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Trends and climate
Trends
How would you describe the current merger control climate, including any trends in particular industry sectors?
Due to the current economic downturn in Russia, M&A activity has significantly decreased. In response to this negative trend, Russian merger control authorities plan to liberalise the merger control regime in order to reduce barriers for investors. For example, the general requirement to file post-closing notifications was abolished in the end of 2013.
Reform
Are there are any proposals to reform or amend the existing merger control regime?
The following changes to the merger control rules are being considered by the Russian Parliament:
- applying specific filing requirements for joint venture agreements (both full-function and operational) between competitors;
- eliminating the register of dominant entities or legal entities with a Russian market share exceeding 35% (currently the acquisition of a company on this list triggers filing requirements automatically, irrespective of economic thresholds); and
- introducing the option to submit merger control filings in electronic form.
Legislation, triggers and thresholds
Legislation and authority
What legislation applies to the control of mergers?
Enacted on October 26 2006, Federal Law 135FZ (the Competition Law) is the basis of Russian merger legislation. The merger control rules set out by the Competition Law relate to both commodity and financial markets. For the purpose of enforcing the Competition Law, the Russian government and the Federal Anti-monopoly Service have also adopted other decrees and regulations which form the second tier of merger legislation. Importantly, Russian merger legislation also includes other laws which provide for regulation in specific areas (eg, banking and insurance). In addition, specific merger control rules apply to foreign investments in strategic sectors of the Russian economy (eg, natural resources, nuclear power, weaponry and the media) and acquisitions of shares in and assets of natural monopolies (eg, railroads or energy supply).
What is the relevant authority?
The main Russian merger control enforcement bodies are the Federal Anti-monopoly Service (the FAS) and its territorial sub-divisions. The FAS comprises several departments, each of which specialises in certain areas (eg, financial services, fuel and energy, transport and communications). More detailed information on the structure of the FAS can be found on its official website, www.fas.gov.ru (an English version is available). In some sectors, merger control rules are also enforced by specific bodies – for example, the Russian Central Bank governs mergers in the banking sector. The Government Commission on Monitoring Foreign Investment also grants clearances with respect to acquisitions of control over Russian strategic companies by foreign investors.
Transactions caught and thresholds
Under what circumstances is a transaction caught by the legislation?
The Competition Law contains a comprehensive list of situations covered by the merger control rules. This list includes:
- the acquisition by a person or group of persons of more than 25%, 50% or 75% of the shares in a Russian target stock company or more than 33.3%, 50% or 66.6% of the participatory interest in a Russian target limited liability company;
- the acquisition by a person or group of persons of more than 20% of production or intangible assets situated in Russia (eg, machinery and production facilities – but not including plots of land, non-industrial buildings, unfinished buildings, structures, constructions, premises or parts of premises) from a target company;
- the acquisition by a person or group of persons of:
- direct or indirect rights to determine the terms of business of a Russian target company (including as a result of a change in indirect control over a Russian target company or through a shareholders’ agreement); or
- the right to perform the functions of its executive bodies;
- the acquisition by a person or group of persons of:
- more than 50% of the shares in a foreign target company;
- rights to determine the terms of business of such foreign target company; or
- the right to perform the functions of its executive bodies;
- the incorporation of a new company, if its charter capital is to be paid by the shares, participatory interest, assets or rights stipulated above; and
- the merger or consolidation of several companies.
The above triggers do not apply to mergers and transactions involving companies that are connected with each other through effective corporate control chains (ie, direct and indirect holdings of more than 50% of the respective shares).
Do thresholds apply to determine when a transaction is caught by the legislation?
Acquisitions
Under certain circumstances, the following acquisitions are subject to the prior consent of the Federal Anti-monopoly Service (FAS):
- the acquisition by a person or group of persons of more than 25%, 50% or 75% of the shares in a Russian target stock company or more than 33.3%, 50% or 66.6% of the participatory interest in a Russian target limited liability company;
- the acquisition by a person or group of persons of more than 20% of production or intangible assets situated in Russia (eg, machinery and production facilities – but not including plots of land, non-industrial buildings, unfinished buildings, structures, constructions, premises or parts of premises) from a target company;
- the acquisition by a person or group of persons of:
- direct or indirect rights to determine the terms of business of a Russian target company (including as a result of a change in indirect control over a Russian target company or through a shareholders’ agreement); or
- the right to perform the functions of its executive bodies; and
- the acquisition by a person or group of persons of:
- more than 50% of the shares in a foreign target company;
- rights to determine the terms of business of such foreign target company; or
- the right to perform the functions of its executive bodies.
The circumstances in which prior approval are required are as follows:
- The aggregate book value of the assets of the purchaser and the target (including any group of which it is a member) exceeds Rb7 billion (approximately $134.5 million or €123 million) and the book value of the total assets of the target (including any group of which it is a member) exceeds Rb250 million (approximately $4.8 million or €4.4 million);
- The aggregate annual revenue earned by the purchaser and the target (including any group of which it is a member) from the sale of goods in the past calendar year exceeds Rb10 billion (approximately $192 million or €175 million) and the book value of the total assets of the target (including any group of which it is a member) exceeds Rb250 million (approximately $4.8 million or €4.4 million); or
- Either the purchaser or the target (including any group of which it is a member) is included in the FAS register of dominant entities or legal entities with a Russian market share exceeding 35%, irrespective of its assets and revenue.
The book value of the seller and companies within the seller's group should not be considered for the purposes of the above thresholds if the seller loses control over the target as a result of the acquisition.
With respect to foreign acquisitions of the type outlined above there is an additional mandatory threshold: the target foreign company must have direct import sales to Russia in the amount exceeding Rb1 billion (approximately $19 million or €17.5 million) during the year preceding the filing date.
Incorporations
The incorporation of a new company whose charter capital is to be paid by the shares, participatory interest, assets or rights stipulated above is subject to the prior consent of the FAS if:
- the aggregate book value of the assets of the founder (and any group of which it is a member) whose shares, participatory interest, assets or obligations are contributed to the charter capital of the new company exceeds Rb7 billion (approximately $134.5 million or €123 million);
- the aggregate annual revenue earned by the founder (and any group of which is a member) whose shares, participatory interest, assets or obligations are contributed to the charter capital of this new company exceeds Rb10 billion (approximately $192 million or €175 million); or
- the company whose shares, participatory interest, assets or obligations are contributed by the founders to the charter capital of this new company is included in the FAS register of dominant entities or legal entities with a Russian market share exceeding 35%.
Mergers and consolidations
Mergers or consolidations of several companies are subject to the prior consent of the FAS if:
- the aggregate book value of assets of the participating companies (and any groups of which they are members) exceeds Rb7 billion (approximately $134.5 million or €123 million);
- the aggregate annual revenue earned by the participating companies exceeds Rb10 billion (approximately $192 million or €175 million); or
- one of the participating companies is included in the FAS register of dominant entities or legal entities with a Russian market share exceeding 35%.
Implementation
Regarding implementation of the above thresholds, the value of assets and revenue must be calculated on a worldwide basis (ie, regardless of whether they are Russia related), based on figures from the latest balance sheet as of the filing date.
None of the thresholds apply in the financial sector (eg, insurance and banking services), which has its own complex thresholds criteria.
Informed guidance
Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?
It is possible to request clarification from the Federal Anti-monopoly Service (FAS) as to the application of Federal Law 135FZ (the Competition Law). In particular, the parties to a proposed merger or M&A deal can request the FAS to clarify whether they are required under the Competition Law to submit a filing in respect of:
- a specific transaction with the disclosure of all relevant information about the parties and the deal structure; or
- an abstractly described hypothetical situation based on the specific provisions of the transaction documents in question, without disclosing the latter.
The limitation of the latter approach is that the FAS may not take all relevant background factors into consideration and therefore may change its position when the actual merger or M&A deal comes under its scrutiny.
Foreign-to-foreign
Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?
Yes – the regime applies to foreign-to-foreign mergers if they affect (not merely restrict) the condition of competition in Russia. Usually, this means that any foreign-to-foreign transaction whose subject matter has a Russia-related element (eg, Russian assets, shares in Russian companies or import sales into Russia) are covered by Russian merger control regulations, regardless of where such transaction is executed.
Joint ventures
What types of joint venture are caught by the legislation?
Currently, there are no special merger control regulations in respect of joint ventures. Therefore, the general rules envisaged in the answers to the above questions are fully applicable to joint ventures.
Notification
Process and timing
Is the notification process voluntary or mandatory?
The notification process is mandatory.
What timing requirements apply when filing a notification?
The Federal Anti-monopoly Service normally takes 30 to 45 days to consider a filing (although under certain circumstances this period may be longer). Parties should therefore file the pre-acquisition notification at least 30 to 45 days before the completion date of the proposed transaction or merger.
What form should the notification take? What content is required?
The filing has no approved template and may be drafted in any form. However, materials attached to the filing should be prepared in compliance with standard forms and meet certain requirements set out in Federal Law 135FZ and Federal Anti-monopoly Service (FAS) decrees. These materials include the following main documents and information:
- notarised copies of the foundation documents of the applicant;
- the draft (ie, at least a summary of their main provisions) or executed sale and purchase agreements or other agreements that triggered the Russian merger control rules;
- information on the types and volume of goods (including services) produced and sold by the applicant, the target and other companies concerned during the year preceding the filing date and the year of filing;
- the applicant's latest balance sheet;
- the target’s balance sheet;
- the consolidated balance sheets of the applicant's group and the target's group or – at least – information on the consolidated assets of these groups;
- any financial, economic and other reports submitted by the applicant and the target to the Russian Central Bank or other authorities;
- the group structures of the applicant and the target (and the seller, if the target does not belong to the seller's group);
- information on any shareholders holding more than 5% of the applicant's shares and the ultimate beneficiaries of the applicant's corporate group;
- the applicant's and target’s licences, if any;
- information on the funds which will be used to complete the proposed transaction or action (eg, details of loans and lenders); and
- the plan of action issued to the signatory of the filing, if necessary.
All official documents related to foreign companies (eg, foundation documents and balance sheets) should be submitted to the FAS together with Russian translations notarised by a Russian notary. In order to notarise Russian translations, the original foreign document should first be apostilled or legalised.
Is there a pre-notification process before formal notification, and if so, what does this involve?
There is no pre-notification process before formal notification.
Pre-clearance implimentation
Can a merger be implemented before clearance is obtained?
Under Federal Law 135FZ, the transaction can be completed only after the approval of the Federal Anti-monopoly Service has been granted.
Guidance from authorities
What guidance is available from the authorities?
The filing procedure and content requirements are described in detail in the decrees and clarifications of the Federal Anti-monopoly Service.
Fees
What fees are payable to the authority for filing a notification?
Filing a notification costs Rb35,000 (approximately $675 or €615).
Publicity and confidentiality
What provisions apply regarding publicity and confidentiality?
Commercially sensitive information must be submitted to the Federal Anti-monopoly Service (FAS) if such information is required under any provisions of Federal Law 135FZ (the Competition Law) or otherwise requested by the FAS. The Competition Law allows the applicant to designate certain data as commercial secrets so that additional protection measures apply to its disclosure. To be regarded as a commercial secret, documents should be marked "Commercial Secret" on the letterhead. Documents marked in this way and submitted to FAS are subject to a special confidentiality regime. They cannot be published on the FAS website and FAS officers cannot transfer or circulate such documents to third parties (except to law enforcement agencies within the scope of their official responsibilities). In the case of disclosure of a commercial secret, Russian law provides for the imposition of liability on state officers.
Penalties
Are there any penalties for failing to notify a merger?
The Federal Anti-monopoly Service (FAS) can impose administrative fines for breach of the merger control requirements. For failure to file a pre-acquisition filing, the fines range from Rb300,000 to Rb500,000 (approximately $5,800 to $9,600 or €5,300 to €8,800) for legal entities and from Rb15,000 to Rb20,000 for officers (approximately $290 to $380 and €260 to €350).
In relation to these fines, the following conditions apply:
- If the parties have entered into a global transaction subject to FAS clearance which resulted in the acquisition of control over several Russian entities, the above fines can be imposed in respect of each entity acquired without FAS clearance.
- The risk of a fine is lower if the transaction closes after filing, even if this occurs before FAS clearance has been obtained.
Where FAS clearance was not obtained for a transaction or merger and it is judged to have an anti-competitive effect on the Russian market, further penalties are possible: the transaction may be cancelled, and any company established as a result may be liquidated or reorganised. These remedies are possible through judicial proceedings which can be initiated only pursuant to a claim brought by the FAS.
Procedure and test
Procedure and timetable
What procedures are followed by the authority? What is the timetable for the merger investigation?
The Federal Anti-monopoly Service (FAS) reviews and considers pre-acquisition filings within 30 days of the filing date. This deadline can be postponed in the following situations:
- The FAS concludes that the proposed transaction or action may restrict competition and more detailed analysis or additional information is required, in which case the deadline may be postponed for a further two months.
- The FAS issues binding conditions that parties must fulfil before approval is granted (the term for fulfilment of these conditions cannot exceed nine months).
- The proposed transaction or merger relates to foreign investments in strategic sectors of the Russian economy, in which case the FAS may postpone clearance until the filing under the specific foreign strategic investment rules has been considered by the Government Commission on Monitoring Foreign Investment.
What obligations are imposed on the parties during the process?
The major obligation is not to close the deal before clearance is granted. In the course of the review, the Federal Anti-monopoly Service may also issue requests for additional information and materials which must be addressed by the parties.
What role can third parties play in the process?
If a transaction or merger raises competition concerns, the Federal Anti-monopoly Service (FAS) may publish information concerning the transaction or merger on its official website and invite third parties to give their opinions on its effect on competition. Further, the FAS sometimes comments on the issues relating to these filings in the media.
Substantive test
What is the substantive test applied by the authority?
The Federal Anti-monopoly Service (FAS) assesses each transaction or merger in terms of whether it would or could result in a restriction of competition in the Russian market. The concept of ‘restriction of competition’ used by the FAS is somewhat formal, and may be found to exist even where there is an insignificant overlap between the acquirer and the target. However, this does not mean that such transactions are always blocked by the FAS. In these cases the FAS usually issues prescriptions imposing certain obligations on the parties as a precondition for approval (eg, the obligation to inform the FAS about prices and future agreements entered into by the parties).
Carve-outs
Does the legislation allow carve-out agreements in order to avoid delaying the global closing?
There are no legal grounds in the Russian legislation for any carve-out agreements allowing global umbrella transactions to close without Federal Anti-monopoly Service (FAS) clearances. We are not aware of any cases where the FAS has specifically dealt with these issues. In practice, carve-out agreements concluded in foreign jurisdictions areare sometimes used as a risk-mitigating tactic, not a 'relief option'.
Test for joint ventures
Is a special substantive test applied for joint ventures?
No, a general substantive test is applied to all transactions.
Remedies
Potential outcomes
What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.
As a result of considering pre-acquisition filings, the Federal Anti-monopoly Service (FAS) will issue one of the following decisions:
- approval of the transaction or merger without limitations;
- extension of the review period for up to two additional months and postponement of clearance, where the proposed transaction or merger may restrict competition;
- extension of the review period up to nine months and postponement of clearance until certain parties fulfil binding conditions issued by the FAS;
- extension of the review period and postponement of clearance with respect to a transaction or merger relating to foreign investments in strategic sectors of the Russian economy, until the filing under the specific foreign strategic investment rules has been made and approval granted;
- approval of the transaction or action and issuance of a binding prescription which imposes on the parties obligations aimed at promoting competition, if such transaction or action will or may lead to a restriction of competition. Such obligations can be both structural and behavioural; or
- prohibition of the transaction or action on the grounds that:
- it restricts or may restrict competition in the Russian market;
- the required information has been found to be false or has not been provided by the applicant at the request of the FAS; or
- the Government Commission on Monitoring Government Investment has blocked the transaction or respective merger on the basis of foreign investment restrictions in strategic sectors of the Russian economy.
FAS approval is valid for one year from its issuance date. This means that the parties have one year to close the transaction or complete another action.
Appeals
Right of appeal
Is there a right of appeal?
Yes – decisions and prescriptions of the Federal Anti-monopoly Service can be challenged in the arbitration courts by the notifying parties. The implementation of a prescription should be suspended until the relevant court decision enters into force.
Do third parties have a right of appeal?
Yes – third parties have a right of appeal if they can prove that they have a legitimate interest in doing so.
Time limit
What is the time limit for any appeal?
The limitation period for an appeal is three months from the date on which the respective Federal Anti-monopoly Service decision is issued.
Law stated date
Correct as of
Please state the date as of which the law stated here is accurate.
The law stated here is accurate as of April 30 2015.
