When can a corporate concentration be blocked?

The Polish Office of Competition and Consumer Protection (UOKiK) must be notified of intended corporate mergers and acquisitions. The president of UOKiK typically grants approval, but companies need to recognise the risk of refusal or conditional approval.

The president of the Polish competition authority will probably have to decide this year on the planned merger of two giant utilities, Polska Grupa Energetyczna and Energa. It is a good occasion to review the powers vested in the president of UOKiK in this respect.

Control of business concentrations is one of the main tasks of the Office of Competition and Consumer Protection. The various types of concentrations subject to review (e.g. merger, acquisition, and joint venture) are defined in the Act on Protection of Competition and Consumers dated 16 February 2007. Concentrations are subject to advance review, meaning that when the criteria provided in the act are met, the businesses involved are required to notify the competition authority of their intention to carry out the given transaction.

Notification initiates a proceeding which may result in one of several types of decisions. The president of UOKiK may issue a decision permitting the concentration. This will occur when the regulator finds that the concentration will not significantly reduce competition on the market, particularly by creating or reinforcing a dominant position. A business is considered to have a dominant position when it is capable of preventing effective competition on a relevant market by acting to a significant degree independently of competitors, suppliers and consumers. A business is presumed to hold a dominant position if its share of a relevant market exceeds 40%.

The vast majority of the decisions issued by UOKiK under its review of concentrations are approvals of the planned transactions. (For example, in 2009 the office issued 123 decisions in this area, and 119 were approvals.)

If it is found, however, that a given concentration will reduce competition on the market by creation or reinforcement of a dominant position, a decision will be issued prohibiting the concentration. Decisions of this type are rare. In 2009 the office issued three such refusals (in the sectors of food, railway switches, and recycling of batteries), and that was a record year: in 2004–2008, UOKiK prohibited only one concentration, in 2006.

The third possible decision is conditional approval, which is issued when the transaction would significantly reduce competition on the market, but the negative effects of the transaction can be eliminated by meeting certain requirements (conditions) imposed by the president of UOKiK. Specifically, participants in the transaction may be required to (1) divest all of part of their assets, (2) relinquish control over a given enterprise, by divesting a certain stake in the shares, or (3) grant a license for exclusive rights to a competitor. A conditional decision will specify the requirements imposed on the companies and set a deadline for meeting the conditions. In 2006–2009 the office issued a total of seven conditional decisions (including one in 2009), and one conditional decision was issued in July 2010.

In extraordinary circumstances, even if there is expected to be significant reduction of competition through creation or reinforcement of a dominant position, the president of UOKiK may nonetheless issue a decision permitting the transaction to go forward if there is proper justification for not banning the concentration, applying the “rule of reason.” Under the rule of reason the office will examine in particular whether the concentration will result in economic growth or technological advancement, or otherwise have a positive effect on the Polish economy.

In the case of the merger of Polska Grupa Energetyczna and Energa, indications are that one of three possible decisions will be taken: a ban, conditional consent, or extraordinary consent. It remains to be seen whether the Polish competition authority will consent to the concentration, or impose conditions, and what the conditions might be.

Andrzej Madała, Competition Law practice group at Wardyński & Partners