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Italian Competition Authority Activity On M&A Transactions

The Italian Competition Authority (“ICA”) is a quasi-autonomous non-governmental organization established on the basis of Law no 287 of 10 October 1990 (“the Competition Law”).

The ICA operates in Italy enforcing rules against anticompetitive agreements among undertakings, abuses of dominant position as well as concentrations (e.g., mergers and acquisitions, joint ventures) which may create or strengthen dominant positions detrimental to competition. The ICA acts as both an investigative and decision-making body. In essence, the ICA controls M&A activities which might (negatively) impact the Italian market, and specifically, those turning into a “concentration” of companies.

Relevant Transactions

To determine whether a transaction falls into the ICA’s control, two main criteria must be taken into consideration:

  1.  a concentration must occur. According to the Competition Law, a concentration occurs when: a) two or more undertakings merge; two or more undertakings merge; b) an undertaking or a person already controlling an undertaking acquires sole or joint control over the whole or parts of another undertaking; or c) two or more undertakings form a concentrative joint venture through the establishment of a new company;[1]
  2.  while no general size of transaction threshold is provided[2], the turnover of the parties is relevant. According to article 16 of the Law No. 287/1990 – as recently amended – a merger is reportable to the ICA if: i) the combined Italian turnover of all the undertakings concerned exceeded €495 million (approximately USD 559 million), and ii) the individual Italian turnover of each of at least two undertakings involved in the transaction exceeded €30 million (approximately USD 33.8 million).

With regard to transactions involving foreign registered undertakings (or the creation of a joint venture or a merger in which at least one of the parties to the operation is foreign registered undertaking), the ICA’s investigation process is not normally triggered as long as the foreign undertakings do not have, at the time of the transaction or three years before, a direct or indirect turnover in Italy matching the threshold above mentioned. However, these transactions need to be notified whenever the undertaking begins its business activity on the Italian market.

Notification and ICA’s investigation

When both i) and ii) criteria are met, the ICA must be notified of the ongoing transaction. Specifically, a concentration must be notified before it has taken place (after the involved parties have bindingly agreed on the essential terms of the transaction, i.e. pre-closing agreement).[3] A failure of notification would allow the ICA to impose on any responsible party a fine up to 1% of their yearly worldwide turnover achieved through the activities related to the concentration for the previous financial year.[4]

For acquisitions, bidders acquiring control are responsible for filing the notification. For concentrative joint ventures, parent companies are responsible for filing the notification. For a merger of equals, the merging undertakings are jointly responsible for filing. For public tender offers, this duty is on the undertaking launching the offer.

Upon notification, the ICA adopts a decision within 30 calendar days: i) ICA’s powers are not applicable because the notified transaction does not fall into the thresholds above mentioned or reaches a European dimension which attracts the European Commission’s exclusive jurisdiction; ii) a clearance decision (no further investigations are needed); or iii) in-depth investigation’s opening with final decision within from a minimum of additional 45 calendar days up to 75 calendar days. At the end of this investigation, the ICA can: a) clear the transaction; b) block the merger, or c) impose specific conditions for clearance. The parties may from 1% to 10% of the turnover of the transaction’s business if the imposed conditions are not satisfied, a blocked transaction is implemented, or competition conditions are not restored when a transaction has taken place despite the ICA’s prohibition.

The investigation process before the ICA applies a substantive test: “whether a concentration creates or reinforces a dominant position on the Italian market so as to eliminate or restrict competition appreciably and on a lasting basis”. The following are the most observed factors: i) the position on the relevant markets of the undertakings concerned; ii) the structure of the relevant markets; iii) the existence of possible barriers to entry; iv) the competitive position of the domestic industry; v) the condition of access to supplies or outlets; vi) the alternatives available to suppliers and users; vii) the supply and demand trends for relevant goods and services.[5] In essence, the ICA compares the market conditions after and without the transactions, albeit other circumstances, such as market concentration, competitors’ strength, entry barriers, might be considered.

While ICA can suspend a concentration during an in-depth investigation, there is no standstill obligation after the notification but before clearance. However, many transactions, especially those involving specific complexities, are preventively submitted to ICA for clearance which turns into a closing’s condition of the transactions itself.

[1] Article 5 of the Competition Law. The same also provides The following types of transaction do not constitute a concentration: acquisition of equity holdings for purely financial purposes; any transaction leading to the creation of a cooperative joint venture; intragroup transactions (ie, those occurring between undertakings that are not independent); transactions involving companies not engaged in any economic activities; and operations not producing economic effects on the Italian markets.

[2] The only exception applies to film industry’s concentrations. A notification is required where, as a result of the concentration (irrespective of the turnover thresholds), any undertaking would hold in any of the 12 main towns (the 12 main towns are Rome, Milan, Turin, Genoa, Padua, Bologna, Florence, Naples, Bari, Catania, Cagliari and Ancona) within film distributions zones, directly or indirectly: i) a market share above 25% of the turnover from film distribution and ii) more that 25% of the operating movie theaters.

[3] More specifically: a) in case of a merger, the operation must be notified before the merger deed is drafted; b) in case of acquisition of control of an undertaking, if this is done through the purchase of equities or shares in a company, the prior notification obligation is deemed to have been complied with where the full effectiveness of the deeds establishing acquisition of control is made conditional on the ICA’s approval; and iii) in case of creation of a new joint venture, the operation must be notified before the memorandum of incorporation is filed with the Companies Register.

[4] Notification may be made as full-form or as short-form notification. The full-form notification is required for concentrations where: i) two or more parties to the concentration operate in the same affected market and the concentration will lead to a combined market share of 25% or more; or ii) one of the parties to the concentration will have, after the concentration, a market share of 40% or more, provided that at least one other party operates in an upstream or downstream market. Short-form notification is permitted for all concentrations subject to a prior notification obligation, for which full-form notification is not required.

[5] Article 6 of the Competition Law.