Executive Summary:  The Hungarian Competition Authority (“GVH”) amended the documents – including the merger filing form – related to merger control proceedings in the summer of 2013, with the declared aim of further decreasing the administrative burdens placed on market players.

Further to the amendments of the merger documents, amendments to Hungary’s Competition Act (“CA”) have just been adopted by the Hungarian Parliament. One of these changes affects the suspension clause in merger control proceedings.

Main Article:

The GVH aims to increase the scope of Phase I merger control proceedings (which results in a shorter deadline and lower filing fee) and to decrease the scope of the data to be submitted in merger control proceedings by simplifying and harmonizing the merger documents.

The amendments also support harmonization with EU laws and practices, as the European Commission has also initiated a simplification of the EU merger control procedures.

What changes do the amendments in merger documentation bring about in practice?

• The most significant change with regards the Hungarian merger control documents is the increased scope of Phase I proceedings.  For non-horizontal mergers (i.e. when a company acquires e.g. a non-competitor company to whom it has other ties, such as being vertically related), the threshold for applying the simplified (i.e. cheaper and shorter) Phase I proceeding has been raised from 25% to 30% combined market share.  In practice, this means that if the combined market share of the merging undertakings is between 25% and 30%, the deadline by which the GVH must issue a ruling on the concentration is 45 days instead of 4 months and a filing fee of HUF 4 million (ca. EUR 13,500) is applicable instead of HUF 16 million (ca. EUR 53,500).  Moreover, the GVH has introduced the possibility of a Phase I proceeding even above 30% market share under certain circumstances.  Nevertheless, the 20% market share threshold for horizontal mergers has not changed: if a market player with 15% market share on the relevant market acquires its competitor of 10% market share, this merger would continue to fall under the – longer and more costly – full procedure.
• The other changes are more of a fine-tuning of the merger control documents that had been issued in 2012 and involve inter alia the following:
  • The removal of some questions from the merger control filing form, as well as the shortening of other questions (e.g. less data to be provided in order to assess the EU Commission’s jurisdiction), which will ease the burden on the companies participating in merger control proceedings;
  • The amendment of the Best practice guidelines on preliminary consultations to emphasize that the GVH can provide preliminary guidelines and recommendations, but can only undertake an assessment on the merits in the formal merger control proceeding;
  • The supplementation of the conditions of the application of a simplified decision – originally introduced in 2012 – in the form of a notice.  In a simplified decision, the GVH does not provide the reasons for its (clearance) decision when certain conditions are fulfilled.  The advantage of this approach is generally faster decision-making by the GVH.  This must be balanced by the interest of the parties involved to learn the reasons for the GVH’s decisions and to be able to ascertain the regulator’s evolving legal practice.
• Harmonising the simplified and full proceedings (i.e. Phase I and Phase II) with the conditions of the short and full filing form.  The GVH has amended the merger control filing form and its explanations with regards to the short filing form.  Although the threshold under which parties can resort to a short filing form (i.e. not having to fill out sections VI and VII of the filing form with detailed market data) has now been raised in vertically related markets from 20% to 25%, the GVH has introduced an amendment under the umbrella of harmonisation of the two documents that is likely to make undertakings less happy.  The reason is that there are constellations which would result in the having to fill out the full filing form now where a short filing form was sufficient earlier.

Assessment

The changes are generally to be welcomed, especially considering the fact that the GVH  acted within just over a year after introducing these set of merger control documents.

However, a more client-friendly and less formalistic application of the GVH’s procedures would benefit market players even more.  Market players would welcome if case handlers more regularly applied the rule of applicants not having to answer all questions on the filing form if specific questions are irrelevant; doing so saves companies from the further costs and time spent answering additional data requests for information not necessarily relevant for assessing the concentration.  The new filing form is in use since 1 August 2013, whereas most of the other changes are applicable  since June 2013.

Changes to the Hungarian Competition Act

Further to the above mentioned amendments of the merger documents, amendments to Hungary’s Competition Act (“CA”) have been adopted in November 2013 by Hungarian Parliament. One of these changes affects the suspension clause in merger control proceedings. Such clause is to be firmly introduced, but the changes raise some questions.

The current Hungarian CA does not contain an explicit suspension clause, i.e. it does not explicitly prohibit the implementation of a transaction (that meets the turnover thresholds) before its approval by the Hungarian competition authority (GVH).

Instead, the CA currently

1. sets out that the GVH’s (i.e. third-party) approval is required for the coming into existence of the contract resulting in a concentration. This provision, however, is commonly interpreted to mean that the closing of a transaction without prior approval is permissible at the parties’ own risk, as long as merger control approval is obtained subsequently, as such approval renders the contract to be deemed to have come into existence retroactively; and
2. does not provide for any fines if a notifiable transaction is closed without prior merger control approval (but rather, only for the failure to notify / belated notifying of a notifiable transaction).

To fill this legal loophole, the following provisions will be included in the CA with effect of July 2014:

• a notifiable concentration may not be implemented without the prior authorization of the GVH; in particular, voting rights and the right to appoint the management may not be exercised without prior approval by the GVH.This prohibition does not apply to the conclusion of the contract bringing about the concentration or the issuance of a public take-over bid or – on the basis of the above – the performance of such legal acts and declarations that are necessary for bringing about the concentration which do not yet result in exercising of the control rights by the acquirer.
• upon a prior reasoned request of the party obliged to file the notification, the GVH may allow the exercising of control rights, especially if it is necessary for maintaining the full value of the party’s investment.Such derogation from the suspension clause might be made subject to conditions and obligations (limitation of control rights); at the same time, the GVH may oblige the parties to submit the documents on exercising their control rights (e.g. resolutions, etc). In its decision about the concentration, the GVH states whether the exercising of control rights was in line with the limitation of control rights which it had ordered earlier.

  Contrary to the EU Merger Control Regulation (“ECMR”), it is unlikely that the parties would be entitled to apply for the derogation before notifying the planned concentration to the GVH.

• If the GVH does not authorize the concentration, any act or declaration resulting from the exercising of control rights in breach of the suspension clause (or in breach of the above imposed conditions and obligations) is null and void; the party exercising control rights in breach of the suspension clause or in breach of the conditions or obligations may not refer to the nullity and is liable for damages arising from the legal consequences of nullity.
• a daily fine (min. HUF 50,000 — max. HUF 200,000, with the total amount of the fine being capped at 10% of turnover) calculated until the start of the competition supervisory proceeding may be imposed for implementation of a merger which has not been notified. This maximum daily fine of HUF 200,000 is identical to that applied by the current rules for late notifying, while the minimum amount is newly introduced.

In view of the introduction of a suspension clause, the amendments introduce a shorter deadline (30 days instead of the currently applicable 45 days) for the GVH to assess a concentration in Phase I (while the deadline for a full – Phase II – proceeding remains four months). The amendments will be applicable to concentrations after 1 July 2014.

Further changes – exemption from merger clearance?

Pursuant to another legislative proposal recently adopted by the Hungarian Parliament an exception from the obligation to request the GVH’s authorisation has been introduced to Hungarian Competition Act. If a transaction is classified as being of “national strategic importance” by the government due to public interest – especially in order to preserve jobs and to insure the security of supply -, no merger control authorisation from the GVH is needed. This amendment has become effective on 22 November 2013.