Aleksander Stawicki is a senior partner and legal counsel at WKB Wierciński Kwieciński Baehr, and head of the competition law practice. He acts before Polish and international competition authorities, regulatory authorities and courts in matters concerning competition law enforcement, protection of collective consumer interests and unfair competition. He advises on concentration procedures and compliance programmes. He is the President of the Union Internationale des Avocats Competition Law Commission and a regular contributor to the Kluwer Competition Law Blog. He is also a co-editor of the Commentary to the Act on Competition and Consumer Protection.
Bartosz Turno is a partner and legal counsel at WKB Wierciński Kwieciński Baehr. He is a specialist in Polish and EU competition law, state aid law and administrative proceedings, including before courts. He advises clients on competition law, cartels, leniency programmes, distribution agreements, practices constituting abuse of a dominant position, merger control and consumer protection law. He works on cases concerning European law and combating unfair competition. He is also the author of the first monograph on the Polish leniency programme and is a co-author of the Commentary to the Act on Competition and Consumer Protection.
Wojciech Kulczyk is an associate and legal counsel trainee at WKB Wierciński Kwieciński Baehr. He advises clients on the complete gamut of competition law matters (including issues regarding cartels, distribution agreements and other vertical relations and practices constituting abuse of a dominant position), with a special emphasis on merger control filings. He is a co-author of the Commentary to the Act on Competition and Consumer Protection.
GTDT: What have been the key developments in the past year or so in merger control in your jurisdiction?
Aleksander Stawicki, Bartosz Turno and Wojciech Kulczyk: In past years the Office of Competition and Consumer Protection (OCCP) handled around 230 merger cases each year. In 2017 an upward trend was observed with nearly 200 cases in the first three quarters alone. No official statistics covering the entire 12 months have been published yet, however it is estimated that the total number of decisions was around 250.
Apart from positive economic trends that encourage undertakings to become involved in concentrations, it seems that a large number of cases partially result from Poland’s strict merger control regime that, inter alia, requires notification even for foreign-to-foreign and non-full-function joint ventures if certain turnover thresholds are met (in relation to joint venture parent companies). The other factor is the OCCP’s growing interest in gun-jumping cases. After a relatively long period of low levels of activity, in 2017 the OCCP issued two decisions imposing fines for non-compliance with the obligation to notify a concentration. The fines ranged from €85,000 to €130,000.
In terms of recent developments, the OCCP started to conduct dawn raids related to merger control proceedings, for example in order to verify information provided by the parties to the concentration. Previously, the OCCP had only done this in antitrust cases.
GTDT: What lessons can be learned from recent cases to help merger parties manage the review process and allay authority concerns at an early stage?
AS, BT & WK: There are no formal pre-notification proceedings in Poland. Even though the OCCP indicates that pre-notification contracts are welcome, in practice they are not customary in Poland. We therefore generally advise against pre-notification contracts in merger cases where there are no significant competition concerns as it may potentially draw unnecessary attention from the OCCP because it will appear to be a ‘special’ transaction. In regular, straightforward cases, preparation of the notification addressing all formal and material requirements is the best way to move forward. On the other hand pre-notification contacts can prove to be beneficial in problematic cases (eg, where significant competition concerns are predicted, or markets that are not known by the OCCP or have never been subject to its analysis).
Even though merger control proceedings in Poland are considered time-consuming, our recent experience shows that, as a result of the efforts of the OCCP and changes to the merger control procedure introduced in 2015 (ie, introduction of a clear division between Phase I (which takes one month instead of two) and Phase II (which allows for the possibility of extending the deadline by an additional four months in difficult cases that require more in-depth investigation), cases are handled faster than in the past.
In our experience, the OCCP’s examination of non-problematic transactions (eg, where there are no horizontal or vertical overlaps, where such overlaps are limited, or where there are no markets affected horizontally, vertically or by conglomerate concentration), takes, on average, between four and six weeks. This is generally in line with official statistics of the OCCP, according to which, in 2017, the average review period of a merger case was 34 days. Merger control proceedings in Poland are quite formal and usually involve up to two rounds of questioning with the OCCP. This has an impact on the review period, as each request for information delays the statutory deadline.
The timing of more complex cases (ie, with substantial overlaps that give rise to competition concerns) can be very difficult to predict. These cases, which involve Phase II proceedings, can take between five and eight months to review. However, there have been cases with a significantly longer review period – as already mentioned, the statutory deadline can be extended with each request for information.
Each of the notifying parties is free structure its own case to present to the OCCP (eg, regarding the approach towards market definitions). Our experience proves that, regardless of whether the case is straightforward or complex, a party’s credibility is a very important factor. If the approach towards market definition is not credible or the market data presented is unclear or inconsistent and the OCCP starts to doubt the parties’ approach, even cases that are relatively simple from a competition law perspective could become prolonged and problematic.
For example, we were recently asked by the parties in a merger to intervene in the ongoing Phase II proceedings, after the OCCP issued a statement of objections signalling that it would either block the merger or demand far-reaching remedies. Market data presented to the OCCP by the parties was inconsistent and ambiguous, and the approach to market definitions was clearly incorrect. However, by presenting arguments that addressed the OCCP’s concerns, we secured unconditional clearance for the transaction.
Ensuring that the data provided is sufficient and maintaining a dialogue with the OCCP in the course of the proceedings can save a lot of time and unnecessary stress.
Similar to other Polish government agencies, informal contact with the OCCP is not customary. However day-to-day contact with the case handlers in the course of the proceedings is permitted and parties take advantage of this. Moreover, in more complex cases the senior staff within the OCCP are also willing to meet in person to discuss the case. We often recommend organising these meetings if, at the beginning of the proceedings, there are signs that the OCCP has issues with the case.
GTDT: What do recent cases tell us about the enforcement priorities of the authorities in your jurisdiction?
AS, BT & WK: Even though the OCCP does not focus on a specific sector and does not have an official merger control agenda, some patterns are noticeable.
The authority tends to closely investigate concentrations that are related to the markets that are the most important to the Polish economy or markets (even neighbouring) that involve significant public spending (eg, the road construction sector). These deals are the hardest to get approved, as they are closely scrutinised.
Similar to many other competition authorities, the OCCP tends to block transactions only in extraordinary circumstances, in fact, the last merger that was prohibited in Poland was in 2011. However, in cases that are problematic, numerous requests for information and market inquiries prolong the proceedings to the extent that some parties decide to withdraw the notification. Based on available sources, in the past two years there have been five such withdrawals (eg, the recent Benefit Systems/Calypso Fitness case).
GTDT: Have there been any developments in the kinds of evidence that the authorities in your jurisdiction review in assessing mergers?
AS, BT & WK: There is a growing emphasis on economic assessment in merger control cases in Poland, which has been seen in other jurisdictions. The OCCP’s Department of Concentration Control works in close cooperation with the Department of Market Analyses, which analyses the information on the state of competition in different domestic markets. The Department of Concentration Control consults with Department of Market Analyses before issuing a decision.
In practice, comprehensive economic evidence is not only beneficial but can also be necessary in more complex cases where there are competition concerns that need to be addressed. For example, we recently represented a client in proceedings that concerned a textbook three-to-two merger, where the post-transaction joint market share of the parties was expected to be well above the threshold for dominance (over 40 per cent). Owing to the detailed and credible expert economic evidence that was supplied, which was supported by the market test conducted by the OCCP, the transaction was ultimately cleared. This case proved that even with regard to difficult mergers, a credible narrative that is backed by the market participants (in the course of the market test) is the key to success. On the other hand, the best expert economic evidence would not be sufficient if it was not confirmed by the market.
In most complex cases, the OCCP conducts a market test (market inquiry). Typically, in the course of the market test, both competitors and customers are approached (questions are also sometimes sent to suppliers). The OCCP treats the results of a market test as a viable source of information in the case, which means that third parties can potentially have an impact on the outcome of a review, though the level of the impact depends on the facts of the case, such as market structure, scope of the market test, etc. In the aforementioned three-to-two merger, the market test that supported the economic evidence presented in the case proved to be vital to the positive outcome.
By contrast, in the vast majority of straightforward cases, general information such as market share estimates with regard to the parties and their major competitors are sufficient for the OCCP to make its assessment. Simply put, in these cases there is no need to engage in time-consuming and expensive data gathering and analytic processes.
GTDT: Talk us through any notable deals that have been prohibited, cleared subject to conditions or referred for in-depth review in the past year.
AS, BT & WK: As already explained, the OCCP tends to block transactions only in extraordinary circumstances.
In 2017 the OCCP issued only one decision with remedies.
The case concerned the acquisition by PGE (the largest Polish producer of electric energy) of EDF Polska. The analysis of the facts of the case indicated that the transaction had the potential to impede effective competition in the relevant markets. The OCCP pointed out that PGE could strengthen its dominant position in the electricity production and distribution markets. This would potentially lead to a decrease in trade in the competitive market (ie, the Polish Power Exchange (the commodity exchange where electricity can be traded)) and an increase in OTC sales, which would negatively affect the retail market. The OCCP argued, among other things, that sales through the Polish Power Exchange limit the strength of the largest players in the market, for example, by enabling wholesale purchases of electricity by smaller companies. Meanwhile, the amount of electricity that large power companies sell on the commodity exchange was decreasing and the transaction would potentially support this trend. According to the OCCP, the transaction – if accepted without commitments – would allow PGE to sell most of the electricity within its own capital group, and hinder the purchase of electricity by PGE’s competitors that own production facilities. In order to address these concerns, PGE proposed the following condition, which the OCCP accepted: during 2018–2021, PGE will have to sell all the energy produced in one of the assets of the acquired company. This case is one of the very few examples when the OCCP accepted behavioural remedies proposed by the party to the proceedings. In most cases, the OCCP opts for structural remedies, such as divestment of certain assets, that are easier to implement and supervise.
GTDT: Do you expect enforcement policy or the merger control rules to change in the near future? If so, what do you predict will be the impact on business?
AS, BT & WK: We do not expect enforcement policy or the merger control rules to change in the near future.
Occasionally there are rumours that the rules concerning assessment of concentrations involving foreign-to-foreign and non-full-function joint ventures will be changed – currently, foreign-to-foreign joint ventures have to be reported in Poland if certain turnover thresholds are met (in relation to joint venture parent companies), which is criticised by foreign investors. However, there is no evidence to suggest that there will be any regulatory change on this issue, either within the OCCP or the parliament.
The Inside Track
What are the most important skills and qualities needed by an adviser in this area?
Experience in handling dozens of cases each year is one of the most important qualities needed by an adviser in the merger control area.
For example, it is well known that the OCCP is quite formalistic in its approach and data gathering for the preparation of the notification is burdensome. Our experience enables us to predict what information will be needed by the OCCP for each case. This way we are able to simplify the entire preparation process by requesting only the necessary information from the parties and presenting this to the OCCP.
What are the key things for the parties and their advisers to get right for the review process to go smoothly?
Diligent preparation of the notification and ensuring the parties’ credibility are very important in relations with the OCCP. If the approach to market definition is not credible, or the market data is unclear or inconsistent, even a simple case could become problematic.
What were the most interesting or challenging cases you have dealt with in the past year?
In 2017 and early 2018 we advised on nearly 20 merger control cases, for both domestic and international clients. In all of the cases we were able to secure unconditional clearance from the OCCP.
The firm advised Fayat in proceedings before the OCCP related to the takeover of one of its competitors, Dynapac, from AtlasCopco. This case was particularly significant owing to the fact that it had the potential to change the competitive landscape of the markets concerned, market shares of the parties to the transaction were relatively high and the markets concerned have never been analysed by the OCCP (among other things, it was our role to convince the authority of the proposed market definitions). In the course of proceedings, the OCCP indicated that the markets concerned are important to the Polish economy because public funds are involved in the road construction sector. This meant that the case was closely scrutinised. Ultimately, the OCCP granted unconditional clearance to the transaction. Fayat (through its subsidiary Bomag) and Dynapac are important players in the markets for asphalt and soil compaction equipment both at the European and international level.
The firm advised Polska Spółka Gazownictwa in proceedings before the OCCP related to the takeover of several assets (part of a natural gas transmissions system – approximately 800km of pipelines and 100km of gas stations) from OGP Gaz-System. This was a landmark project for the Polish gas sector, as well as for the Polish government, and clarified ownership relations between the distribution system operator (Polska Spółka Gazownictwa) and the transmission system operator (OGP Gaz-System). Polska Spółka Gazownictwa is a part of the PGNiG Group, which is the largest Polish natural gas seller and the most significant natural gas distribution system operator, with approximately 90 per cent market share (as indicated in the companies’ reports). OGP Gaz-System in the only natural gas transmission system operator in Poland (a legal monopoly).
Aleksander Stawicki, Bartosz Turno and Wojciech Kulczyk
WKB Wierciński Kwieciński Baehr