POLISH UPDATE – Involvement of Employees in Polish Cross-Border Mergers
Executive Summary/Highlights: Under Polish law, which implements Directive 2005/56/WE of the European Parliament and Council dated 26 October 2005, employee participation in the bodies of an acquiring or newly founded company created through a cross-border merger can follow one of two models: first, employees may be granted the right to select a certain number of supervisory board members or, in the second model, employees may recommend or oppose the appointment of certain or all members of this body. As explained below, however, Polish law has yet to address several practical problems in implementing these models.
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On 20 June 2008 an amended Commercial Companies Code of 24 April 2008 entered into force, which implements Directive 2005/56/WE of the European Parliament and Council dated 26 October 2005 on cross-border merger of companies in Polish law. Cross-border mergers of companies are increasingly common given present-day globalization. Cross-border merger of companies is also one of the most significant forms of benefiting from commercial freedom in the European Union. Therefore, European legislator for these reasons surely sought to adopt the Directive, which is intended to simplify and consolidate company merger procedures in the entire EU.
According to the amended law, the cross-border merger mechanism is similar to the domestic merger procedure. One of the basic differences that has not yet undergone extensive scrutiny in jurisprudence or by practitioners is the obligation to ensure employee participation in the bodies of the company created from a cross-border merger, as regulated in art. 16 of the Directive. Legislation selected adoption of the new Act dated 25 April 2008 on Participation of Employees in a Company Arising from a Cross-Border Merger as the manner of transposing this matter onto Polish law. The law entered into force on 20 June 2008. Provisions adopted in the Polish law are analogous to those accepted in ensuring employee participation in the bodies of a European company. The Polish law, however, may entail practical problems.
In principle, employee participation in the bodies of an acquiring or newly founded company can have two models: first, employees may be granted the right to select a certain number of supervisory board members or, in the second model, recommend or oppose the appointment of certain or all members of this body.
The Directive, in turn, introduces the general principle that regulations regarding employee participation will apply in a cross-border merger of companies, as set forth in the country where the company emerging from a merger will have its registered seat, if such regulations exist. This general principle will in practice only apply in a single case, specifically when the average number of employees does not exceed500 ineither of the merging companies within six months prior to publication of the merger plan (and no company has a system of employee participation within the meaning of art. 2k of Directive 2001/86/WE) and at the same time the law governing the company arising from merger provides for at least the same level of participation that existed in merging companies or the same rights for employees at company plants in a different country as those accorded to employees in the country of registered seat. Such a situation can arise, for example, in the case of a Polish joint stock company that does not accord its employees participation rights in bodies, as opposed to its German counterpart, an AG whose employees have the right to select their own representatives to a management or supervisory body. If the registered seat of the company created from a merger isGermany, employee participation provided in this country from the date of registration of the new company will apply toward all employees of this company.
In practice, the law will also not apply if employee participation did not apply at any of the merging companies prior to the date of merger registration. In such case, the obligation to ensure employee participation in company bodies does not, in our view, at all arise. This will be the sole exception to the principle of obligatory employee participation in the company arising from a cross-border merger.
However, the law will apply in other instances, namely when there is a system of employee participation in at least one of the merging companies and regulations set forth in Poland, the country of the newly founded or acquiring company, do not provide for at least the same level of participation. In such a situation companies engaged in a merger can select one of two options stipulated by law. First, they can appoint a special negotiating team in the manner and course specified in regulations. The task of this team is to reach an agreement with relevant bodies of companies participating in a merger with regard to employee participation in the new company. Secondly, relevant bodies of participating companies can refrain from appointing a special negotiating team and adopt a resolution on direct submission to standard participation principles, as specified in section 3 of the law. They stipulate that a representative team is appointed, which allocates positions among employees from various member states in the supervisory board of the company arising from a cross-border merger.
Participation of employees in the merger procedure must obviously be differentiated from participation of employees in the bodies of the acquiring or newly founded company. It takes place in each cross-border merger, irrespective of the “nationality” of merging companies, registered seat of the acquiring or newly founded company or the number of employees. Employee rights in the merger process primarily encompass information rights. An employer is obligated to provide a merger plan to employee representatives or, in their absence, to all employees (which will address the likely effects of the merger on employees), an expert opinion on the plan (unless such opinion is not drafted following a decision of shareholders of the merging companies), financial statement and management board reports on activity of the merging companies during the three preceding business years together with an auditor opinion and report, as well as a management board statement clarifying legal and economic aspects of the merger. If the body drafting a report receives an opinion of employees on the merger at an appropriate time, it should also be added to the report.
POLISH UPDATE – Increasing Number of “Concentrations” Blocked Under Polish Competition Law
Executive summary
- The increase in M&A activity inPolandhas been accompanied by growing emphasis on the evaluation of “concentrations” under Polish competition law. In recent years, increasing numbers of concentrations have been blocked or given only conditional clearance.
- In light of the Polish “Competition policy for 2011–2013”, a policy specifying the plans of the Polish competition authority, it is likely that the restrictive trend in the evaluation of planned concentrations will continue.
- This article describes recent Polish examples of concentration cases and the near-term plans of the Polish competition authority to amend the evaluation process.
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The obligation to notify
In Poland, the government authority responsible for reviewing planned concentrations is the President of the Office of Competition and Consumer Protection (“OPCC”). The evaluation process takes the form of an ex ante examination, that is before the concentration is carried out. The obligation to notify the OPCC occurs at the moment that a tangible and defined intention comes into being, such as a preliminary agreement, letter of intent or public call to sell a listed company’s shares.
In Polish competition law, as in other jurisdictions, the principal of extraterritoriality prevails. Under this law any concentrations that will or may have an effect inPolandrequire evaluation.
A transaction must be notified to the OPCC if it involves undertakings belonging to capital groups whose combined turnover exceeds EUR 1 billion globally or EUR 50 million in Poland (with certain exceptions concerning, for example, de minimis exclusions). These thresholds apply to the entire capital group to which a concentration participant belongs. The obligation to notify the Polish competition authority is related not only to the turnover, but also to the place this turnover was achieved by undertakings participating in the concentration.
This obligation also applies to foreign-to-foreign transactions, and falls upon undertakings whose profits from sales are generated inPoland, irrespective of the country in which their business is conducted or where their registered office is based. One might say that the determining factor is where the buyers of the goods of the undertakings participating in the concentration are located.
The OPCC frequently reviews concentrations of undertakings that have no registered Polish office or branch, but which may have a potential impact inPoland. Examples include the merger of New Zealand-based Reynolds Group Holdings Ltd and U.S.-based Graham Packaging Company (DKK – 102/2011); the creation of a new undertaking with proposed headquarters in Germany by the German firms Robert Bosch and Daimler AG (DKK – 84/2011); and the takeover by McKormick & Company based in the U.S. of a Cyprus-based firm, Paciotti (DKK – 86 /2011).
Clearance not automatic
Over the last two years the OPCC has tended to be more rigorous when analysing the consequences of planned mergers, with the result that conditional clearance or outright bans on concentration are becoming more frequent. Since 2004 the OPCC President has issued six prohibition decisions, two of them in 2011, and 13 conditional clearances, four of which were issued in 2010–2011.
When conditional clearance is granted certain additional requirements must be fulfilled before the concentration can proceed. These conditions are often far-reaching: the currently preferred option is divestiture of specified assets. Asset disposals have been required in several of the cases examined in 2011. Clearance for a takeover on the kidney dialysis services market (DKK – 70/2011) was declared to be conditional upon the disposal of three facilities belonging to the acquired entity. Meanwhile, in the cable television services market, in UPC’s planned takeover of Aster (DKK – 101/2011), the acquiring entity was required to divest specified assets, and was additionally obliged to maintain an appropriate quality and continuity of services while the transaction was finalised.
Occasionally, the conditions for clearance are constructed so as to be virtually impossible to fulfil. For example, in the supermarket retail sector in the case of Carrefour/Ahold (DKK – 58/2009), the OPCC imposed a fine for failure to comply with the conditions of the transaction, namely the divesting of several retail outlets. The acquiring undertaking, Carrefour, considered it had exercised due diligence and argued that its failure to dispose of the specified retail outlets was due to its objective inability to sell the real estate on which the retail outlets were located because of a lack of interest from third-party investors. The OPCC President did not share the company’s view and imposed a fine of EUR130,000.
The current year (2011) has so far seen the prohibiting of two planned concentrations, PGE/Energa (DKK – 1/2011) and Empik/Merlin (DKK – 12/2011). The first involved PGE assuming control over Energa, two firms engaged in producing, selling and supplying electricity, either directly or through companies in the same capital group. The second case concerned the merger of two firms whose main activity is the online sale of non-specialist books and music CDs.
Perspectives for 2011–2013
The trend for more stringent evaluation of concentrations seems certain to continue. This is confirmed in a government “Competition policy for 2011–2013” document which outlines the near-term plans of the Polish competition authority, and recommends a general strengthening of the evaluation of concentrations. Changes are proposed in three main areas.
The first is the introduction of a two-phase procedure (as employed in proceedings before the European Commission) for examining the effects of a concentration. Current legislation has no provision for a second stage of proceedings in more complex cases. Decisions are normally made within a standard two-month waiting period, with the possibility of deadline extensions for the removal of procedural defects and submission of additional information. For example, proceedings regarding the acquisition of the kidney dialysis facilities mentioned earlier lasted more than half a year, while UPC’s takeover of Aster drew on for nearly nine months. To deal with such complex cases, the OPCC President is planning to draw up an amendment to the Polish competition and consumer protection law to allow for a two-phase procedure.
The second area of OPCC activity will be to increase the stress on the role of economic analysis when assessing possible restrictions to competition on the relevant market. Until now, in competition authority case-law, the practice has been that the deciding factor is the market shares of participants, and how these might translate into the creation or strengthening of a dominant position (“dominance test”). However, in the OPCC’s view a broader test of significant restriction of competition is needed and this requires a more comprehensive examination of the case. A deeper analysis is particularly important with complex products or services, whose substitutability is not always obvious. To date, the largest market study conducted by the OPCC for concentration purposes took place with the proposed merger of the online retailers Merlin and Empik, after which a prohibition decision was issued. The research included a survey sent out to more than a thousand potential customers and business partners of the concentration participants, as well as information compiled by external market research agencies. In line with the OPCC’s statements, it appears that the employment of information from external sources and its submission for further processing will come to play are more significant role.
The third area will be to draw up internal guidelines for the competition authority, specifying how the analytical research required to evaluate a concentration’s impact on competition is to be conducted. Such guidelines will be a step towards implementing the need for economic analysis in concentration proceedings, and will include guidelines on how specified research is to be used and how information is to be obtained.
There is hope that the proposed broader analysis of impact on competition by the OPCC will see fewer decisions issued that clash with the interests of undertakings that wish to merge. It is clear, however, that it will be even more important that the concentration notification is prepared meticulously and, in view of the increased complexity of the review process, that professional attorneys are employed to represent the company before the competition authority. As the examples mentioned above illustrate, it is also important to take into account the potential dangers of having a transaction prohibited, even before merger negotiations begin and not when the negotiations are at the completion stage.