1 Legal and enforcement framework
1.1 Which legislative and regulatory provisions govern merger control in your jurisdiction?
Merger control is regulated by Law 526 of the Republic of Azerbaijan on Anti-monopoly Activity, dated 4 March 1993.
1.2 Do any special regimes apply in specific sectors (eg, national security, essential public services)?
Under Law 590-IQ of the Republic of Azerbaijan on Natural Monopolies, dated 15 December 1998, the anti-monopoly authority exercises control, among other things, over:
- any transactions as a result of which a natural monopoly entity acquires the right of ownership to fixed assets or the right to use fixed assets that are not intended for production (sale) of goods and are subject to regulation in accordance with the Natural Monopolies Law, if the book value of such fixed assets exceeds 10% of the value of the equity capital of the natural monopoly entity according to the latest approved balance sheet; and
- any sale, lease or any other transaction as a result of which a business entity acquires the right of ownership to, or the right to use a part of, the natural monopoly entity's fixed assets that are intended for the production (sale) of goods and are subject to regulation in accordance with the Natural Monopolies Law, if the book value of such fixed assets exceeds 10% of the value of the equity capital of the natural monopoly entity according to the latest approved balance sheet.
1.3 Which body is responsible for enforcing the merger control regime? What powers does it have?
The State Service for Anti-monopoly Policy and Protection of Consumer Rights under the Ministry of Economy of the Republic of Azerbaijan is responsible for enforcing the merger control regime.
The service's powers are described in the bylaws and include:
- issuing approvals in the manner and circumstances prescribed by law;
- taking measures against actions of business entities that restrict competition in the relevant market as a result of the conclusion of agreements among themselves; and
- imposing financial sanctions on business entities that breach the Anti-monopoly Law.
Under the Presidential Order on Improving Governance in Areas of Consumer Market Supervision, Standardisation, Metrology and Protection of Intellectual Property Objects dated 20 April 2018, the State Anti-monopoly and Control of Consumer Market Agency was established. The agency's structure and powers have not yet been established, and it is thus not yet known which duties of the service will pass to the agency.
2 Definitions and scope of application
2.1 What types of transactions are subject to the merger control regime?
The following transactions are subject to the merger control regime:
- the merger of two business entities, if the resulting entity will hold more than 35% of the relevant product market;
- the merger of two business entities, if the asset value of the resulting entity will exceed AZN 13.5 million; and
- the liquidation or division of state-owned or municipal entities with a total asset value of more than AZN 9 million.
2.2 How is ‘control' defined in the applicable laws and regulations?
‘Control' is not defined in the Anti-monopoly Law.
2.3 Is the acquisition of minority interests covered by the merger control regime, and if so, in what circumstances?
The Anti-monopoly Law does not specifically regulate the acquisition of minority interests. The two tests for a transaction to qualify for notification are as follows:
- restraint of trade in the relevant product market, primarily applicable to foreign-to-foreign/local transactions; and
- the thresholds set out in question 2.6.
2.4 Are joint ventures covered by the merger control regime, and if so, in what circumstances?
The concept of an incorporated joint venture is not recognised under Azerbaijani law. Joint ventures exist only in non-incorporated form - that is, they are created through agreements concluded among the participating business entities.
Under Section 10(1) of the Anti-monopoly Law, ‘cartel arrangements' are understood as voluntary dealings in any form between two or more financially and legal independent business subjects competing in the same market to drive other competitors out of that market and/or prevent new competitors from entering that market through any of the following activities:
- division of the market by area or sales volumes;
- division of the market by customers;
- refusal to deal;
- price fixing;
- application of privileges, discounts or mark-ups on the sale of goods or provision of services; or
- application of other means to restrict competition.
Such activities constitute illegal horizontal and vertical arrangements that cause or may cause a restriction of competition.
Agreements between business subjects that create joint ventures for the purposes of restricting or eliminating competition are also illegal under Section 10(4) of the Anti-monopoly Law.
2.5 Are foreign-to-foreign transactions covered by the merger control regime, and if so, in what circumstances?
The reach of the State Service for Anti-monopoly Policy and Protection of Consumer Rights also extends to foreign-to-foreign transactions which cause or may cause a restriction of competition in Azerbaijan. The test for such purposes typically involves whether either or both parties to the foreign-to-foreign transaction have a presence in the Azerbaijani market – if only one party has a presence, this could be an argument that competition is not restrained.
2.6 What are the jurisdictional thresholds that trigger the obligation to notify? How are these thresholds calculated?
If restraint of competition is established, the obligation to notify is triggered if the transaction meets the following thresholds:
- mergers - more than 35% per cent of a relevant market; or
- acquisitions - more than 20% of the shares or more than 10% of the assets.
For mergers, filing (advance regulatory consent) is further required where:
- at least one of the parties to the merger has at least 35% of the relevant market; or
- the aggregate book value of the assets (in Azerbaijan) of all parties to the merger exceeds AZN 13.5 million.
In acquisitions, the applicable thresholds are as follows:
- the acquisition of more than 20% of the voting shares (participation interests) of a target by a transferee (including a group of transferees or a group of entities controlling each other's assets);
- the transfer to a transferee of the right of ownership of or the right to use the target's assets, if the book value of such assets accounts for more than 10% of the target's total fixed and intangible assets in Azerbaijan before the transfer; or
- the acquisition of the right to determine the target's business activities or the right to manage the target by a transferee (including a group of transferees or a group of entities controlling each other's assets).
If one of the thresholds above is met, the further applicable thresholds are as follows:
- The combined book value of assets in Azerbaijan of both the transferee and the target exceeds AZN 13.5 million;
- The transferee's and/or the target's share of a ‘relevant commodity market' in Azerbaijan exceeds 35%; or
- The transferee controls the target.
2.7 Are any types of transactions exempt from the merger control regime?
The Anti-monopoly Law provides for no exemptions.
3.1 Is notification voluntary or mandatory? If mandatory, are there any exceptions where notification is not required?
Notification is mandatory and no exceptions are provided under the Anti-monopoly Law.
3.2 Is there an opportunity or requirement to discuss a planned transaction with the authority, informally and in confidence, in advance of formal notification?
The State Service for Anti-monopoly Policy and Protection of Consumer Rights is responsible for determining whether a transaction will restrict competition; in this regard, an initial inquiry with the service may be relevant.
3.3 Who is responsible for filing the notification?
In case of a merger, the merging entities; in case of an acquisition, the purchaser.
3.4 Are there any filing fees, and if so, what are they?
There are no filing fees.
3.5 What information must be provided in the notification? What supporting documents must be provided?
The following documents must be submitted to the State Service for Anti-monopoly Policy and Protection of Consumer Rights:
- a notification application;
- the acquisition deed or decision; and
- information on the target's volume of sales of the relevant product in the relevant market.
Under the Anti-monopoly Law, the service is not allowed to request additional documents. However, in practice, the service uses its discretion to request additional documents.
3.6 Is there a deadline for filing the notification?
If a transaction is subject to filing in Azerbaijan, the approval of the State Service for Anti-monopoly Policy and Protection of Consumer Rights in relation to the transaction must be obtained before the transaction closes.
3.7 Can a transaction be notified prior to signing a definitive agreement?
No. The State Service for Anti-monopoly Policy and Protection of Consumer Rights requires a copy of the acquisition deed. Therefore, the filing must be post signing.
3.8 Are the parties required to delay closing of the transaction until clearance is granted?
3.9 Will the notification be publicly announced by the authority? If so, how will commercially sensitive information be protected?
4 Review process
4.1 What is the review process and what is the timetable for that process?
The State Service for Anti-monopoly Policy and Protection of Consumer Rights will examine the application and the corresponding documents within 15 calendar days and issue a decision.
4.2 Are there any formal or informal ways of accelerating the timetable for review? Can the authority suspend the timetable for review?
In practice, especially in cases where additional documents are required, the term indicated in question 4.1 can be extended by a further 15 calendar days. The timetable for review is suspended for the period for submission of additional documents.
4.3 Is there a simplified review process? If so, in what circumstances will it apply?
4.4 To what extent will the authority cooperate with its counterparts in other jurisdictions during the review process?
The State Service for Anti-monopoly Policy and Protection of Consumer Rights can cooperate with other state bodies, business entities and officials to gather the relevant information.
4.5 What information-gathering powers does the authority have during the review process?
See questions 3.5 and 4.4.
4.6 Is there an opportunity for third parties to participate in the review process?
No. Only the transaction parties can participate in the review process.
4.7 In cross-border transactions, is a local carve-out possible to avoid delaying closing while the review is ongoing?
No. If the transaction may have restrictive effects in the relevant product market in Azerbaijan, the State Service for Anti-monopoly Policy and Protection of Consumer Rights may apply to a local (and possibly a foreign) court to undo the transaction if it closes globally without awaiting the results of the ongoing review by the service.
4.8 What substantive test will the authority apply in reviewing the transaction? Does this test vary depending on sector?
See questions 2.3 and 2.6. The test is same for all sectors.
4.9 Does a different substantive test apply to joint ventures?
4.10 What theories of harm will the authority consider when reviewing the transaction? Will the authority consider any non-competition related issues (eg, labour or social issues)?
The State Service for Anti-monopoly Policy and Protection of Consumer Rights considers only whether the transaction will restrain competition in the relevant product market in Azerbaijan. Non-competition related issues are not considered.
5.1 Can the parties negotiate remedies to address any competition concerns identified? If so, what types of remedies may be accepted?
5.2 What are the procedural steps for negotiating and submitting remedies? Can remedies be proposed at any time throughout the review process?
5.3 To what extent have remedies been imposed in foreign-to-foreign transactions?
6.1 Can the parties appeal the authority's decision? If so, which decisions of the authority can be appealed (eg, all decisions or just the final decision) and what sort of appeal will the reviewing court or tribunal conduct (eg, will it be limited to errors of law or will it conduct a full review of all facts and evidence)?
Under Rules 120 approved by the Cabinet of Ministers on 29 May 1998 on Consideration of Cases on Breach of Anti-monopoly Laws, a decision of the State Service for Anti-monopoly Policy and Protection of Consumer Rights can be appealed to an upper body or to the court. An appeal to court should be made within six months of issue of the decision.
The court should consider the case on its merits (ie, a full review of all facts and evidence must be conducted).
6.2 Can third parties appeal the authority's decision, and if so, in what circumstances?
Third parties can appeal a decision of the State Service for Anti-monopoly Policy and Protection of Consumer Rights only where and to the extent that the decision affects their interests.
7 Penalties and sanctions
7.1 If notification is mandatory, what sanctions may be imposed for failure to notify? In practice, does the relevant authority frequently impose sanctions for failure to notify?
Failure to notify is punishable by a financial sanction of up to AZN 5,500. The State Service for Anti-monopoly Policy and Protection of Consumer Rights can also seek a court order imposing a sanction in the amount of 1% of any amount of the sanction that remains outstanding for more than 30 days for each day of delay. The sanction is typically imposed on the transferee (and the target in a share deal).
Damages can also be imposed by the court and profits seized.
The Anti-monopoly Law does not provide for any statute of limitations that bars the application of sanctions or other adverse consequences for anti-monopoly breaches, and the State Service for Anti-monopoly Policy and Protection of Consumer Rights applies no limitation periods in practice.
The service will monitor merger activities, including foreign-to-foreign merger, although we are unaware of any specific penalties that have been imposed in relation to foreign-to-foreign mergers to date.
7.2 If there is a suspensory obligation, what sanctions may be imposed if the transaction closes while the review is ongoing?
The State Service for Anti-monopoly Policy and Protection of Consumer Rights can order that a transaction be undone, although it may be argued that such authority is vested only in the Azerbaijani courts.
7.3 How is compliance with conditions of approval and sanctions monitored? What sanctions may be imposed for failure to comply?
See question 7.1.
8 Trends and predictions
8.1 How would you describe the current merger control landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Since the Anti-monopoly Law was adopted in 1993, 31 amendments have been made to its provisions, most of which are purely technical. In 2006 a draft Competition Code was presented to the Parliament; however, this has not yet been adopted. A new draft of the Competition Code has now been prepared and is expected to be adopted by the end of 2020.
9 Tips and traps
9.1 What are your top tips for smooth merger clearance and what potential sticking points would you highlight?
It is advisable to check with local counsel as to whether a contemplated transaction will give rise to the risk of a restraint of competition in the relevant product market and, if necessary, make an informal inquiry to the State Service for Anti-monopoly Policy and Protection of Consumer Rights in this regard.
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.