The International Comparative Legal Guide To: Merger Control 2013 - Serbia - M&A/Private Equity

1 Relevant Authorities and Legislation

1.1 Who is/are the relevant merger authority(ies)?

The authority with competence over merger control in Serbia is the Commission for the Protection of Competition [Komisija za zaatitu konkurencije] ("Commission"), an independent administrative body established in 2005 and operative as of 2006. The website of the Commission is accessible at www.kzk.org.rs.

The Commission, competent to enforce competition law in its totality and not just merger control rules, is an independent governmental body responsible for its work to the Serbian Parliament.

The Commission's professional service was in 2011 composed of 31 employees, 20 of them case-handlers. Of relevance for merger control, the merger control department had 6 employees, while the legal and economic analysis departments had 3 employees each. The current number of employees is below the required number provided for by the Commission's internal organisational plan and the Commission sees understaffing as one of its main weaknesses next to financial constraints.

Pursuant to the Commission's Annual Reports, it received 114 merger notifications in 2011, of which it assessed 100 in the same year (and of which 92 resulted in Phase I clearances and two in Phase II clearances). The Commission assessed 73 notifications in 2010, 116 in 2009, 137 in 2008, 125 in 2007 and 56 in 2006.

The Commission in 2011 also had significant activities in terms of rendering official opinions, which it can do on two different grounds. The first grounds relate to interpretation of merger control rules, on the basis of which it received more than 30 requests in 2011, most of which concerned the issue of whether a given concentration is subject to notification. The second ground is founded on the Bankruptcy Act (Official Gazette of the Republic of Serbia, no. 104/2009), pursuant to which the Commission rendered 123 opinions concerning the issue of whether a given acquisition of control via bankruptcy proceedings or bankruptcy restructuring is subject to merger control.

Decisions of the Commission can be challenged before the Administrative Court of Serbia [Upravni sud] ("Administrative Court"), operational as of January 2010.

1.2 What is the merger legislation?

Merger control rules are regulated by the Law on the Protection of Competition [Zakon o zaatiti konkurencije] (Official Gazette of the Republic of Serbia, no. 51/09) ("Competition Act"), which came into force on 1 November 2009. The Competition Act supersedes the 2005 Law on the Protection of Competition (Official Gazette of the Republic of Serbia, no. 79/05), which regulated merger control rules until the entry into force of the Competition Act.

The Competition Act regulates both the substantive and procedural aspects of merger control. To the extent that some procedural rules are not regulated by the Competition Act, the Law on General Administrative Proceedings [Zakon o opatem upravnom postupku] (Official Gazette of the Republic of Serbia, nos. 33/97, 31/01 and 30/2010) applies subsidiarily. Administrative disputes before the Administrative Court are governed by the Law on Administrative disputes [Zakon o upravnom sporu] (Official Gazette of the Republic of Serbia, no. 111/09).

Certain aspects of merger control are further regulated in secondary legislation, namely:

the Ordinance on Criteria for Determining the Relevant Market [Uredba o kriterijumima za određivanje relevantnog tr~iata] (Official Gazette of the Republic of Serbia, no. 89/2009);
the Ordinance on Content and the Manner of Submission of Merger Notifications [Uredba o sadr~ini i načinu podnoaenja prijave koncetracije] (Official Gazette of the Republic of Serbia, no. 89/2009) (the "Implementing Ordinance"), which governs the required content and form of merger notifications;
the Ordinance on the Criteria for Determining the Amount Payable on the Basis of a Competition Measure and Procedural Penalty, the Manner and Deadlines for their Payment and the Conditions for Determining these Measures [Uredba o kriterijumima za određivanje visine iznosa koji se plaća na osnovu mere zaatite konkurencije i procesnog penala, načinu i rokovima plaćanja i uslovima za određivanje tih mera] (Official Gazette of the Republic of Serbia, no. 50/2010) ("Ordinance on Fines"); and the Commission's Guidelines on the application of the Ordinance on Fines (of 19 May 2011) [Smernice za primenu Uredbe o kriterijumima za određivanje visine iznosa koji se plaća na osnovu mere zaatite konkurencije i procesnog penala, načinu i rokovima plaćanja i uslovima za određivanje tih mera], which supplement the Ordinance on Fines.

1.3 Is there any other relevant legislation for foreign mergers?

There are no specific rules regarding foreign mergers. General merger control rules apply also to foreign mergers provided that the respective jurisdictional thresholds are met (please see questions 2.4 and 2.6 below

1.4 Is there any other relevant legislation for mergers in particular sectors?

The Competition Act applies to mergers irrespective of the sectors they pertain to. However, certain sector-specific regulations apply to mergers in certain sectors:

Banking: Direct or indirect acquisitions of a qualified shareholding (i.e. 5%, 20%, 33% and 50%) in Serbian banks can only be consummated subject to approval by the National Bank of Serbia ("NBS") - Article 94 of the Banks Act (Official Gazette of the Republic of Serbia, nos. 107/05 and 91/10). Acquisitions of control over companies involved in the financial sector, or establishments of such companies by Serbian banks, also require prior approval by the NBS pursuant to Article 7(4) of the Banks Act.
Insurance: Direct or indirect acquisitions of a qualified shareholding (i.e. 10%, 20%, 33%, 50% and above 66%) in Serbian insurance companies require prior approval by the NBS - Articles 30 and 32 of the Insurance Act (Official Gazette of the Republic of Serbia, nos. 55/04, 70/04, 61/05, 85/05, 101/07, 63/09,107/09, and 99/11).
Investment funds: Direct or indirect acquisitions of a qualified shareholding (10% or more) require the prior approval by the Securities Exchange Commission – Article 11 of the Investment Funds Act (Official Gazette of the Republic of Serbia, nos. 46/06, 51/09 and 31/11).
Voluntary pension funds: Direct or indirect acquisitions of a qualified shareholding (10% or more) can be made only on the basis of a prior approval by the NBS - Article 14 of the Voluntary Pension Funds and Pension Schemes Act (Official Gazette of the Republic of Serbia, nos. 85/05 and 31/11).
Media: The Broadcasting Act (Official Gazette of the Republic of Serbia, nos. 42/02, 97/04, 76/05, 79/05, 62/06, 85/06, 86/06, and 41/2009) contains provisions under which circumstances a concentration in the media sector can be prohibited.
Telecommunication: Change of control clauses contained in issued telecom licences pursuant to the Telecommunications Act (Official Gazette of the Republic of Serbia, nos. 44/03, 36/03, 50/09, 27/10, and 44/10) might require prior consent of the Serbian Agency for Telecommunications for certain qualified transfers of shares in the telecom operators.
Public-Private Partnerships and Concessions: Pursuant to the Public-Private Partnerships and Concessions Act (Official Gazette of the Republic of Serbia, no. 88/11) rights stipulated by PPPCs may be transferred to third parties only upon prior approval of the public partner.

2 Transactions Caught by Merger Control Legislation

2.1 Which types of transaction are caught – in particular, how is the concept of "control" defined?

The Competition Act catches the following types of transactions:

mergers and other status changes leading to acquisitions of undertakings;
acquisitions by one (sole control) or more (joint control) undertakings of direct or indirect control over another undertaking or undertakings; and
establishments of joint ventures or acquisitions of joint control over existing undertakings, performing on a longterm basis all functions of an autonomous undertaking.

An undertaking is deemed to have control over another undertaking if it has the possibility to exercise decisive influence on the latter's activities. Such influence can be based on: (i) a controlling shareholding; (ii) ownership or ownership rights over the assets (parts of assets) of an undertaking; (iii) rights deriving from contracts or securities; and (iv) receivables, guarantees over receivables and based on the terms and conditions of business practice.

In opinions issued 1 September 2006 (no. 126/06) and 4 November 2008 (no. 1/0 06-418/08), as well as in its Annual Reports, the Commission clarified that asset deals can equally (such as share deals) constitute a concentration only if the acquirer through purchasing the assets is conferred with decisive influence over the acquired business.

Privatisations that are administered by the Serbian Privatization Agency can be subject to the Competition Act provided that they meet the turnover thresholds.

The Bankruptcy Act provides that acquisitions of control via bankruptcy proceedings as well as bankruptcy restructurings may not be performed contrary to the Competition Act. Thus, such acquisitions of control and restructuring plans are subject to control by the Commission. Should it find that an intended restructuring shall give rise to change of control, and subject to prescribed thresholds, it shall instruct the parties to file a merger notification.

2.2 Can the acquisition of a minority shareholding amount to a "merger"?

Yes, provided that the acquisition of a minority shareholding confers (sole or joint) de facto or de jure control over the target on the acquiring undertakings (see also question 2.1).

As stated under question 2.1, an undertaking is deemed to have control over another undertaking if it has the possibility to exercise decisive influence on the latter's activities. Such influence is not limited to ownership rights, but also includes influence deriving from an agreement, securities, receivables, a controlling interest or any other factor which allow that decisive influence be exercised over business activities.

Pursuant to the Commission's opinion no. 1/0-06-409/09-2 dated 11 November 2009, effective control over a company includes a possibility to independently deliver the most important/strategic business decisions, a possibility to independently dispose of assets of a greater value, and holding of veto rights that are not limited exclusively to the protection of its investor's interests.

2.3 Are joint ventures subject to merger control?

Yes, joint ventures are subject to merger control. However, only certain joint ventures are subject to merger control, i.e. when two or more independent undertakings establish a new undertaking, or when they acquire joint control over an existing undertaking, which operates on a lasting basis and has all the functions of an independent undertaking (i.e. full-function joint ventures) and which does not purport to coordinate the market activities of the independent undertakings acquiring control.

However, if the establishment of a joint venture purports to coordinate the market activities of two or more independent undertakings, the joint venture is not deemed a concentration but shall be assessed under rules regulating restrictive agreements.

2.4 What are the jurisdictional thresholds for application of merger control?

Under the Competition Act a transaction has to be notified if either of the following thresholds is met:

the aggregate annual worldwide revenue of all the undertakings concerned in the year preceding the concentration is at least EUR 100 million, provided that at least one of the undertakings concerned achieved a national revenue of at least EUR 10 million; or
the aggregate national revenue of at least two undertakings concerned is at least EUR 20 million and at least each of the two undertakings concerned achieved a national revenue of at least EUR 1 million in the year preceding the concentration.

The Competition Act provides for special rules regarding takeovers of joint stock companies registered in the Republic of Serbia whose shares are listed. Any takeover bid for such a company has to be notified to the Commission irrespective of whether the revenue thresholds are met.

Revenue means all revenues derived from the sale of products or the provision of services in the preceding year after deduction of (i) excise duties, and (ii) intra group sales. For the calculation of the domestic revenue, in addition to the above, the value of exports out of Serbia has to be deducted. According to the Commission's opinion published in its 2010 Annual Report, revenues achieved in Kosovo are considered revenues achieved in the Republic of Serbia, pursuant to the Constitution of the Republic of Serbia. Thus, revenues achieved in Kosovo are to be taken into account for the calculations of turnovers achieved in the Republic of Serbia.

Turnovers are calculated by taking into account all revenues derived from the sale of products or provision of services in the year preceding the year in which the concentration is notified, after the deduction of exercise duties. The turnover of an undertaking assumes the total turnover of the group it belongs to, save for intragroup sales which are not taken into account. For the calculation of local (national) turnover, in addition to the foregoing, the value of exports has to be deducted. If control is acquired over part of an undertaking, only the turnover attributable to that part is to be taken into account. In case of joint ventures, total group turnovers of both joint venture partners are to be taken into account.

Special rules for the calculation of revenue apply to banks, credit institutions, financial entities and insurance companies. As regards banks, credit institutions and financial companies, the relevant revenue shall consist of the income from interest charged, net profits from financial transactions, commissions charged, income from securities, and of income from other business activities. Regarding insurance companies, the turnover thresholds are calculated by taking the value of net income from premiums into account.

2.5 Does merger control apply in the absence of a substantive overlap?

Yes. The applicability of merger control rules does not require the existence of a substantive overlap. The only criterion for the applicability of merger control rules is the fulfilment of one of the turnover thresholds outlined in question 2.4 above.

2.6 In what circumstances is it likely that transactions between parties outside Serbia ("foreign-to-foreign" transactions) would be caught by your merger control legislation?

Any foreign-to-foreign merger is subject to merger control in Serbia if the jurisdictional thresholds are met. A domestic effects doctrine has not yet been adopted by the Commission, although Article 2 of the Competition Act provides that the Competition Act applies to acts which have or might have effects on competition in the territory of Serbia. However, the decisional practice so far is not supporting the view that a transaction, besides meeting the jurisdictional thresholds, also needs to have an effect on competition in Serbia in order to trigger a filing obligation. Hence, foreign-to-foreign transactions that meet the jurisdictional thresholds of the Competition Act trigger a filing obligation in Serbia.

2.7 Please describe any mechanisms whereby the operation of the jurisdictional thresholds may be overridden by other provisions.

There are no mechanisms which provide for the jurisdictional thresholds to be overridden. However, the applicability of the sector-specific regulation outlined in question 1.4 does not require the turnover thresholds stipulated in the Competition Act to be met. Direct or indirect acquisitions of qualified shareholdings in certain sectors in principle require approval of the competent regulator, irrespective of the aggregate turnovers of the parties to the concentration. However, if the jurisdictional thresholds are exceeded, merger clearance is also required in addition to the approval of the sector-specific regulator. In addition, as explained under question 2.4, a concentration arising from the takeover of a Serbian joint stock company has to be notified even if the thresholds are not met.

2.8 Where a merger takes place in stages, what principles are applied in order to identify whether the various stages constitute a single transaction or a series of transactions?

In practice, when an acquisition of a stake in the target company is performed in several stages - the notification obligation is triggered at the moment of acquisition of the share that allows the acquirer to exercise decisive influence over the target's business activities, i.e. when an acquirer has established control over the target. This has also been confirmed by the Commission's opinion dated 11 November 2009. Pre-existing as well as subsequent acquisitions of shares in the same target do not trigger (additional) filing obligation(s). Two or more transactions between the same undertakings realised in a period of less than two years shall be deemed as one concentration that occurred on the date of the last of such consecutive transaction.

3 Notification and its Impact on the Transaction Timetable

3.1 Where the jurisdictional thresholds are met, is notification compulsory and is there a deadline for notification?

Notification is compulsory when the thresholds set by the Competition Act are met (please see question 2.4 above), as in the case of takeover bids for Serbia joint stock companies, save for certain exceptions (please see question 3.2 below).

A concentration has to be notified within 15 days following any of the following acts, whichever occurs first: (i) conclusion of an agreement; (ii) publication of a public bid or an offer or closing of the bid; or (iii) the acquisition of control.

Parties to a transaction may notify it to the Commission as soon as they can demonstrate their serious intent to enter into an agreement, e.g. by signing a letter of intent, publicising their intent to make an offer or by any other way which precedes any of the triggering events mentioned (please see question 3.1 above).

However, the parties may notify a transaction to the Commission even before one of the abovementioned events if they demonstrate their serious intent to enter into an agreement, e.g. by signing a letter of intent, publicising their intent to make an offer or any similar act.

On 11 November 2009, the Commission issued an opinion clarifying that the bidder might opt to file the merger notification within 15 days following either the announcement of the bid or the closing of the takeover bid. The deadline for filing a merger notification is therefore 15 days following the closing of the takeover bid, while the earliest moment can be any action undertaken by the parties that may prove their serious intent to execute the transaction.

Under the Competition Act, if control over the whole or part of one or more undertakings is acquired by another undertaking, the notification has to be submitted by the undertaking acquiring control. In all other cases, the notification has to be submitted jointly by the undertakings concerned.

3.2 Please describe any exceptions where, even though the jurisdictional thresholds are met, clearance is not required.

Under the Competition Act, a concentration does not arise and thus no merger control notification is required - even if the turnover thresholds are met - if:

a bank or another financial institution or an insurance company temporarily acquires shares for further resale to be realised within a period of 12 months (with possible extension of 6 months) and provided that during this period the shareholders' rights are not used to influence business decisions of the respective undertaking that concern its conduct on the market;
an investment fund or a company in charge of managing an investment fund acquires a stake in an undertaking, provided that it utilises its rights stemming from that stake only to maintain the value of its investment and under the condition that it does not influence the behaviour of that undertaking in the market;
an establishment of the joint venture that purports to coordinate the market activities of two or more independent undertakings and cannot be considered for a full-function joint venture (as it shall be assessed under rules regulating restrictive agreements); or
control over an undertaking is acquired by persons acting as a bankruptcy receiver [stečajni upravnik].

3.3 Where a merger technically requires notification and clearance, what are the risks of not filing? Are there any formal sanctions?

The Competition Act provides that parties that do not notify a transaction timely face daily fines between EUR 500-5,000 (fines are capped at 10% of the total turnover achieved by the undertaking concerned). Fines for breach of the suspension clause (see question 3.7 below) may amount to 10% of the total annual turnover realised by the undertakings involved in the last financial year.

Furthermore, the Competition Act contains provisions which grant the Commission the right to enact measures (structural or behavioural) in order to remove or prevent infringements of competition. The Commission may issue measures aimed at removal of competition infringement, i.e. prevention of possibility for creation of the same or similar infringement, by ordering certain actions to be taken or prohibiting certain behaviour (i.e. behavioural measures). These measures have to be proportionate to the competition infringement and in direct relation with acts or practices which caused such infringement. In case significant danger of repeating the same or similar competition infringement is determined as a result of the structure of the undertaking, the Commission can order a measure to change the structure of the undertaking, aiming to eliminate such danger, i.e. to re-establish the structure as it existed before the infringement was established (i.e. structural measure).

Structural measures are issued if there are no conditions to issue equally or similarly effective behavioural measures or if behavioural measures would create a disproportionate burden. Structural measures may require divestiture of an undertaking, particularly through sale of the parts of an undertaking or its property to other undertakings that are not related to the undertaking concerned.

Local practice concerning fines in merger control proceedings has not advanced much, primarily because the Commission was not previously vested the power to impose fines but had to apply to a court for the infringement to be sanctioned. The Competition Act, currently in place, empowers the Commission to impose sanctions directly and also expands the range of consequences for breaching the suspension clause. Besides fines, civil sanction of nullity and interim measures, the Commission now may also order a de-merger.

3.4 Is it possible to carve out local completion of a merger to avoid delaying global completion?

Participants to a concentration are under the obligation to suspend the implementation of a transaction until clearance is issued. Hold separate agreements have not yet been tested with the Commission. It is likely that the Commission will initially take a conservative approach to carve-out mechanisms. One of the carve out structures that might be permitted is to make use of the financial institution exception (see above question 3.2) by engaging a bank as an interim buyer of shares of the group company concerned. However, acquisitions of companies by local banks are subject to control by the NBS pursuant to the Law on Banks.

3.5 At what stage in the transaction timetable can the notification be filed?

3.6 What is the timeframe for scrutiny of the merger by the merger authority? What are the main stages in the regulatory process? Can the timeframe be suspended by the authority?

Under the Competition Act, the Commission is obliged to decide within one month from the receipt of a complete merger notification whether to clear the transaction in summary proceedings (Phase I) or to initiate investigation proceedings (Phase II). In order for a merger notification to be deemed complete, it has to satisfy the conditions prescribed by the Competition Act and the applicable Ordinance, in regard of both required content and manner of submission. Summary proceedings are initiated if it can be reasonably expected that the concentration will not significantly restrict, distort or prevent competition in the Republic of Serbia. If the Commission does not take a decision (clear the concentration in summary proceedings or open investigation proceedings) within 1 month, the concentration is deemed cleared. However, should the Commission decide to open investigation proceedings, it has to decide ultimately whether to clear or prohibit the transaction within three months from the date of initiating investigative proceedings.

3.7 Is there any prohibition on completing the transaction before clearance is received or any compulsory waiting period has ended? What are the risks in completing before clearance is received?

The undertakings concerned are under the obligation to suspend the implementation of the transaction until clearance is issued. Under the Competition Act a concentration is deemed cleared if the Commission fails to deliver a decision within 1 month following receipt of a complete merger notification (i.e. within additional 3 months following the initiation of investigative proceedings).

The Competition Act provides one exemption from the general suspension requirement. This rule applies in case of acquisitions which are performed in line with laws regulating takeovers of the joint stock companies or in accordance with laws regulating privatisations. The implementation of the transaction is permitted although not (yet) cleared only under the following conditions: (i) the filing has been made in a timely manner; (ii) the acquirer will not influence the decision-making of the company based on its shareholding (unless it is directed towards maintaining the value of its investment); and (iii) the "special" approval from the Commission has been obtained.

Fines for pre-implementation of a merger may range up to 10% of the total annual turnover realised by the undertakings involved in the last financial year. So far, the Commission has not imposed any fines in this respect.

The transaction agreement relating to the acquisition of interest in the target company (and all measures bringing about the transaction) is exposed to a sanction of nullity (although such nullity would presumably be limited only to the territory of the Republic of Serbia, however, there are no rules or developed practice in this respect). The Competition Act further contains provisions which grant the Commission the right to enact measures (as structural or behavioural measure) in order to assure compliance with the competition rules. These measures have to be proportionate to the damage caused by the uncompetitive behaviour of the undertaking concerned. The Government is yet to adopt the guidance on the implementation of the structural and behavioural measures. However, the most powerful tool in hand of the Commission is a sanction of "de-concentration" of transactions which have been implemented prior to clearance. It can take a form of spin-off of the undertaking concerned, termination of an agreement, obligation to sell the shares, etc.

3.8 Where notification is required, is there a prescribed format?

Notwithstanding the Competition Act, the form and content of notification is governed by the Ordinance on Content and the Manner of Submission of Merger Notifications (Official Gazette of the Republic of Serbia, no. 89/2009; the "Implementing Ordinance").

The merger notification shall be submitted in the Serbian language. In general, all documents in foreign language shall be submitted notarised and, where necessary, super-legalised along with the translation by a sworn court interpreter into Serbian. However, the formal requirements are not strictly observed by the Commission. The Commission is empowered to request any other information it considers relevant for the assessment of the intended concentration. Similarly, the applicant may submit other information and documents that it considers relevant for the assessment of the envisaged concentration.

3.9 Is there a short form or accelerated procedure for any types of mergers? Are there any informal ways in which the clearance timetable can be speeded up?

There is no short-form procedure for any types of mergers. The Implementing Ordinance prescribes only one type of the format in which the merger notification shall be submitted to the Commission, regardless of whether it is requested and/or whether the Commission will decide in summary or investigation proceedings. Please see question 3.6.

The only way to speed up the clearance timetable is to supply the Commission with a notification that is as detailed as possible, in accordance with relevant rules applicable to the contents of notifications (please see question 3.8 above).

3.10 Who is responsible for making the notification and are there any filing fees?

For clearance issued in summary (Phase I) proceedings a fee has to be paid in the amount of 0.03% of the aggregate annual turnover of the undertakings concerned (capped at EUR 25,000). For clearance decisions in investigation (Phase II) proceedings the fee is 0.07% of the aggregate annual turnover of the undertakings concerned (capped at EUR 50,000).

The fee shall be paid within three days following the submission of merger notification. The notifying parties also have to submit a payment confirmation to the Commission.

3.11 What impact, if any, do rules governing a public offer for a listed business have on the merger control clearance process in such cases?

A concentration brought about by a public offer has to be notified within 15 days following the publication of a public bid or an offer or closing of the bid, whichever occurs first. In its opinion dated 11 November 2009, the Commission clarified that the bidder might opt to file the merger notification within 15 days following either the announcement of the bid or the closing of the takeover bid. The deadline for filing a merger notification is therefore 15 days following the closing of the takeover bid, while the earliest moment can be any action undertaken by the parties that may prove their serious intent to execute the transaction.

Furthermore, in case of acquisitions which are performed in line with laws regulating takeovers of joint stock companies, the acquisition may be performed, although not (yet) cleared, under the following conditions: (i) the filing has been made in a timely manner; (ii) the acquirer will not influence the decision making of the company based on its shareholding (unless it is directed towards maintaining the value of its investment); and (iii) the "special" approval from the Commission has been obtained.

3.12 Will the notification be published?

The notification, or its respective parts, shall not be published. However, the Commission shall publish (i) its conclusions on initiating investigative (Phase II) proceedings, as well as (ii) the operative part of its (final) decisions. They shall be published in the Official Gazette of the Republic of Serbia, as well as on the Commission's website (www.kzk.org.rs).

4 Substantive Assessment of the Merger and Outcome of the Process

4.1 What is the substantive test against which a merger will be assessed?

In appraising a concentration, the Commission makes a prospective analysis of whether the concentration would cause a "significant restriction, distortion or prevention of competition, particularly as a result of the creating or strengthening of a dominant position". When carrying out the appraisal, the Commission will take into account the following factors:

structure of the relevant market;

existing and potential competitors;
market position of undertakings involved in the concentration and their economic and financial power;
freedom of choice when choosing suppliers and consumers;
legal and other market entry barriers;
the level of competitiveness of the undertakings involved in the concentration;
trends of supply and demand of relevant goods and/or services;
trends of technical and economic development; and consumers' interests.

In the Victoria Group/Soja Protein decision [case number not available] which was rendered in Phase II, the Commission after assessing entry barriers, the choice of suppliers available to customers of the merged entity, low transaction costs, and the incentives and possibilities of the parties to foreclose competitors, concluded that the transaction shall not lead to significant negative effects, although it did strengthen an existing dominant position in the market. In the Fresenius Medical Care/Incentive Aktiebolag (Gambro) decision [case number not available] which was also rendered in Phase II, the Commission, with particular reference to the large market share of a competitor of the post-merger entity, found that the transaction shall not lead to significant anticompetitive effects although it did further strengthen an existing dominant position in the market. The Commission also took into account the claim by the parties that the merger should result in lower prices and greater choice for consumers.

4.2 To what extent are efficiency considerations taken into account?

The Competition Act foresees that protection of competition shall be ensured to the benefit of consumers. Furthermore, when assessing concentrations, attention shall be paid to "interests of consumers". However, the Competition Act does not provide further guidance as to what consumer interests are. Nonetheless, pursuant to Article 2 point 23 of the Ordinance on the Content and Manner of Submitting a Merger Notification, a detailed explanation of expected benefits to consumers resulting from the concentration has to be provided in the merger notification, with particular reference to benefits such as lower prices, improved quality, wider choice and innovations. Thus, a legal basis for the Commission to take into account efficiencies when assessing mergers is in place, although there are no further guidelines as to how efficiencies will be weighed against potential anti-competitive effects.

Efficiency considerations can also be seen in the decisional practice of the Commission, as it analyses possible efficiencies resulting from the concentration in its decisions. However, to the best of our knowledge, significant attempts to substantiate and/or quantify efficiencies have not yet been undertaken by the Commission.

4.3 Are non-competition issues taken into account in assessing the merger?

No. The Competition Act and applicable bylaws are not concerned with non competition issues nor are they given a prominent role in merger analysis, although they may be reflected upon by the Commission in the course of review.

4.4 What is the scope for the involvement of third parties (or complainants) in the regulatory scrutiny process?

The Competition Act provides that the Commission shall publish its conclusions on initiating investigative (Phase II) proceedings in the Official Gazette of the Republic of Serbia and on the Commission's website. Although the matter is not regulated further by the Competition Act or bylaws, third parties can provide the Commission with information, data and opinions relevant for the transaction under review. Furthermore, third parties that prove their legal interest may get involved in the regulatory scrutiny process and request access to certain (non-confidential) information that has been submitted to the Commission.

4.5 What information gathering powers does the regulator enjoy in relation to the scrutiny of a merger?

In the case of an investigation procedure being initiated, the Commission has various investigative powers. The Commission is entitled to request documentation and data, statements from the parties, witnesses, experts, inspections and interim measures.

Furthermore, the Competition Act provides that parties that do not comply with a request to provide documentation and/or data face dailyfines (procedural penalties) of between EUR 500-5,000 (capped at 10% of the total turnover achieved by the undertaking concerned).

The Commission imposed such fines for the first time in 2011, in the Dehaize/Delta Maxi case, where it imposed fines on three undertakings (Veropoulos – SuperVero, CDE S and KTC) that failed to comply with the Commission's request to provide certain data for the purpose of the merger review. By way of example, Veropoulos – SuperVero was fined EUR 26,500 for 53 days of delay, a decision subsequently upheld by the Administrative Court.

4.6 During the regulatory process, what provision is there for the protection of commercially sensitive information?

On request by the parties to the concentration or third parties who provided certain information for the purpose of merger review, a measure by which the source of data or the data itself shall be declared confidential may be imposed by the president of the Commission. In order for the source or the data to be declared confidential, two conditions have to be satisfied: (i) the interest of the party demanding confidentiality has to outweigh the interest of the public to have that source or data non-confidential; and (ii) the party demanding confidentiality has to prove as probable that damages might occur if the source or the data are revealed.

In any case, it is advisable that confidential data be designated as such from the outset by the participant to the concentration in the merger notification itself, as well as that all submissions (and in particular merger notifications) be submitted together with nonconfidential versions of those submissions.

The parties have the right to access the Commission's file and make copies of certain documents; however, records on voting, official reports and draft decisions, records labelled as confidential, as well as data designated as confidential cannot be accessed. The Competition Act provides that third parties that prove their legal interest to be informed about the current state of a proceeding may be provided with such information.

In practice so far, the Commission rarely publishes whole decisions but only the operative part of its decisions. However, on several occasions (in high profile cases and under the rules of the previous merger control regime which is not in force as of 1 November 2009) the Commission published whole decisions, some of which without omitting data which might be considered confidential (i.e. transaction details, market shares, shareholdings, turnovers, etc.; see e.g. Commission Decision no. 6/0-02 138/07-15 in the case Primer C/C Market).

Letters, notices and all other forms of communication between the parties and their attorneys, directly relating to the procedure itself, shall be considered as privileged communication. In case there is doubt that such privileged communication is used in an abusive manner, the president of the Commission may inspect the contents of such communication, and if required, may withdraw the privileged status in its certain aspects.

5 The End of the Process: Remedies, Appeals and Enforcement

5.1 How does the regulatory process end?

Pursuant to the Competition Act, the Commission may either:

reject the notification if the jurisdictional thresholds are not met or the notified transaction is not a concentration in terms of merger control rules;
cease the procedure if the notification is withdrawn;
clear the concentration unconditionally;
clear the concentration subject to conditions;
or prohibit the concentration.

5.2 Where competition problems are identified, is it possible to negotiate "remedies" which are acceptable to the parties?

Yes. If the Commission concludes that the notified concentration shall restrict, distort or prevent competition, it shall issue a statement of objections to the parties to the concentration in order to notify them of the facts and conditions on which it intends to base its decision. In their answer to the Commission, the parties to the concentration may suggest measures to be undertaken with the goal to remove any anti-competitive concerns. The Competition Act allows for both behavioural and structural measures. If the Commission is of view that such measures are sufficient and as a result of them the concentration shall not restrict, distort or prevent competition, it shall clear the concentration subject to conditions. The terms and conditions under which the concentration shall be cleared, as well as methods of monitoring/supervision of their implementation, shall be stipulated in the clearance.

5.3 To what extent have remedies been imposed in foreign-to-foreign mergers?

Remedies in terms of foreign-to-foreign mergers have been imposed only exceptionally. By way of example, behavioural remedies have been imposed in the Lufthansa/Austrian Airlines case (Commission Decision no. 6/0-02-114/09), where the merged entity was obliged to maintain the existing code-share arrangement entered into between JAT Airways and Austrian Airlines AG on the Belgrade–Vienna route and to refrain from increasing prices of tickets on that route. No structural remedies have been imposed in case of foreign-to-foreign mergers.

5.4 At what stage in the process can the negotiation of remedies be commenced? Please describe any relevant procedural steps and deadlines.

If the Commission concludes that the notified concentration shall restrict, distort or prevent competition, it shall issue a statement of objections to the parties to the concentration in order to notify them of the facts and conditions on which it intends to base its decision. In their answer to the Commission, the parties to the concentration may suggest measures to be undertaken with the goal to remove any anti-competitive concerns. However, although the Competition Act suggests that remedies are offered only once the Commission has notified the parties that it intends to prohibit the concentration, we are of opinion that remedies could be offered from the outset of the merger review process.

5.5 If a divestment remedy is required, does the merger authority have a standard approach to the terms and conditions to be applied to the divestment?

The Competition Act expressly provides that the Commission may require divestment as a remedy. However, it does not regulate in detail how it shall approach the terms and conditions to be applied to the divestment and relevant guidelines in this respect are yet to be adopted.

The Competition Act provides that remedies need to be proportionate and directly aimed at the competitive concern they aim to remedy. As a general proposition, structural remedies shall be required if no equally effective behavioural remedy may be imposed, or if a behavioural remedy would be a greater burden on the parties to the concentration than a structural remedy. To the best of our knowledge, no divestment remedies have yet been imposed by the Commission.

5.6 Can the parties complete the merger before the remedies have been complied with?

The parties are obliged to act in accordance with the Commission's decision. The Commission may approve a concentration subject to conditions specifying the manner in which those conditions shall be performed and the applicable deadlines. If the conditions are not fullfilled, the Commission may impose measures required for the restoration or maintenance of competition on the relevant market; also the Commission may reassess the concentration.

5.7 How are any negotiated remedies enforced?

Pursuant to the Competition Act, negotiated remedies may be enforced in two ways. Firstly, if parties to a concentration fail to implement the negotiated remedies, the Commission may revoke its conditional clearance. Secondly, failure to comply with negotiated remedies may entail fines for the undertaking in violation in the amount of up to 10% of the total annual turnover in the financial year preceding the violation.

In the course of 2009, the Commission issued two conditional clearances. In one, the acquirer Delta Maxi d.o.o. (the company involved in food retail) acquired control (i.e. 72.9355% share) over TP Srbija a.d. which owns numerous business premises through the city of Kragujevac. The Commission imposed an obligation on Delta Maxi d.o.o. to maintain the lease agreements of TP Srbija a.d. and to report to the Commission any annex to these agreements for the next three years. The purpose of this measure was that the competition on the food retail market is preserved and that Detla Maxi d.o.o. is prevented from acquiring a market share over 40% in the territory of Kragujevac.

The second conditional clearance relates to the Lufthansa AG and Austria Airlines AG merger (Commission Decision no. 6/0-02-114/09 in the case Lufthansa/Austrian Airlines). The merger entity was obliged to maintain the existing code-share arrangement entered into between JAT Airways and Austrian Airlines AG on the Belgrade–Vienna route and to refrain from increasing prices of airplane tickets on that route. In case that an increase in prices is equired, the Commission needs to approve the new pricelist.

Remedies were not accepted by the Commission in the intended Sunoko/Hellenic Sugar merger, which was ultimately prohibited by the Commission (Commission Decision no. 6/0-02-18/2012-3 dated 19 January 2012). The concentration would have been brought about by the acquisition of Hellenic Sugar Industry S.A., a Greek producer of sugar with production plants in Serbia, by Sunoko d.o.o., a Serbian producer of sugar. As a result of the concentration, the number of market participants on the Serbian sugar production market (from sugar beet) would have been reduced from three to two, with the post-merger entity having a market share of almost 80%. In the course of the review, Sunoko submitted two remedy proposals with a view to facilitate a conditional clearance of the intended concentration. The proposed remedies comprised both structural (divestment of a part of business activities) and behavioural measures (price adjustments), but were not ultimately accepted by the Commission.

5.8 Will a clearance decision cover ancillary restrictions?

Neither the Competition Act nor any bylaws regulate the issue of ancillary restraints. To the best of our knowledge, the Commission has not dealt with the issue of ancillary restraints in its case law. However, at the same time, there is nothing to prevent the Commission from also clearing ancillary restraints in its decisions. Nonetheless, such restraints can at the request of the parties be individually exempt from prohibition by the Commission in separate proceedings.

5.9 Can a decision on merger clearance be appealed?

Yes. Merger control decisions of the Commission can be appealed before the Administrative Court.

The Competition Act fails to provide a list of persons who can lodge an appeal against a decision of the Commission. According to the Law on Administrative Disputes, the following list of persons are entitled to lodge the claim: (i) the parties to the transaction; (ii) an interested third party or public body if it can be the holder of any right deriving from the decision; and (iii) a competent authority in case that the decision infringes the law.

Lodging an appeal does not postpone the enforcement of the decision. Upon request by the parties, the Commission may postpone the enforcement of its decision at the request of the undertaking concerned until the decision of the Administrative Court becomes final. Such request is permissible if the enforcement of the Commission's decision would cause irreparable damage to the plaintiff, in particular if it could most likely lead to its bankruptcy or cause termination of business activities of the appellant, provided that such postponement is not against public interest.

5.10 What is the time limit for any appeal?

The time limit for appeal is 30 days from the day of receipt of a decision.

5.11 Is there a time limit for enforcement of merger control legislation?

Pursuant to the Competition Act, the time limit for determining and imposing fines (for pre-implementation of concentration or failure to comply with conditional clearance) is three years following the infringement, while only one year for imposing procedural penalties.

6 Miscellaneous

6.1 To what extent does the merger authority in Serbia liaise with those in other jurisdictions?

The Commission is a member of the International Competition Network and it participates in the OECD Regional Initiative on Competition Law and Policy in SEE and in the SEE Competition Authorities Network. The Commission has recently also started cooperating with the United Nations Commission on Trade and Development on competition policy.

However, of particular interest to the Commission is its relationship with the DG Competition of the EU Commission. The relationship is primarily based on the Stabilization and Association Agreement signed between Serbia and the EU and its Member States. Pursuant to the agreement, the Commission is, inter alia, under obligation to take into account relevant EU rules and developments when resolving cases, as well as report to the EU Commission on legislative and enforcement efforts.

The Commission also cooperates with foreign competition authorities, i.e. the competition authorities of Austria, Albania, Bosnia and Herzegovina, Croatia, Hungary, Kazakhstan, Macedonia, Montenegro, Slovenia and Russia.

On national level, the Commission shares information with a number of authorities whose work might have effects on competition, or on the application of competition rules: the Agency for Telecommunications; the Energy Agency; the Anti-corruption Agency; the Agency for the Prevention of Money Laundering; the Agency for Pharmaceuticals; the Commission for the Control of State Aid; and the Serbian Chamber of Commerce, etc.

Besides such cooperation (information-flow), the Commission has signed cooperation agreements with the National Bank of Serbia, the Agency for Telecommunications and the Energy Agency, while a cooperation agreement with the Central Securities Depository and Clearing House is still in draft phase.

The cooperation agreement with the National Bank of Serbia, as the supervisory body of all financial institutions, addresses the full disclosure of available information (including confidential information) and sets out the obligation on the National Bank of Serbia and the Commission to notify each other on any infringement conducted in the financial sector of the Republic of Serbia. The institutions have undertaken to provide each other with all necessary support for gathering the required data.

6.2 Are there any proposals for reform of the merger control regime in Serbia?

There are currently no proposals for reform of the merger control regime in Serbia.

6.3 Please identify the date as at which your answers are up to date.

18 September 2012.

This article appeared in the 2013 edition of The International Comparative Legal Guide to: Merger Control; published by Global Legal Group Ltd, London. Online: www.iclg.co.uk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Serbia: The International Comparative Legal Guide To: Merger Control 2013 - Serbia