TerraLex Cross-Border Guide to Pre-Merger Notification Guide

Yes, concentrations which reach the thresholds outlined in question 4 below require notification and clearance from the Director General (Competition), (“the Director General”).

The Control of Concentration Regulations (L.N. 294 of 2002 as amended by L.N. 299 of 2002, 49 of 2007, 349 of 2011 and Act XVI of 2019 of the Laws of Malta) (“the Regulations”) do not provide for a system of voluntary notification. Only concentrations that fall within the scope of the Regulations may be notified to the Director.

The scope of the Regulations shall apply to concentrations defined as follows: - the merging of two or more undertakings that were previously independent of each other; or

• the acquisition by one or more undertakings by one or more persons already controlling at least one undertaking, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more undertakings.

The undertakings concerned may or may not be within Malta provided that, to qualify as a concentration, the aggregate turnover in Malta of the undertakings concerned during the previous financial year must have exceeded €2,329,373.40 and each of the undertakings concerned had a turnover in Malta equivalent to at least 10% of the combined aggregate turnover (in Malta) of the undertakings concerned. The bracketed words “(in Malta)” do not appear in the relevant provision of the Regulations but the Malta Competition and Consumer Affairs Authority (“the Authority”), has confirmed that its interpretation of the Regulations is that in order to determine whether the second threshold of 10% of combined aggregate turnover is met, it will consider the combined aggregate turnover of the parties in Malta.

Furthermore, the Regulations also provide that the creation of a joint venture performing on a lasting basis the functions of an autonomous economic entity shall also be considered a concentration.

“Control” is defined as the acquisition of the possibility of exercising decisive influence over an undertaking, in particular:

• through ownership or the right to use all or part of the assets of an undertaking; or
• through rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking, provided that even persons or undertakings not holding such rights or entitled to such rights under the contract concerned are deemed to have acquired control if they have the power to exercise the rights deriving therefrom.

The thresholds provided in the Regulations which, if met, give rise to a mandatory obligation to notify the concentration (if such concentration falls within one of the definitions provided in question 1 above) in Malta are the following:

• The aggregate turnover in Malta, of the previous financial year, of the undertakings concerned must exceed €2,329,373.40. The undertakings concerned include both the acquiring party as well as the acquired party, and
• Each of the undertakings concerned must have had a turnover in Malta equivalent to at least 10% of the combined aggregate turnover in Malta of each of the undertakings concerned, in the previous financial year as referred to above.

Concentrations which do not fall within the thresholds listed above do not require notification and therefore clearance from the Director General.

As outlined in the reply to question 3 above, the Regulations apply to joint ventures. The first proviso to regulation 2(d) provides that the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity shall be deemed to be a concentration, more specifically, a full-function joint venture. To this end, the notification procedures outlined apply.

When describing the nature of the joint venture in the notification itself, full-function joint ventures must be specified as such.

The Regulations provide that in order for a concentration to be notifiable in Malta in terms of Maltese law, the undertakings concerned must necessarily have income arising in Malta. Furthermore, the law states that the aggregate turnover in Malta of the undertakings concerned must reach certain specific thresholds.

The notification of a concentration is to be made in accordance with the provisions of the CN Form contained in a schedule to the Regulations. his CN Form requires the notifying parties to provide the following information:

• the notifying party and all parties to the concentration;
• the nature of the concentration;
• the extent to which the parties are involved in the concentration;
• the economic and financial structure of the concentration;
• the proposed structure of ownership and control;
• the worldwide and Maltese turnover;
• details on product and market descriptions (including structure of supply and demand, market entry and pre-existing agreements in the market) together with all supporting documentation; and
• all ancillary restrains entered into by the parties to the concentration and other involved parties (including the seller and minority shareholders).

The duration for compilation of the CN form would depend on the undertaking concerned (the period of time such undertaking has been operative), the nature of the transaction and the business of the undertakings concerned, the relevant market and other such factors.

Due to Malta’s membership in the European Union, notifying parties are required to include an analysis of the relevant market in the CN Form. This analysis should be based on the terms of relevant EC Guidelines, ECJ jurisprudence and other legislation. This should be reflected in the CN Form submitted to the Director General.

The Regulations provide that in certain specified instances, as listed below, a simplified procedure by which notifying parties are not required to submit the full concentration notification form (“CN Form”). These instances may be summarised as follows:

• where two or more undertakings acquire joint control of a joint venture, provided that the joint venture has no, or negligible, actual or foreseen activities, within the territory of Malta because the turnover of the joint venture and/or the turnover of the contributed activities is less than €698,812.02 in the territory of Malta and the total value of assets transferred to the joint venture is less than €698,812.02 in the territory of Malta;
• where two or more undertakings merge, or one or more undertakings acquire sole or joint control of another undertaking, provided that none of the parties to the concentration are engaged in business activities in the same product and geographical market, or in a product market which is upstream or downstream of a product market in which any other party to the concentration is engaged;
• two or more undertakings merge, or one or more undertakings acquire sole or joint control of another undertaking and two or more of the parties to the concentration are engaged in business activities either in the same product and geographical market and their combined market share is less than 15% or in a product market which is upstream or downstream of a product market in which any other party to the concentration is engaged and their combined market share is less than 25%.

If the transaction in question fits within the above-mentioned parameters, then a request to submit a short form notification may be made to the Director General who shall allow such a short form notification to be submitted.

In submitting the simplified short form notification, the parties are released from the obligation of providing all the information required in the full CN form.

A notification fee of €163.06 is due by the notifying party or parties on submission of the duly completed notification form. The law does not provide for a reduction of the fee for the submission of a simplified short form notification.

Concentrations shall be notified to the Director General within fifteen working days following the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest. Concentrations are not to be put into effect until notified and cleared by the Director General. The Regulations do not provide any guidance on the earliest time that a notification may be filed.

In the event of a public bid, the Regulations provide that the implementation of a public bid is not prevented due to lack of notification, provided however that the acquirer does not exercise the voting rights attached to the securities in question or does so only to maintain the full value of those investments and on the basis of a derogation granted by the Director General.

The Regulations provide specifically that concentrations cannot be put into effect until they have been notified to and cleared by the Director General in terms of the Regulations. The Director General is bound to give a decision on the notified concentrations within the time periods listed in question 11 below. Upon a decision by the Director that a notified concentration is not unlawful, such a concentration may be completed.

The Director General shall examine the notification within the following time-limits: - six weeks (or if the information in the notification is incomplete, from the day following that of the receipt of the complete information) from such notification;

• the period of six weeks referred to above may be increased to two months if the notifying parties provide further information or commitments to the Director General within the 5th week of the six week period referred to in 11 above1. The parties may also request that the Director, at his discretion, suspend the time periods referred to herein for a period of three weeks so as to discuss a new or substantially revised commitment proposal.

Where the Director General finds that a notified concentration raises serious doubts as to its lawfulness in terms of the Regulations, he will initiate proceedings. If in the course of the proceedings, the Director General finds that:

• following modification of the submissions by the notifying party, the notified concentration does not infringe the Regulations, he shall take a decision as soon as it appears that the serious doubts are no longer founded. Such decision shall be taken within four months from the date on which proceedings are initiated;
• following initiation of proceedings, the notified concentration infringes the Regulations, the Director General shall take a decision within four months from the date on which proceedings are initiated; the parties may further request to submit commitments with a view to rendering the concentration lawful in terms of these Regulations and may request that the Director General further suspends the time limit for a further period of one month and the Director General may only refuse in exceptional circumstances.

The Director General is also empowered to suspend any of the time limits imposed by law when he is required to request additional information from the notifying parties or order an investigation on the undertakings concerned.

Where the simplified procedure is applied, the Director General’s decision must be taken within four weeks from the date of notification.

The realistic time frames vary depending of the level of information provided to the Director General in the CN Form.

Please also refer to our reply in question 9 above.

The failure to notify the transaction may expose the undertakings concerned to the imposition of a fine which is recoverable as a civil debt in favour of the Government of Malta by the Director General. The undertaking in the economic interests of which the person so found guilty was acting will also be jointly and severally liable with the person found guilty for the payment of the said fine.

The closing of a transaction before it has been declared lawful by decision of the Director General, may expose the undertakings concerned to the imposition of an administrative fine of up to 10% of the total turnover of the undertaking or association of undertakings concerned in the preceding business year.

It should be noted that the Regulations permit the parties to a merger to make a reasoned request to the Director General for implementation of the merger prior to notification or prior to the decision of the Director General. The Director General is authorised, in terms of the Regulations, after taking into account the effects of the suspension on the parties to the merger and to third parties, as well as the threat to competition posed by the merger, to grant a derogation allowing the merger to take effect prior to notification or final decision. This derogation may be made subject to conditions and obligations in order to ensure conditions of effective competition.

As discussed above, the Regulations do not provide a statutory waiting period. In order for a concentration falling within the thresholds discussed above to be put into effect, clearance from the Director General is always necessary. However, although the Regulations do not provide for a statutory waiting period as such, they also state that in the event that the Director General has not taken a decision within the time frames as outlined in question 11 above, a concentration is deemed to have been declared lawful in terms of the Regulations.

The Regulations also state that a decision of the Director General, including naturally clearance, may be revoked by the said Director General in the event that:

• such decision was based on incorrect information for which one of the undertakings concerned is responsible or where this has been obtained by deceit;
• the undertakings concerned commit a breach of commitment attached to the decision.

Such a revocation, in the circumstances listed above, does not appear tobe restricted by any time limit, in that it appears that the Director Generalmay revoke such decision at any time after the putting into effect of aconcentration.

Finally, it may also be noted that a Director General’s decision is subject toreview by the Civil Court (Commercial Section), upon the request ofeither:

• third parties who during the course of the process were entitled to a hearing with regards to the proposed concentration; or
• the undertakings concerned may, within twenty days of notification of the final decision, or in the case of third parties within twenty days of its publication, file an application before the Court on points of law and, or of act, requesting an appeal from the decision of the Director General. The Director General or any party to the proceedings before the Court who feels aggrieved by the judgment of the same Court may appeal on points of fact or law before the Court of Appeal.

The Regulations do not provide any guidance on the matter

The Director General acting through the Office for Competition established in terms of article 13 of the Malta Competition and Consumer Affairs Authority Act (Chapter 510 of the Laws of Malta) has the authority to review merger transactions.

The Director General has the power to determine whether a notified concentration falls within the scope of the Regulations and whether it would have an appreciable effect on the Maltese market. As described further in this paper, a concentration shall not be put into effect until a decision of the Director General has been given. Therefore, the Director General has the power to impede a transaction on the basis of the Regulations.

Furthermore, the Director General may impose conditions on notified concentrations in order for them to be declared legal in terms of Maltese law.

The Regulations provide that parties to the concentration are legally bound to provide all information requested by the Director General. However, no person may be compelled to disclose information that may be the subject of professional secrecy. The Director General and the public officers attached to his department, on the other hand, are bound also by the rules on professional secrecy and are prohibited from disclosing any information acquired in the course of the assessment of the proposed concentration.

Furthermore, the Regulations include other instances which provide for the protection of confidential information. The Director General, for example, is bound to take account of the legitimate interest of undertakings in the protection of their business secrets when publishing the fact of the notification in the Government Gazette and the Daily newspapers.

It should be noted also that no commercially sensitive information will be made public or available to third parties at any stage of the proceedings.

Finally, the Director General as well as the public officers attached to his department are subject to the provisions of the Professional Secrecy Act, (Chapter 377 of the Laws of Malta) and the Criminal Code of Malta (Chapter 9 of the Laws of Malta).

The Regulations or the Act do not provide any specific guidance on the matter. It may be noted that it is unlikely that a concentration that would not have an appreciable effect on the Maltese market would face challenge. In order to assess whether a concentration would have an appreciable effect on the Maltese market, the Regulations adopt the “substantial lessening of competition test” (“SLC Test”) applied in the US, Canada, Australia and the UK and Ireland, amongst others. The Director’s remit is to determine whether or not the merger might substantially lessen competition in the market, irrespective of whether or not a position of dominance will thereby be created.

Furthermore, in terms of Regulation 18(8) of the Regulations, the Director General, in his judgement relating tothe effects on competition, is mandated to have recourse to the judgments of the Court of Justice of the European Union, and to relevant decisions and statements of the European Commission, including interpretative notices on the relevant provisions of the TFEU and secondary legislation relative to competition and may also refer to its decisions and those of the Competition and Consumer Appeals Tribunal.

It is generally advisable to obtain guidance from the Director General prior to any dealings that may give rise to proceedings under the Regulations or the Competition Act.

We are not aware of any specific regulation concerning investment controls or similar regimes in respect of potential concentrations. Nevertheless, there are a range of various legislative instruments that may affect the conclusion and/or outcome of a concentration in Malta. These are generally the following:

• The Listing Rules published by the Listing Authority (the Malta Financial Services Authority) in the event of a sale of shares of a publicly listed company;
• The External Transactions Act (Chapter 233 of the Laws of Malta) and related subsidiary legislation in respect of restrictions on the application by non-residents for the issue, acquisition, sale and redemption of securities not listed on the Malta Stock Exchange in local companies established, or to be established, in Malta have to be cleared by the Registrar of Companies of the Malta Financial Services Authority;
• Transfer of Business Regulations (Legal Notice 433 of 2002, as subsequently amended) and the provisions of the Employment and Industrial Relations Act (Chapter 452 of the Laws of Malta) regulating the position of employees following a take-over.

Finally, in terms of its obligations as a Member State of the European Union, mergers may also be subject to the Cross Border Mergers of Limited Liability Companies (L.N. 415 of 2007) and the provisions of the Companies Act (Chapter 386 of the Laws of Malta) generally in relation to the regulations of mergers and acquisitions.