Cyprus: Control Of Foreign-To-Foreign Concentration Under Cyprus' Merger Control Rules

Last Updated: 4 June 2015
Article by Anastasios Antoniou and Aquilina Demetriadi

It is often the case that the merger control regime of Cyprus requires the notification of transactions which are not directly related to Cyprus or do not prima facie raise any doubts as to their compatibility with the market in Cyprus.

Largely due to the relatively low jurisdictional thresholds, entirely foreign-to-foreign mergers and acquisitions, as well as joint ventures, may be caught under Cyprus's merger control framework, thus requiring notification and clearance by the national competition authority in Cyprus, prior to their implementation. We have authored this note as guidance to all parties involved in a transaction that would trigger a Cyprus filing requirement.

Legislation and Jurisdictional Thresholds

The Control of Concentrations Between Undertakings of 2014 (the Law) is the legislative instrument regulating concentrations in Cyprus. The Law provides the legal framework for merger control procedures and has repealed and replaced the previous statute in place since 1999. Enforcement of the legislation rests with the Commission for the Protection of Competition (CPC), initially established in 1990 and re-established pursuant to the provisions of the Protection of Competition Law No. 13(I) of 2008, as amended by Law No. 4(I) of 2014.

For the purposes of the Law, a concentration of undertakings is deemed to be of major importance and therefore meet the jurisdictional thresholds if:

  • the aggregate turnover achieved by at least two of the undertakings concerned exceeds, in relation to each one of them, the amount of €3.5 million;
  • at least two of the undertakings concerned achieve a turnover in the Republic of Cyprus; and
  • at least €3.5 million of the aggregate turnover of all undertakings concerned is achieved in the Republic of Cyprus.

A concentration is deemed to arise when:

  1. a permanent change of control takes place through:

    1. the merger of two or more previously independent undertakings or parts of undertakings; or
    2. the acquisition, by purchase of securities or assets, by contract or otherwise, of control of the entire or part of one or more undertakings, on behalf of one or more persons already controlling at least one other undertaking, or on behalf of one or more other undertakings;
  2. the establishment of a joint venture which permanently fulfills all the functions of an autonomous economic entity.

Pursuant to section 6(2) of the Law, 'control' is defined as control stemming from any rights, agreements or other means which, either severally or jointly, confer the possibility of exercising decisive influence over an undertaking through:

  • ownership or enjoyment rights over the whole or part of the assets of the undertaking; or
  • rights or contracts that confer the possibility of decisive influence on the composition, meetings or decisions of the bodies of an undertaking.

Foreign to foreign mergers are caught under the Law where the jurisdictional thresholds are met. The test as to whether a foreign-to-foreign merger is caught as a concentration of major importance is essentially satisfied where the thresholds are met, with the local effects dimension being the achievement of a turnover of at least two undertakings concerned in Cyprus and the Cyprus-achieved turnover of all undertakings concerned is at least €3.5 million.

Notification of Concentrations

Filing of concentrations of major importance is mandatory. However, notification is not required in the following cases, where, pursuant to section 6(4)(a) of the Law a concentration between undertakings is not deemed to arise:

  • a credit or financial institution or an insurance company, the normal activities of which include transactions and dealing in securities on its own account or for the account of third parties, holds on a temporary basis securities that it has acquired in an undertaking with a view to reselling them, provided that the institution does not exercise voting rights in respect of those securities with a view to determining the competitive behaviour of that undertaking or provided that it exercises such voting rights only with a view to facilitating the disposal of all or part of that undertaking or of its assets or the disposal of those securities, and that any such disposal takes place within one year of the date of acquisition – a period which can be extended with the leave of the CPC:
  • control is exercised by a person authorised under the legislation relating to liquidation, bankruptcy or any other similar procedure;
  • the concentration of undertakings between one or more persons already controlling at least one or more undertakings is carried out by investment companies;
  • property is transferred due to death by a will or by intestate devolution; or
  • it is a concentration between two or more undertakings, each of which is a subsidiary undertaking of the same entity.

Concentrations of major importance must be notified to the Service prior to their implementation, following the conclusion of the relevant agreement or the publication of the relevant takeover or the acquisition of a controlling interest. Notification can also take place where the undertakings concerned prove to the Service their bona fide intention to conclude an agreement or, in the case of a takeover offer or of an offer for the acquisition of a controlling interest, following a public announcement of an intention or final decision to make such offer.

Upon becoming aware of a concentration of major importance that ought to be notified but the undertakings concerned have failed to do so, the Service notifies the undertakings concerned of their obligation to proceed with notifying such concentration in accordance with the provisions of the Law. The assessment of the concentration would then commence at the time of the Service receiving such notification.

Concentrations of major importance must be notified to the Service in writing, either jointly or separately by the undertakings participating in a merger or in the joint acquisition of control of another undertaking. In all other cases, the party responsible for notification is the undertaking acquiring control. Filing fees are fixed by the Law at €1.000. Where a concentration becomes subject to a full investigation (phase II), the undertakings concerned are bound to pay a fee of €6.000 to the CPC.

Infringements and Sanctions

Where a concentration is either partially or entirely implemented prior to the clearance of the CPC or prior to the lapse of the timeframe within which the Service ought to inform the notifying undertaking of whether the concentration is cleared or shall be fully investigated but the Service has not so informed, administrative sanctions may be imposed by the CPC.

An administrative fine of up to ten per cent (10%) of the aggregate turnover achieved by the notifying undertaking during the immediately preceding financial year may be imposed to the notifying undertaking for the discussed infringement, which fine may be followed by additional administrative fines of €8.000 for each day the infringement persists.

The CPC has the power to order the partial or whole dissolution of a concentration of major importance that has been implemented by the undertakings concerned in violation of their obligation to notify the concentration.

Assessment of Concentrations

The substantive test for compatibility of a concentration with competition in the market is for such concentration not to substantially obstruct competition in the Republic or in a part thereof, particularly as a result of the creation or strengthening of a dominant position. In assessing such compatibility or not of a concentration, the CPC takes into consideration the following criteria:

  • The need to maintain and develop conditions of effective competition in the relevant markets, taking into account, inter alia, the structure of the affected markets, other markets upon which the concentration may have significant effects and the potential competition on behalf of undertakings within or outside Cyprus;
  • The position in the market of the undertakings concerned and undertakings connected to it in a manner prescribed under Annex II to the Law;
  • The financial power of such undertakings;
  • The alternative sources of supply of products or services in the affected markets and/or other markets upon which the concentration may have significant effects;
  • Any barriers of entry to the affected markets and/or other markets upon which the concentration may have significant effects;
  • The interests of the intermediate and end consumers of the relevant products and services;
  • The contribution to technical and economic progress and the possibility of such contribution being in the interest of consumers and not obstructing competition.

Declaration of Compatibility and Dissolution of a Concentration

Before reaching its final decision and subject to the time limits provided by the Law, the CPC may, if it considers it expedient to do so, carry out negotiations, hearings or discussions with any of the interested parties or other persons. Furthermore, the CPC has wide investigative powers when assessing a concentration, including access to any premises, property, means of transport, books or records in the possession of the undertakings concerned or third parties.

In declaring a concentration as being compatible with the operation of competition in the market, the CPC may impose conditions or remedies in relation to the implementation of the transaction, thus having the ability to interfere with the essence of the transaction.

The CPC has at any given time the power to revoke decisions related to the compatibility of any concentration and to amend any of the terms of its decision if it determines that:

  • its initial decision was based on false or misleading information or that necessary information relating to the concentration at hand was withheld by the notifying party or by any other undertaking concerned or by any interested person; or
  • any condition attached to the decision and imposed on the participants to the concentration has not been satisfied or has ceased to be satisfied.

Where the CPC exercises its power of revocation, it may, following a study of the Service's report, order either a full or a partial dissolution of the concentration to secure the restoration of the competitive market.

The CPC may order the partial or complete dissolution of the concentration in order to ensure the restoration of the operation of competition in the market, either in the course of exercising its' powers of revocation of a previous decision of clearing a concentration or upon establishing that a concentration has been implemented in violation of an obligation to notify such concentration to the CPC or is duly notified but implemented prior to clearance by the CPC.

Competition issues can be remedied through the CPC exercising its discretionary power towards such direction. In the course of remedying competition issues, the CPC may order the dissolution or partial dissolution of the concentration concerned to secure the restoration of the competitive market, through the deprivation of any participation, shares, assets or rights acquired by any person participating in the concentration, or by the cancellation of any contracts that created the concentration or that arose from it, or by a combination of the two, or any other way the CPC deems necessary.

The CPC and the Service are under a statutory duty of confidentiality. Pursuant to s. 48 of the Law, any person contravening the duty of confidentiality shall commit an offence punishable with imprisonment up to six months or a fine up to €1.500 or both.

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.

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