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The Regulatory Framework for Mergers and Acquisitions Back  
John Handoll and Derek Fish review the existing mergers legislation and summarise some recent developments in the area.
With the current level of economic activity in the State, the Minister for Enterprise, Trade & Employment is being kept busy in her role as regulator of mergers and acquisitions. The Department‚€ôs 1997 Annual Report records an increase of 17% from 1996 in the number of transactions which were notified under the 1978 Mergers Act (as amended). This Act is the principal legislation monitoring and controlling the competitive and other effects of merger and take-over activity in Ireland.

However, mergers and acquisitions may also raise separate competition law questions under the Competition Act, 1991 (as amended in 1996). Consequently, parties to a proposed merger or acquisition, whether or not covered by the Mergers Act, must consider whether their transaction would be likely to adversely affect competition in the market affected by the transaction and, if so, whether the transaction should be separately notified to the Competition Authority (the ‚€úAuthority‚€Ě).

Clearly, the prospect of having to notify a merger to two separate bodies, the Authority and the Department of Enterprise, Trade and Employment under two separate legislative regimes, imposes a significant burden on parties to a proposed transaction.

Despite the Authority‚€ôs useful 1997 Category Certificate on mergers, which assists businesses in assessing the application of the Competition Act to a particular proposal, the debate continues as to whether mergers and acquisitions should be regulated by the Competition Act. This issue, which is currently being considered by ‚€úThe Competition and Mergers Review Group‚€Ě (the ‚€úMergers Group‚€Ě) is expected to become clearer with the publication of the Merger Group‚€ôs final report during 1999.

Finally, it is important to bear in mind that mergers or acquisitions which have a ‚€úCommunity Dimension‚€Ě within the meaning of EC Merger Regulation will fall outside the scope of Irish Competition legislation and must be notified to the European Commission.

The Mergers Act

The Mergers Act requires mandatory prior notification of mergers or acquisitions where two or more enterprises, as defined in the Act, at least one of which carries on business in the State, come under ‚€úcommon control‚€Ě. Completion of the transaction must therefore be conditional on ‚€úclearance‚€Ě under the Act. The Act will apply to a proposed merger where, in the most recent financial year, the value of the gross assets of each of two or more of the enterprises to be involved in the proposal is not less than IR¬£10 million or the turnover of each of those two enterprises is not less than IR¬£20 million.

‚€úCommon control‚€Ě arises where:

· One enterprise obtains the right to appoint or remove the board or the committee of management of the target enterprise;

· One enterprise acquires sufficient assets of the target enterprise to enable it to effectively replace the seller in the business concerned;

· The acquiring enterprise obtains control of more than 25% of the voting rights of the target enterprise (unless the acquirer already holds more than 50%).

The notification itself must be made by each of the enterprises involved and must be made within one month of an offer capable of acceptance having been made. Failure to do so may lead to fines of up to IR£200,000 and an additional IR£20,000 for each additional day of default.

Following receipt of the notification, the Minister may, within one month, request additional information. If such information is requested, which is commonly the case, the Minister has a three month period from the date of its receipt within which to approve the transaction (either conditionally or unconditionally) or to prohibit it. If it is not forbidden in the time allowed, clearance will be deemed to have been granted. The criteria for clearance refers to the ‚€úcommon good‚€Ě which is in practice concerned largely with employment and competition issues. The Minister may simply decide that the merger or acquisition should not be prohibited. However, if further investigation is needed, the Minister must, within 30 days, refer the notification to the Competition Authority which has at least 30 days to advise the Minister on whether the deal would be likely to restrict competition or operate against the common good. After receipt of the Authority‚€ôs report, the Minister may prohibit the merger, subject it to conditions or allow it to go ahead. Given the timetable, the parties should, to be on the safe side, allow a period of at least 4 months for completion of the transaction.

The Competition Act

According to the Woodchester Decision of the Competition Authority, Section 4 of the Competition Act applies to a merger having an adverse effect on competition, whether or not the merger is already caught by the Mergers Act.

This parallel system of merger control in Ireland means that, even if a merger has been approved by the Minister under the Mergers Act, it could be open to challenge by third parties, particularly an aggrieved competitor, if the deal has an adverse effect on competition. The validity of the Woodchester approach was recently challenged in the High Court in relation to the proposed acquisition by GIG of United Beverages. However, the case was settled without this point being decided.

For the present, in order to enhance legal security, the parties may decide to notify the proposal to the Competition Authority which will take the following factors into account when assessing whether a merger restricts competition:

· The level of competition in the market;
· The ease of competitor market entry for potential competitors;
· The level of actual/potential competition from imports;
· The general structure of competition in the market; and
· Any vertical effects which could result from a merger between firms which operate at different stages in the production or distribution process and which may lead to market foreclosure.

Unlike the Mergers Act, there is no obligation to notify a proposed transaction to the Authority. There are no time limits for notification imposed on the parties or on the Authority to reach a decision. In practice, the Authority may grant either a Licence, which permits an agreement which would otherwise be void and in breach of the Act or a Certificate, which is a statement of the Authority that, in its opinion, the agreement does not offend against the Act. It can, of course, refuse to grant either.

Category Certificate on Mergers

In December 1997, the Competition Authority adopted a Category Certificate in respect of agreements involving a merger and/or sale of business. This Category Certificate sets out the approach of the Authority to the question of the applicability of the Act to mergers. It lists, on the basis of market concentration tests, when the Authority considers that a merger will not contravene the Act. Even if the market concentration levels as set out in the Category Certificate are exceeded, the Certificate will apply if the barriers to entry into the relevant market are low or there is a significant degree of actual or potential competition from imports. The Authority will also consider the general level of competition in the market and the nature of any vertical effects. However, the Certificate will not apply where either party already has 35% of the relevant product market. The critical issue will often be the question of the appropriate product market definition.

In practical terms, any merger which cannot be brought within the terms of the Certificate may need to be notified to the Competition Authority for individual consideration.

Recommendations of the Mergers Group

In July 1998, the Mergers Group published its interim report on mergers, which contains some key recommendations concerning the future of mergers legislation. The Group has already invited submissions on this report and it is currently considering all comments which were received by 30 September 1998. Its key interim recommendations include the following:

· The mandatory system of notification should continue under the Mergers Act where defined financial thresholds are exceeded. The existing thresholds, which are based on gross assets and turnover, should be replaced with a single IR£30 million turnover threshold for each party.

¬∑ Mergers should be initially notified to the Competition Authority and a two-tier system should be introduced, with strict time limits. The Competition Authority would examine the Competition aspects of the notified merger in the first instance. If no competition issues arise, such mergers would be ‚€úfast-tracked‚€Ě. If competition issues do arise, the Authority should report to the Minister for Enterprise, Trade and Employment who could request the Authority to carry out a more in-depth investigation. In both cases, the final decision would rest with the Minister.

· The Mergers Group recommends that Sections 4 and 5 of the Competition Act (which prohibit anti-competitive arrangements and the abuse of a dominant position) should no longer apply to mergers, per se, nor to any directly related restrictions which are an integral part of the merger.

EU Merger Control

Finally, it is important to be aware that a merger or acquisition within the State may be caught by the EC Merger Control Regulation which creates a system of merger control at Community level. The Community in principle has sole competence for all ‚€úconcentrations‚€Ě which have a ‚€úCommunity Dimension‚€Ě, that is, involving enterprises whose turnover exceeds the thresholds set out in the Merger Regulation. A concentration will only have a ‚€úCommunity Dimension‚€Ě if the combined aggregate world-wide turnover of all the undertakings concerned is at least ‚ā¨2.5 billion (IR¬£1.9 billion) and where other EU wide turnover thresholds have been exceeded. Such concentrations must be notified within one week of the merger agreement, the announcement of the public bid or the acquisition. The Commission has a period of one month within which to make an initial assessment and a further four months if serious competition issues arise. The definition of a ‚€úconcentration‚€Ě is based on the acquisition of direct or indirect control.

The current state of Irish Mergers law is unsatisfactory, given the double jeopardy situation created by the Mergers Act and the Competition Act. This creates a degree of uncertainty for parties considering a merger or acquisition. However, it is hoped that, over time, a clear and effective framework will emerge from the recommendations of the Mergers Group and future judgments from the Irish Courts

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