresholds may be overridden by other provisions.

The EC Merger Control Regulation, where applicable, takes precedence over Czech merger control legislation.

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?

If several transactions (or the same transaction implemented in several stages) take place among the same parties to the concentration within a period of 2 years, these transactions are considered to be a single concentration.

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?

Where the turnover thresholds set forth in the Act are met, notification is compulsory. There is no deadline for filing the notification, but the transaction may not be implemented unless, and until, it has been approved by the Office.

The notification proceeding is opened upon delivery of a complete notification to the Office. If the notification is not complete, the Office will ask the notifying party to complete it.

Pre-notification contacts with the Office are possible. The details are provided in the Office's Notice on pre-notification contacts.

3.2 Please describe any exceptions where, even though the jurisdictional thresholds are met, clearance is not required.

The transaction must be notified to the Office if the respective transaction constitutes a concentration within the meaning of the Act and the turnover thresholds in the Act are met.

3.3 Where a merger technically requires notification and clearance, what are the risks of not filing? Are there any formal sanctions?

If the Office discovers that a concentration was not notified to it, or if the parties to the concentration violated the prohibition to implement a concentration prior to clearance by the Office, the Office may take measures which it considers necessary to restore effective competition on the relevant market, particularly a "demerger" obligation. It may further impose a fine to the party to the concentration which is in breach of the notification obligation. The fine may be up to CZK 10 million (approximately USD 525,000; EUR 390,000) or 10% of the net turnover of the undertaking(s) which are in breach of the notification obligation. There are no other sanctions in addition to the fine. There is a risk, however, that the respective transaction will be deemed invalid. This question has not been clarified yet under Czech law.

3.4 Is it possible to carve out local completion of a merger to avoid delaying global completion?

The Act does not provide for an exemption of the prohibition to implement concentration prior to clearance by the Office. Still, it can be argued that agreements pursuant to which the Czech business of the target undertaking is kept strictly separate from the remaining business until clearance is obtained and could therefore facilitate closing of the transaction without the Czech part.

3.5 At what stage in the transaction timetable can the notification be filed?

There is no legal deadline for the notification of a concentration. The parties may file it as soon as the legally binding transaction documents have been signed. The notification may even be submitted prior to the signing of the relevant transaction agreements, if the parties have at least agreed on the structure of the transaction.

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?

The Office has 30 days to assess a concentration and decide:

that the concentration does not constitute a concentration that must be notified pursuant to the Act;
to clear the concentration; or
to open a second phase investigation, because there are serious concerns that the concentration would significantly impede competition.

If the Office decides to open a second phase investigation, a decision must be rendered no later than 5 months from the date of opening the notification proceeding.

The period for the Office to decide does not start to run until the notification filing is complete, i.e. the Office has obtained all required information and documentation.

If the Office fails to decide on the filed notification within the above time period, the concentration is deemed to be approved after the lapse of such time period.

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?

The parties to the concentration are prohibited from implementing the concentration before obtaining approval from the Office. For the risks of closing prior to clearance, please refer to question 3.3.

The above prohibition does not prevent the implementation of a public bid, provided that the transaction is immediately notified to the Office and the acquiring party does not exercise the voting rights attached to the securities in question.

Upon request, the Office may grant the notifying party an exemption to the prohibition on completing the concentration before clearance is received, if the acquiring undertaking or any third party runs the risk of suffering substantial damage or another serious detriment. The Office must decide on a petition for granting such an exemption without delay after receiving the petition, but no later than 30 days from the receipt of the petition. The Office may attach conditions and obligations necessary for undistorted competition to its decision on exemption.

3.8 Where notification is required, is there a prescribed format?

The notification must be made in a notification form prescribed by Decree No. 252/2009. It can be downloaded at http://www.compet.cz.

The notification form must be filed in Czech.

The Decree also specifies the documents that must accompany the filed notification. If any document is in a foreign language, it must be translated into Czech. If the translation is not made by an authorised translator, it must be accompanied by a statement of accuracy and be signed by the representatives of the notifying party. For long documents, only the relevant parts of these documents need to be translated.

If simple copies of the documents required are submitted to the Office, they shall be authenticated with the statement of accuracy and signed by the representatives of the notifying party.

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?

If there is no overlap in the activities of the parties to the concentration, or their aggregate market share is below 15% in case of a horizontal concentration, or the market share of any party to the concentration is below 25% in case of a vertical concentration, it is not necessary to fill in parts 6 and 7 of the notification form (information about relevant markets).

The amendment of the Act in 2009 introduced a simplified procedure for concentration approval which allows the parties to the concentration to provide less information and fewer supporting documents.

The simplified notification of the concentration could be filed when:

none of the undertakings involved is operating in the same relevant market, or their combined share in such a market does not exceed 15%, and at the same time, none of the undertakings concerned is operating in the market vertically connected to the relevant market in which another undertaking operates, or their share in every such market does not exceed 25%; or
the undertaking acquires exclusive control over the joint venture in which it has participated in joint control so far. Detailed information and requirements are set out in the Office's Notice on the simplified procedure. However, if the Office came to the conclusion that it needs additional information, it could require such information within 20 days from the notification.

There are no informal ways in which the clearance timetable can be sped up.

3.10 Who is responsible for making the notification and are there any filing fees?

The notification has to be submitted:

in case of merger by the merging parties;
in case of acquisition of sole control by the parties acquiring sole control; and
in case of acquisition of joint control, by the parties acquiring joint control.

The notification is subject to the payment of an administrative fee of CZK 100,000 (approximately USD 5,200; EUR 3,900).

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?

Prohibition of not implementing the concentration before the clearance decision, shall not apply to concentrations that should occur on the basis of a public bid or on the basis of a sequence of operations with listed securities, provided that the notification was filed immediately and the voting rights have not been exercised.

3.12 Will the notification be published?

The Office publishes only an announcement regarding the notification of concentrations without delay in the Commercial Bulletin and also on its website. The announcement contains an invitation to third parties to submit their potential objections and comments.

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 Office assesses the notified concentrations against a test which basically corresponds to the test of "substantial impediment to effective competition" under the EC Merger Regulation. The Office shall prohibit implementation of concentrations that would significantly impede competition in the relevant market. A significant impediment to competition can be caused by the creation or strengthening of a dominant position. If an aggregate combined market share of all parties to the concentration does not exceed 25%, the transaction is considered to not significantly impede competition.

Nevertheless, the substantive test is not only restricted to the creation or strengthening of a dominant position. There are a number of legal and economic aspects that must be taken into account when pursuing the test (such as the necessity of maintaining and further developing competition, the structure of all affected markets, the market shares of the parties to the concentration, the economic and financial power of the parties, the legal and other barriers to entry to the market, the ability of suppliers and customers of the parties to switch, the development of supply and demand in the affected markets, the needs and interests of consumers and research and development). Jurisprudence of the EC courts and the decisionmaking practice of the European Commission should also be taken into account. A concentration's impact on competition must be assessed with regard to all these combined criteria. Therefore, a concentration of parties whose aggregate market share is less than 30%, where one of the merging parties owns an important patent, might be regarded as a significant impediment to competition. On the other hand, if the contemplated concentration faces strong competition even a concentration of parties whose combined market share is 60% may be regarded as not impeding competition significantly. These situations rarely occur in practice, however, and the most important factor remains the assessment of whether a dominant position has been created or strengthened.

Since the substantive test under the Czech merger legislation does not comprise only the creation or strengthening of a dominant position, it is applicable to vertical, as well as horizontal and conglomerate concentrations.

4.2 To what extent are efficiency considerations taken into account?

If the Office has established that a concentration may lead to a substantial lessening of competition, the merging parties bear the burden of demonstrating the existence of circumstances that may justify a clearance, such as substantiated concentration-related efficiencies. However, we are not aware of cases where the Office considered efficiencies of the concentration.

4.3 Are non-competition issues taken into account in assessing the merger?

The Office recognises that non-competition clauses are often integral to concentrations. With respect to concentrations, the Office assesses the non-compete obligation in line with the Commission practice.

4.4 What is the scope for the involvement of third parties (or complainants) in the regulatory scrutiny process?

The Office publishes an announcement regarding the initiation of the notification proceeding in the Commercial Bulletin without delay after the receipt of the concentration notification. The announcement is also published on the Office's website. The announcement contains an invitation to third parties to submit any potential objections.

When the deadline for submitting objections expires, the role of third parties in the regulatory scrutiny process is extremely limited. The Office can, for instance, invite them to provide their opinion concerning the impact of the contemplated concentration. Third parties thus can express their concerns about the concentration.

4.5 What information gathering powers does the regulator enjoy in relation to the scrutiny of a merger?

The Office is entitled to require all relevant information and documents from the parties to the concentration, third parties and other public authorities. In extreme cases, the Office is also entitled to physically enter land plots, premises, rooms and vehicles owned by the parties to the concentration, to examine their accounting books and other records and to make copies, as well as to require explanations.

If the information and/or documents provided by the parties to the concentration are not complete, accurate and true, the Office may impose a fine of up to CZK 300,000 (approximately USD 15,800; EUR 11,800) or up to 1% of their yearly net turnover. The Office can also impose a fine of up to CZK 100,000 (approximately USD 5,200; EUR 3,900) on third parties if they obstruct the proceedings.

4.6 During the regulatory process, what provision is there for the protection of commercially sensitive information?

Parties to the concentration, as well as third parties, cannot withhold confidential information from the Office. The Office is, however, obliged to respect the confidentiality of all business secrets indicated by the parties in all submitted documents. In addition to the confidential version of the respective documents, the Office may also require non-confidential versions.

All business secrets indicated by the parties must be deleted from the published documents and must not be disclosed to third parties. Business secrets may only be disclosed to the parties to the concentration. The final decision can only be published in its nonconfidential version.

Under the Act, the Office staff are also obliged (during their employment at the Office, as well as after its termination) not to disclose business secrets and other confidential information about which they learned during their employment at the Office.

5 The End of the Process: Remedies, Appeals and Enforcement

5.1 How does the regulatory process end?

In the first phase of the notification proceedings, the Office has 30 days to decide whether to:

declare that the transaction does not constitute a concentration that requires notification pursuant to the Act;
approve the concentration;
refer the case to the Commission; or
initiate the second phase of the proceedings.

In the last case, the Office must ultimately decide whether to clear the transaction or not within 5 months from the beginning of the notification proceedings at the latest.

5.2 Where competition problems are identified, is it possible to negotiate "remedies" which are acceptable to the parties?

In order to avoid a negative decision by the Office on the notified concentration, the parties to the concentration may offer remedies to the Office, which should eliminate the possible negative effects of the notified concentration. The decision on acceptance of the proposed remedies is fully at the discretion of the Office.

The Office itself may also propose certain remedies and, if they are accepted by the parties to the notification proceeding, can incorporate them into its clearance decision.

The proposed remedies might be: selling an enterprise or its part in order to decrease share in the affected markets or to remove competitive overlap; adopting a commitment of the parties that they will not increase prices in a certain time, or to increase prices only for objective reasons; terminating all exclusive agreements; or easing the market entry for new competitors by providing access to own infrastructure, etc.

5.3 To what extent have remedies been imposed in foreignto- foreign mergers?

Until now, the Office did not impose remedies on foreign-to-foreign concentrations.

5.4 At what stage in the process can the negotiation of remedies be commenced? Please describe any relevant procedural steps and deadlines.

The parties to the concentration can propose remedies before or during the first phase notification proceedings or within 15 days from initiating the second phase proceedings. This deadline can be prolonged only in exceptional circumstances.

The Office then decides on imposing remedies in its final decision.

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 Office does not have a standard approach with regard to the terms and conditions to be applied to divestments. The Office's approach is formulated on a case-by-case basis.

5.6 Can the parties complete the merger before the remedies have been complied with?

In the case of remedies consisting in the promise of prospective behaviour, the parties to the concentration can complete the concentration before the remedies have been complied with. The Office may, however, also impose remedies which must be complied with before the implementation of the concentration.

5.7 How are any negotiated remedies enforced?

If the parties to the concentration do not comply with the remedies stated in the Office decision, the Office can order them to sell shares or ownership interest or an enterprise or its part acquired through the implementation of the concentration. The Office can also order the parties to terminate the contract on the basis on which the concentration was implemented or to take other appropriate measures.

Furthermore, the Office may impose fines for a breach of the negotiated remedies specified in question 3.3.

5.8 Will a clearance decision cover ancillary restrictions?

Yes, if any ancillary restrictions are considered as appropriate for implementing the concentration, they shall be concerned in the clearance decision.

5.9 Can a decision on merger clearance be appealed?

Within 15 days from the date of delivery of the decision, the party to the proceeding is entitled to appeal the decision of the Office. The appealed body is the Chairman of the Office.

The decision of the Chairman of the Office can be challenged by bringing an administrative action to the Regional Court in Brno. However, the administrative action has no suspensive effect to the decision of the Office unless the court grants it at the special request of the plaintive.

Third parties are prevented from appealing the decision. They are only entitled to raise objections regarding the concentration to the Office (see question 4.2).

5.10 What is the time limit for any appeal?

The Office's decision can be appealed within 15 days to the Chairman of the Office. The Chairman's decision can be reviewed by the Regional Court in Brno. The action to the Regional Court has to be lodged within 2 months.

5.11 Is there a time limit for enforcement of merger control legislation?

The merger control legislation can be enforced within 10 years of the breach of the merger control legislation (objective limitation period). In addition, the Office can initiate its proceedings only within 5 years of the moment when it found out about the breach of law (subjective limitation period).

6 Miscellaneous

6.1 To what extent does the merger authority in the Czech Republic liaise with those in other jurisdictions?

At the level of know-how exchange, the Office cooperates with the European Commission and with the competition authorities of other countries within the European Competition Network (ECN), the International Competition Network (ICN) and the Organisation for Cooperation and Development (OECD).

6.2 Are there any proposals for reform of the merger control regime in the Czech Republic?

At present, there are no new proposals to reform the merger control regime.

6.3 Please identify the date as at which your answers are up to date.

This chapter is up to date as of 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.

Czech Republic: The International Comparative Legal Guide To: Merger Control 2013 - Czech Republic