On 27 September 2019, the Antimonopoly Committee of Ukraine (the "AMC") issued new guidelines clarifying the notification of joint ventures ("JV"). The guidelines introduce "full functionality" criteria which are largely based on the Commission Consolidated Jurisdictional Notice, and will apply to newly created JVs. This overview clarifies certain specificities of Ukrainian merger control of JVs and minority acquisitions compared with how these issues are dealt with in the EU. The overview covers both Ukrainian merger control requirements and the practice of the AMC.
SECTION I. THE FOLLOWING TYPES OF TRANSACTIONS QUALIFY AS A CONCENTRATION1:
1) the establishment of a newly created JV provided that:
- a newly created entity is established by several undertakings having joint control;
- the JV will perform all the functions of an autonomous economic entity (similar to fully functional JVs under the Commission Consolidated Jurisdictional Notice);
- the JV will operate on a lasting basis (usually, for more than three years);
- the creation of the JV does not result in coordination of the competitive behaviour of either:
- the founding parents amongst themselves; or
- amongst the founding parents and the JV.
2) the acquisition of a minority shareholding if it results in:
- reaching or exceeding 25% of the votes in the highest governing body of an undertaking (irrespective of whether or not control is acquired)*; or
- acquisition of direct / indirect control over an undertaking or a part of it (including via acquisition of ''negative control'' through rights of veto over strategic business decisions).
*Under the Law of Ukraine On Protection of Economic Competition (the "Competition Law"), the concept of "concentration" does not provide for "a change of control on a lasting basis" as an essential element for all types of concentrations.
When might establishment of a JV qualify as a concentration in Ukraine?
1) Unlike the EU merger control regime, a situation where:
- Company A creates a new wholly-owned Company C; and subsequently
- Company B acquires shares in Company C which results in either (i) reaching or exceeding 25% or more of the votes in Company C's highest management body, or (ii) conferring control (including negative control) over Company C,
such transaction will qualify as a "shares acquisition" (not as the "creation of a JV"), and thus the full functionality criteria would not apply to this transaction.
Also, it is important to note that in the case of a concentration in the form of a "shares acquisition", liability for failure to notify would normally lie only with the acquirer, unlike the situation of the "creation of a JV" where all co-founders would be held liable for failure to notify.
Model example 1:
A special purpose vehicle ("SPV") is established solely for the purpose of implementing a related transaction.
Acquisition of shares by Company B in the SPV, which was solely established by Company A, will qualify as a "shares acquisition". The full functionality criteria would not apply to such transaction since it is only relevant for the establishment of newly created JVs. Thus, even if the SPV is not fully functional, the acquisition by Company B of 25% of the shares in the SPV (Step 2) may require a separate merger clearance if the financial thresholds are met.
2) Even if a newly established JV is not expected to operate in Ukraine, a merger clearance is required if the financial thresholds are technically met by the corporate groups of the JV founders.
Example 2 (from the practice of the AMC, 2016):
The AMC found a failure to notify the creation of an India-based JV which was expected to operate a brewery business in India. The local nexus was technically met based only on the Ukrainian turnover of one of the founders. The other founder did not operate in Ukraine and the newly established India-based JV was not expected to operate in Ukraine either.
SECTION II. THE ESTABLISHMENT OF A NEWLY CREATED JV MAY QUALIFY AS A CONCERTED PRACTICE,
if it results in coordination of the competitive behaviour of either:
- the founding parents amongst themselves; or
- the founding parents and the JV.
Model example 3:
Company A (a producer of engines) and Company B (a producer of body shells) establish a new 50 / 50 JV.
The JV is expected to assemble engines of Company A and body shells of Company B, which are to be marketed by other legal entities. Since such an establishment of the JV results in coordination of the competitive behaviour amongst the founders on the downstream market, it qualifies as as concerted practices which require an antitrust clearance if the financial thresholds for concerted practices are met.
SECTION III. FINANCIAL THRESHOLDS FOR NOTIFICATION
In case of the establishment of a newly-formed JV, the local nexus is presumed if the following financial thresholds are met by the corporate groups of the JV founders for the previous financial year:
The merger control notification is required for concentrations2 if any of below Test A or Test B is met (calculated on the group level of the JV founders):
|Test A. At least two JV founders have turnover or assets in Ukraine:||Test B. At least one of the JV founders has turnover or assets in Ukraine:|
The antitrust notification is required for concerted practices3 if the below thresholds are met (calculated on the group level of the JV founders):
- combined worldwide turnover or assets of the JV founders exceed €12 million; and
- combined worldwide turnover or assets for each of at least two JV founders exceed €1 million; and
- Ukrainian turnover or assets of at least one JV founder exceed €1 million.
1. Which party is responsible for filing the establishment of the JV?
If the JV is established by means of:
- the creation of a new entity, the founders of the JV are responsible for filing;
- the acquisition of minority shareholdings / control, the acquirer and the target are both responsible for filing. As a matter of practice, the acquirer is normally held liable for failure to notify in such case.
2. Might a notification be required for the establishment of a newly created JV if the founders generate turnover in Ukraine, but the JV does not?
Yes: even if a newly created JV is not expected to operate in Ukraine, a merger clearance is required if the financial thresholds are met based on the turnover or assets of the corporate groups of the JV founders (please see example 2 on page 2).
3. Does the acquisition of a minority shareholding trigger a notification requirement, even if it does not result in change of control?
Yes, provided that the acquisition results in the direct / indirect acquisition of 25% or more of the voting rights in the highest governing body of the target. The Competition Law defines "reaching or exceeding 25% of the votes in the highest governing body of an undertaking" as a separate form of a notifiable concentration.
4. If a controlling stake is acquired in a jointly controlled JV, how are the JV's turnover / assets calculated for the purposes of financial thresholds?
Where two or more parents jointly control the JV, the turnover / assets of each of the controlling parents (on the group level) are taken into account for calculation of the JV's turnover / assets, e.g.:
The full turnover / assets of Company A and Company B (including their own parent companies / UBOs, and other legal entities connected to each of them by control relations) should be considered for calculation of the turnover / assets of the jointly controlled JV.
5. Might a creation of a newly-formed, non-full-function JV be a notifiable concentration in Ukraine?
Yes: if the establishment of the JV is structured as a shares acquisition which results in either (i) reaching or exceeding 25% or more of the votes in the highest management body of the target, or (ii) obtaining control rights (including negative control through veto rights over strategic business decisions) in the target that was previously created by another parent company. Please see Model example 1 (page 2).
1. For more information on transactions qualifying as concentrations and exemptions from the obligation to notify, please refer to page 1 of the leaflet "Merger Control in Ukraine".
2. For general information on the financial thresholds for other types of concentrations, please refer to page 1 of the leaflet "Merger Control in Ukraine".
3. For general information on the financial thresholds for other types of concerted practices, please refer to page 2 of the leaflet "Merger Control in Ukraine".
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.