Russia: The Specifics of Economic Concentration in Russia

In summary

This article summarises the legal framework and procedure for executing M&A transactions in Russia and outlines the principal changes and new rules introduced into the laws on the protection of competition in respect of the assessment of M&A transactions. Based on examples from practice, it discusses the specifics of applying the provisions of the competition law, as well as the key features that are assessed by the anti-monopoly authority when analysing M&A transactions.

Discussion points

• Procedural specifics of obtaining approval for M&A transactions
• Procedure for obtaining approval for joint-venture agreements
• Specifics of acquisition by foreign parties of control over Russian companies
• Waivers in the examination of M&A transactions
• Antitrust compliance in the approval of M&A transactions

Referenced in this article

• Resolution No. F05-22467/2019 in Case No. А40-315103/2018
• Resolution No. F05-22204/2019 in Case No. А40-43799/19-79-345
• Resolution No. F05-10251/2019 in Case No. А40-187877/2018
• Resolution No. F05-22174/2019 in Case No. А40-45414/19-79-350
• FAS Decision No. AK/41792/14
• FAS Decision No. TsA/61719/17

Market (economic) concentration is the concentration of economically relevant resources in the hands of a certain number of economic entities. The level of concentration may change either as a consequence of:

• lawful acts or omissions of the participants of a specific commodity market (eg, transactions between economic entities, changes in demand, emergence of new interchangeable goods and segmentation of the market); or
• monopolistic activity (execution of anticompetitive agreements or abuse of dominant position).

Irrespective of the causes, an increase in the level of economic concentration may facilitate the emergence or reinforcement of a dominant economic entity, which, without doubt, is an environment vulnerable to monopolistic behaviour. For this reason, it is especially important to have in place preventative mechanisms aimed at preventing potential abuses, such as preliminary approval of economic concentration (M&A) transactions.

This is reflected in article 4(21) of Federal Law No. 135-FZ dated 26 July 2006 on the protection of competition (the Competition Law), pursuant to which economic concentration is defined as transactions or other acts of which the execution affects or may affect competition. That is why merger control (control over economic concentration) is one of the key areas of work of the Federal Anti-Monopoly Service (FAS), although, in itself, increasing the level of economic concentration is not viewed as an offence.

Furthermore, in examining applications for preliminary consent to the execution of a merger transaction, the FAS must assess the competitive situation in the market for the relevant commodity. Incorrect determination of the boundaries of a commodity market may entail an inaccurate finding on the position of the economic entity in that market and a refusal to approve the transaction. The courts rule that the FAS must reliably and fully analyse the competitive situation in the market.

The Russian laws on competition provide, as the main instruments of merger control, the FAS’s authorisations or prohibitions of the execution of particular transactions (or performance of particular acts). They also, often in the form of orders issued by the regulator, impose further restrictions on parties thereto in terms of their structure or conduct.^[1]

When assessing M&A transactions (acts), the FAS proceeds from two core sets of criteria, which are discussed further in this article:

• the financial performance indicators of the parties to the transaction and the object of economic concentration; and
• the type of the proposed transaction.

Criteria to assess the need to obtain a preliminary approval

Financial performance indicators of the parties to a transaction and the object of economic concentration

Articles 27 and 28 of the Competition Law set forth thresholds for the value of assets and the amount of revenue of the parties to the transaction or another act, which may make the transaction or act susceptible to anti-monopoly control, if met.

At present, the key financial performance indicators assessed are the overall value of the assets of the parties to the transaction (or those of their groups), the overall revenue of those organisations (their groups) and the overall value of the assets of the entity that is the object of the economic concentration.

Accordingly, the preliminary consent of the FAS is required to execute transactions where:

• the overall value of the assets, according to the latest balance sheets, of the parties to the transaction and their groups exceeds 7 billion roubles; or
• if the overall revenue from the sale of goods in the last calendar year of the parties to the transaction and their groups exceeds 10 billion roubles, provided that the overall value of the assets of the entity that is the object of the economic concentration, according to its latest balance sheet, and its group exceeds 400 million roubles.

The latest balance sheet refers to the accounting statement (balance sheet) provided by the Russian tax laws as at the last reporting date preceding the date of filing of the application.

Since the Russian antitrust laws denominate the thresholds triggering the requirement to have transactions approved in roubles, where the accounting statements of the parties to a transaction (their groups) is in a foreign currency, the calculation of the financial performance indicators of the parties to the transaction will require converting the figures in the foreign currency into roubles. The value of the assets of the parties to the transaction (their groups) is calculated based on the exchange rate for the relevant foreign currency set by the Central Bank of the Russian Federation as at the reporting date of the accounting statements submitted to the FAS.

Moreover, article 28(3) of the Competition Law also contains an exception allowing, in calculating the balance sheet value of the assets, for the balance sheet value of the assets of the seller’s group to be discarded if the transaction will result in the selling party’s or its group’s loss of the rights enabling them to define the terms of the business operations of the entity that is the object of the economic concentration. Based on previous practice, the loss of that right refers to the sale of such a number of shares that the seller, in accordance with the charter of the object of economic concentration, loses control over the business operations of the object of economic concentration.^[2]

Types of transactions and other acts subject to anti-monopoly control

The creation and reorganisation of commercial organisations is subject to the preliminary consent of the FAS.

State control over economic concentrations in commodity markets is exercised through preliminary approval by the FAS of the creation and reorganisation of commercial organisations (in accordance with article 27 of the Competition Law) in the form of:

• a merger of commercial organisations;
• a merger of one commercial organisation (except for financial organisations) into another;
• the creation of a commercial organisation, if its charter capital is paid for by shares (participation interests) or assets of another commercial organisation; or
• the creation of a commercial organisation, if its charter capital is paid for by shares (participation interests) or assets of a financial organisation.

The provisions of articles 16 and 17 of the Joint-Stock Companies Law and articles 52 and 53 of the Limited Liability Companies Law recognise as a merger the creation of a new company by way of transfer to it of all the rights and obligations of two or more companies, with the winding-up of the latter. The merger of one company into another company refers to the winding-up of one or more companies, where all their rights and obligations pass to another company.

In 2016, article 27 of the Competition Law was supplemented by a new provision (article 27(1)(8)), pursuant to which the FAS’s preliminary consent will be required for ‘the execution, by and between competing economic entities, of a joint venture agreement in the territory of the Russian Federation’, provided that the into consideration relevant asset- or revenue-related thresholds are met.

It appears to be important, for the sake of analysing whether preliminary approval is required, to first establish whether:

• the agreement is a joint-venture agreement;
• the agreement is being made by and between competing economic entities; and
• the agreement is being made in respect of joint operations in the Russian territory.

The law supplies no definition of joint-venture agreement; Chapter 55 of the Civil Code does, however, provide a definition of a simple partnership agreement. According to article 1041 of the Civil Code, a simple partnership agreement (a joint-venture agreement) is an agreement whereby two or more parties undertake to pool their contributions and act jointly without incorporating a legal entity, to earn profit or achieve another purpose not inconsistent with the law.

To apply article 27 of the Competition Law, the features of the joint-venture agreement contained in the clarifications of the Presidium of the FAS on the procedure and methods for analysing such agreements must be taken intro consideration.

According to those clarifications, joint-venture agreements are agreements governed by Russian or foreign law, made by and between economic entities, including agreements providing for the creation of a new legal entity or joint participation of the parties in an existing legal entity (legal entity is hereinafter referred to as joint venture), and other agreements underlying the joint operations of the parties. They imply that:

• the parties to those agreements pool their resources to achieve the goal of joint operations or make mutual investments to achieve the goal of joint operations;
• the parties jointly bear the risks associated with their joint venture;
• information on the joint operations or the creation of a joint venture is public.

The goals of the joint venture may include, for instance, joint manufacturing or the sale of goods, pooling efforts to promote goods or services in the market (joint marketing) and creating a unified logistics system.

The list of details to be submitted to the FAS raises questions. Effectively, the parties to joint-venture agreements are two applicants, and it seems logical that the information to be submitted by applicants should be the information referred to in article 32(5) of the Competition Law.

However, the FAS often requests from applicants information required from the object of the economic concentration, such as information that the applicants are not engaged in strategic activities within the meaning of article 6 of Federal Law No. 57-FZ,^[3] nor does FAS Order No. 129^[4] provide for a list of details to be submitted by the parties to a joint-venture agreement.

One example of the FAS approving a transaction is the FAS’s examination of the application filed by Yandex and Uber to merge their businesses in Russia (online taxi-hailing services). On 24 November 2017, the FAS approved the application filed by public limited company Yandex NV and limited liability partnership Uber International SV seeking to enter into a joint-venture agreement, and issued an order. The results of the analysis of the market for the organisation of communications between taxi drivers and passengers showed that the market is undergoing dynamic growth largely because of qualitative transformations, namely the emergence of aggregators that offer communication services using a new, convenient method of taxi-hailing – mobile apps.

Given the increasing role of information technologies in the economic and social sphere, the proliferation of wireless internet access and the expansion of the proportion of smartphones in the overall number of user devices, as well as the trends and prospects of the market with a digital element, the FAS made a decision to issue an order aimed at fostering the development of competition in the new conditions regarding the interaction between passengers and drivers.

The companies were ordered to ensure that users have as much full and accessible information as possible on the legal entity acting as the carrier; save the history of taxi rides; and abstain from preventing partners, drivers and passengers from working with other taxi service aggregators.

Transactions with shares and assets of commercial organisations, as well as rights in respect of commercial organisations, are subject to the preliminary consent of the FAS.

Article 28(1) of the Competition Law lists transactions that may be executed subject to the preliminary consent of the FAS, as well as the test for determining if consent is necessary for a particular transaction. The transactions may be divided into the following groups:

• transactions with shares in Russian economic entities;
• transactions with property (property, plant, and equipment or intangible assets) located in the Russian territory;
• transactions with rights in respect of Russian economic entities; and
• transactions with shares of foreign legal entities supplying goods to the Russian territory, as well as transactions with rights in respect of such foreign legal entities.

In accordance with provisions of the Competition Law, the preliminary consent of the FAS is required for the acquisition by a person or entity (or group) of:

• more than 25 per cent, 50 per cent or 75 per cent of voting shares in a joint-stock company; or
• more than one-third, half or two-thirds of participation interests in the charter capital of a limited liability company.

Preliminary consent of the FAS in respect of the acquisition of shares is required only where the buyer accrues the possibility to itself exercise the rights represented by the shares acquired.

Conversely, if the party acquiring shares (eg, a nominal holder of shares, a manager or a person or entity acting under a power of attorney), based on the powers available to it, does not, as a result of the transaction, accrue the right to independently decide the fate of the shares acquired and is not entitled to exercise the right to vote or other rights under those shares other than strictly in accordance with the instructions of the owners of those shares, then that party does not qualify as a buyer of shares within the meaning of article 28 of the Competition Law, and the acquisitions it effects will not require the FAS’s preliminary consent.

Specifics of control over transactions and other acts involving financial organisations

State control over transactions and other acts in respect of financial organisations is carried out on the basis of special rules of the Competition Law contained in article 27 and article 29(1). The rules apply where the following conditions are met.

1. One of the parties or the object of economic concentration under the transaction and acts in question is a financial organisation, as defined in article 4(6) of the Competition Law, and operates in Russian territory in accordance with the Russian law. A financial organisation will be deemed to be operating as such:
   • for credit organisations; professional participants of the securities market; market operators; clearing organisations; insurance organisations; insurance brokers; mutual insurance companies; private pension funds; management companies for investment funds, mutual funds, private pension funds; specialised depository for investment funds, mutual funds, private pension funds – from the receipt of a licence for the relevant financial activity;
   • for microfinance organisations – from the entry of information on the organisation into the state register of microfinance organisations;
   • for lease finance providers – from the commencement of leasing operations (execution of a financial lease agreement); or
   • for consumer credit cooperatives and pawnshops – from inclusion into the relevant register.
2. The value of assets, according to the latest balance sheet, of the financial organisations that are parties or the object of the economic concentration under the transactions or acts in question exceeds the threshold set by the government.

In respect of point (2), Resolution No. 1072^[5] sets forth the relevant thresholds for the assets of financial organisations that trigger the requirement to obtain the FAS’s preliminary approval of transactions or other acts referred to in article 27 of the Competition Law. It also prescribes a 10 per cent threshold for the assets of a financial organisation, which triggers the requirement to obtain consent for the transaction if crossed.

Pursuant to article 29(1)(7) of the Competition Law, the acquisition by a person or entity, as a result of one or several transactions of the assets of a financial organisation (except for cash) in the amount exceeding the threshold set by the government, requires obtaining preliminary approval from the FAS.

Similar to regulated transactions in respect of commercial organisations, those clauses of the Competition Law require obtaining the preliminary approval of the FAS for the acquisition by a person or entity holding:

• more than 25 per cent, 50 per cent or 75 per cent of voting shares in a financial organisation that is a joint-stock company;
• more than one-third, half or two-thirds of participation interests in the charter capital of a financial organisation that is a limited liability company.

The financial indicators set forth in Government Resolution No. 1072 dated 18 October 2014 do not apply to joint-venture agreements, since article 27(1)(8) of the Competition Law expressly states that the assets of the parties to a joint-venture agreement (or those of their groups), according to their latest balance sheets, must exceed 7 billion roubles or the proceeds from the sale of goods by those companies (or their groups) should exceed 10 billion roubles.

Procedure for filing and examination of applications and notifications on the execution of transactions subject to state control

The actors who must have their acts and transactions approved by the FAS are, in respect of preliminary consent:

• the parties performing the reorganisation;
• the parties making the decision to create a commercial organisation; or
• the parties acquiring shares, assets of economic entities or rights in respect of economic entities as a result of the execution of the transactions.

A duty is payable for the FAS’s examination of an application for approval of an act or a transaction.

Simultaneously with the application to execute transactions or other acts subject to state control, the parties must submit to the FAS the documents (information) listed in article 32(5) of the Competition Law.

Since 2016, owing to the entry into force of Federal Law No. 275-FZ,^[6] it has been possible to submit applications to the FAS in electronic form, in line with the procedure set forth by the FAS.

Once it has examined the application, the FAS may:

1. grant the application, if the transaction or another act stated therein will not entail a restriction of competition;
2. grant the application and simultaneously issue to the subject and object of the economic concentration or to the parties belonging to their groups, orders to take steps to ensure competition should they proceed with the transaction or another act stated in the application;
3. dismiss the application, if the transaction or another act stated therein will or may entail a restriction of competition (including as a result of the creation or reinforcement of dominant position) or if the information submitted to the FAS is inaccurate or incomplete, and the lack of that information makes it impossible to decide whether competition will or will not be restricted; or
4. dismiss the application, if the transaction or another act stated therein has been subject to a decision to deny preliminary consent in accordance with Federal Law No. 57-FZ.

The FAS’s decision on an application for preliminary consent to a transaction may be appealed within three months of the date of the decision.

The principal argument in contesting the authority’s decision is that there are no consequences in the form of restriction of competition. The FAS bears the burden of proving that there will be a restriction of competition if the M&A transaction is executed.^[7]

FAS’s control over the creation of commercial organisations by parties belonging to the same group

According to articles 27 to 29(2) of the Competition Law, the requirements to obtain the FAS’s preliminary consent for transactions do not apply if the transactions listed in the first part of those articles are made by parties belonging to the same group on the grounds set forth in article 9(1)(1) of the Competition Law.

In respect of the exception for companies belonging to the same group on the grounds envisaged in article 9(1)(1) of the Competition Law, the exception also applies to cases where transactions are made by and between persons or entities that do not belong to the same group directly (as parent and subsidiary), but rather belong to the same group indirectly, through other participants of the group related on those grounds; thus, in particular, the FAS’s approval is not required for transactions:

• between the parent and an indirect subsidiary (where over 50 per cent of voting shares are held through another legal entity or several legal entities);
• between subsidiaries in which the same parent company holds over 50 per cent of the total votes vested in voting shares; or
• between companies in which the same controlling person may indirectly (through another legal entity or several legal entities) decide the fate of over 50 per cent of the voting shares.

Further, no preliminary approval by the FAS is required for transactions executed by companies belonging to the same group (whether directly or indirectly) on the grounds set forth in article 9(1)(1) of the Competition Law.

In FAS Decision No. TsA/61719/17 dated 11 September 2017, after having examined an application for approval of the acquisition of 100 per cent of voting shares in a joint-stock company, the FAS found that the transaction did not require its preliminary approval since both the buyer and the object of the economic concentration already indirectly, each and together with the seller of the voting shares, belonged to the same group in accordance with article 9(1)(1) of the Competition Law.

Transactions and other acts executed by parties belonging to the same group on the grounds set forth in article 9(1)(2) to (9) of the Competition Law may also be executed without the FAS’s preliminary consent, but subject to notifying the authority afterwards, where the transactions or other acts are executed in compliance with the conditions in article 31(1) of the Competition Law.

To execute an intra-group transaction or other act and notify it, but without having to obtain the FAS’s preliminary consent, any entity within that group must file a list of participants of the group with the FAS. The list of participants as at the execution of the transaction and other acts should not diverge from the one submitted to the FAS. The finding by the FAS of the list of participants of the group changing between its submission and the execution of the transactions may serve as grounds for establishing the administrative responsibility of the party that was to file the application under article 19.8(3) of the Administrative Offences Code.

The list of participants of the group should not change prior to the execution of the notified transaction, nor should it change as a result of the transaction itself.

The proposed transaction or act should be executed no earlier than one month from the submission.

Intra-group transactions generally only create a threat of restricting competition in exceptional cases. Participants of the same group can normally coordinate their conduct in the market and act as a single economic entity pursuing a single economic interest even before any such transaction.

In exceptional circumstances, however, transactions within one group may end up resulting in the restriction of competition. That would be the case, for instance, where the buyer acquires control over its competitor as a result of the transaction or act, where it previously had no such control.

In those cases, the FAS may, in relying on article 33(10) of the Competition Law, issue to the parties of an intra-group act binding orders in accordance with article 23(1)(2) of the Competition Law.

If the FAS finds that the notified transaction entails a restriction of competition and that any other order issued in line with article 23(1)(2) of the Competition Law is unable to remedy the adverse effects of the transaction, it may order that the buyer dispose of the acquired shares, participation interests, assets or rights in respect of the object of economic concentration.

Related transactions

In practice, there are often cases where the requirement to obtain the FAS’s preliminary consent under articles 28 to 29 of the Competition Law is triggered by purported transactions that, taken separately, do not reach the thresholds for the acquisition of shares, participation interests or assets. If the transactions appear to be interrelated and cumulatively reach the thresholds once executed, then their execution will require obtaining the FAS’s preliminary consent by filing a single application.

The effective laws do not set forth a general test for determining if transactions are interrelated. Interrelation between transactions is decided on a case-by-case basis in view of the circumstances and terms of the relevant transaction; thus, transactions will be interrelated where they meet the following cumulative criteria:

• they are made simultaneously or the periods between them are short;
• each transaction is aimed at the same result or pursues the same purpose;
• they are made in respect of homogenous assets or assets of different types that are nevertheless designed for the same use;
• the party acquiring rights under the transactions is the same economic entity (group);
• the party disposing of or transferring rights to assets under the transaction is the same economic entity;
• they coincide in terms of their subject matter; and
• they belong to the same type of transaction.

Transactions involving natural monopoly companies

Owing to the fact that they operate in markets where no competition exists as a result of industry specifics, natural monopoly companies have a special status; therefore, transactions involving natural monopoly companies are also subject to special control.

Under article 7(2) of Federal Law No. 147-FZ dated 17 August 1995 on natural monopolies (the Natural Monopoly Law), certain transactions and other actions involving a natural monopoly company may be subject to prior approval by the FAS. Prior approval is required when:

• a natural monopoly company whose income from natural monopoly activities exceeds 1 per cent of its total income acquires ownership of, or the right to use, fixed assets that are not intended for the production (sale) of goods regulated by the Natural Monopoly Law, provided that the book value of those fixed assets exceeds 10 per cent of the company’s equity according to the latest approved balance sheet;
• a natural monopoly company whose income from natural monopoly activities exceeds 1 per cent of its total income invests in the production (sale) of goods that are not regulated by the Natural Monopoly Law, provided that those investments exceed 10 per cent of the company’s equity according to the latest approved balance sheet; or
• a person or entity acquires (through sale, lease or otherwise) ownership or possession of, or the right to use, the fixed assets of a natural monopoly company that are intended for the production (sale) of goods regulated by the Natural Monopoly Law, provided that the book value of those fixed assets exceeds 10 per cent of the company’s equity according to the latest approved balance sheet and that, as a result of the acquisition, the acquiring person’s or entity’s income from natural monopoly activities will exceed 1 per cent of its total income.

Not only do the financial performance indicators differ from those specified in the Competition Protection Law, but the list of documents and information to be submitted to seek prior approval of those transactions by the FAS also differs. The list is provided in Order of the FAS of Russia No. 490 dated 20 July 2012.

Individuals must, therefore, bear in mind that transactions involving natural monopoly companies have certain specifics in terms of both their subject matter and procedure.

A foreign party’s acquisition of shares in Russian companies

As part of merger control, the FAS requests information on whether the object of the economic concentration performs strategic activities, as listed in article 6 of Federal Law No. 57-FZ. If the transaction or act results in a foreign investor accruing control over the company or other rights referred to in the Law, the transaction or act will be subject to the preliminary approval of both the FAS and the Government Commission on Monitoring Foreign Investment in the Russian Federation (the Commission).

Article 6(5) of Federal Law No. 160-FZ dated 9 July 1999 on foreign investments in Russia provides for the preliminary approval of foreign investors’ transactions in respect of any Russian business entities, including those that are not strategic business entities, if decided by the chair of the Commission to ensure national defence and security; the chair may decide that any transaction by a foreign investor is subject to the preliminary consent of the FAS or the Commission.

FAS’s obligation to publish information on applications

Pursuant to article 32(9) of the Competition Law, information on an application received by the FAS for consent to the execution of a transaction or act must be published on the FAS’s official website. This rule is designed to enable interested parties (if any) to submit to FAS any information on the effect of the transaction or act on competition.

Federal Law No. 514-FZ^[8] provides an exception, pursuant to which the government may define instances where the FAS may avoid publishing information on an application it received.^[9] The list of relevant cases can be found in Government Resolution No. 680 dated 28 May 2019.

Under the Government Resolution, the FAS may avoid publishing on its website the information on an application it has received in cases where the application contains information:

• on persons or entities falling under sanctions; that is, restrictive measures imposed by a foreign state or an institution of a group of states, a union or state; or
• on a credit organisation classified as an authorised bank in accordance with Federal Law No. 275-FZ dated 29 December 2012 on state defence order.

For the FAS to exercise the above right, an application must be filed with the FAS, together with the application on the execution of the transaction, containing information on restrictive measures imposed on the applicant or on its classification as an authorised bank, as well as the details of the documents confirming such information.

The rule applies when a foreign state imposes restrictive measures in respect of both parties to the transaction themselves, the legal entities or individuals belonging to the same group as them and the ultimate beneficiaries. It can also apply where the relevant persons or entities are among the shareholders of the parties.

Restrictive measures may include, for instance, the inclusion of the relevant person or entity to the Specially Designated Nationals and Blocked Persons List, drawn by the US Treasury’s Office of Foreign Assets Control.

A similar regime allowing information on the transaction not to be published applies where the transaction involves an authorised bank, chosen as the general contractor or designated by the government under Federal Law No. 275-FZ dated 29 December 2012.

Legal effects for not obtaining preliminary consent when required

The Competition Law defines the legal effects of breaching the procedure for obtaining the FAS’s preliminary consent to execute transactions or acts, as well as the procedure for notifying the FAS of the execution of transactions and other acts subject to state control.

Pursuant to article 34(1) of the Competition Law, a commercial organisation created without the FAS’s preliminary consent shall be either liquidated or reorganised in the form of a spin-off or division by a court under the claim of the FAS, if its creation has resulted or may result in the restriction of competition, including as a consequence of creating or reinforcing a dominant position.

Another basis for invalidating such transactions may be the failure to fulfil an order issued after the examination of the application.

The buyer’s failure to file an application for preliminary consent to the execution of M&A transactions entails administrative responsibility under article 19.8(3) of the Administrative Offences Code in the form of an administrative fine from 100,000 roubles up to 500,000 roubles. If a case in respect of an administrative offence is initiated, the FAS may issue a resolution imposing the administrative fine only within a year of the date of execution of the transaction that was subject to approval; otherwise, the resolution will be annulled as the limitation period for administrative responsibility will have lapsed.^[10]

M&A transactions and antitrust compliance

Federal Law No. 33-FZ^[11] supplemented the Competition Law with provisions that entitle the economic entity to organise a system of internal control of compliance with the anti-monopoly laws.^[12]

In accordance with the new version of the Competition Law, the organisation of an internal antitrust compliance system is a right of an economic entity; however, practice shows that organising an antitrust compliance system may translate into an economic entity’s obligation, should it be prescribed by an order of the FAS, issued when granting approval to execute an M&A transaction under article 33(2)(4) of the Competition Law.

In November 2019, the FAS granted an approval to the application of cocoa and chocolate products manufacturer Barry Callebaut NL Russia LLC to acquire 100 per cent of the voting shares in CJSC Inforum-Prom, and it issued an order to take steps to ensure competition in the chocolate paste market. According to the order, the companies had to, among other things, draft antitrust policies, in other words enshrine in their by-laws the key steps undertaken to reduce the risks and prevent violations of the anti-monopoly laws in the respective markets.

Similarly, in deciding to approve the acquisition by Management Company Delo LLC of a 30.75 per cent stake in the Global Ports Investments PLC Group, the FAS ordered, among other things, that they develop a system of antitrust compliance for a number of companies that belonged to the Global Ports Investments PLC Group.^[13]

Thus, the current Russian practice in respect of M&A transactions has formulated a new condition for their approval by the FAS: organising a system of antitrust compliance in a company. The requirement to fulfil that condition may be either prescribed by the FAS at its discretion or suggested by the economic entity itself when filing its application for an approval of the relevant transaction.

Waivers of confidentiality in the examination of M&A transactions

Russian and international merger control practice evidences the rising number of cross-border transactions executed by global companies (groups), which results in those transactions’ potentially affecting competition across various jurisdictions. For this reason, in examining global M&A transactions, the FAS may resort to waivers of confidentiality.

A waiver of confidentiality is a voluntary waiver by the companies involved in the transaction, notified in several jurisdictions, of the confidentiality regime covering the documents filed with the antitrust agencies as part of the domestic procedures for clearance of those transactions. It allows antitrust agencies to exchange documents, enter into consultations to discuss the same and, thereby, more efficiently use their resources without sending overlapping requests. This, in turn, allows them to make reasoned decisions within shorter periods.

Examples of such interaction include the Yandex-Uber and Bayer-Monsanto transactions. Waivers of confidentiality were followed by the determination of approaches to examining the transactions and the conditions the companies were to meet to promote competition in their markets.

To ensure consistent application by the FAS, the FAS’s Presidium adopted the Recommendations on the Application of the Mechanism of Waiver of Confidentiality in Examining Mergers and Acquisitions, approved by Minutes No. 2 of the Presidium of the FAS of 13 March 2019.

In accordance with the above recommendations, the decision to waive confidentiality is made solely at the discretion of the parties and may be revoked at any time. The waiver may be granted either on the initiative of the parties to the transaction or at the request of the FAS for a specific transaction, indicating the particular antitrust agency expected to be involved in the consultations or negotiations.

In applying the mechanism in question, the FAS must clearly define the list of information to be covered by the confidentiality waiver, as well as the term of validity of the waiver.

Notes