Introduction
When you consider an investment in Bulgaria or exiting an existing investment (either an entity, a business as a going concern or a part of it, or an income generating asset) you would diligently check if the contemplated transaction would trigger the requirement for a mandatory merger filing. In a series of articles, we discuss the key aspects that businesses and counsels should consider when implementing mergers in Bulgaria.
As a starting point, the Bulgarian merger control regime is essentially identical to the European Union merger control regime. The Bulgarian competition law on merger control has copied and effectively implements the EU merger control rules (and in particular the main EU instrument – Council Regulation No. 139/2004 – the Merger Regulation). Further, the national competition authority (the Commission for Protection of the Competition) takes into account and applies the relevant rules in compliance with the EU laws, notices, guidelines and the practice on merger control cases of the EU Commission and the courts of the EU.
Thus, in the context of a merger filing, the Bulgarian competition authority would generally apply the substantive rules practically the same as the EU Commission (DG Comp) would have applied them, should it have had jurisdiction.
When would mandatory merger control apply in Bulgaria?
A mandatory merger filing in Bulgaria with the Bulgarian Commission for Protection of the Competition (CPC) will be required with respect to a transaction, only if the applicable turnover thresholds are exceeded (see details below) and provided that the EU Commission will not have exclusive jurisdiction to assess compatibility of such transaction.
Generally, merger control applies to transactions which bring previously independent entities under common control.
Under the Bulgarian Protection of the Competition Act (PCA) a transaction may trigger merger control in the case of:
- a merger or fusion of two or more previously independent undertakings; or
- an acquisition, by one or more persons, already controlling at least one undertaking whether by purchase of securities, shares or assets, by contract or by any other means, of direct or indirect control over other (previously independent) undertakings or parts of them; or
- the creation of a joint venture performing on a lasting basis all functions of an autonomous economic entity.
It is important to note that even a change in the quality of the control (i.e. from sole to joint control or from joint to sole control) in existing entities is also regarded as a notifiable transaction.
The exceptions
As exceptions, the following transactions are not considered to constitute concentrations:
- where credit or other financial institutions or insurance companies whose activity includes transactions with securities for their own account or for third parties' accounts, acquire only on a temporary basis securities in an undertaking with the purpose of reselling them provided that:
- they do not exercise the voting rights in respect of those securities in order to influence the undertaking's competitive behaviour, or
- they exercise the voting rights only with a view to preparing the transfer of those securities and such transfer is to be made within one year after their acquisition;
- where control is acquired by a person who is authorised by law to exercise certain functions relating to the liquidation or the bankruptcy of an undertaking; and
- where control is acquired by financial holding companies provided that control is exercised solely to maintain the full value of the capital contributed and not to, directly or indirectly, determine the competitive behaviour of the undertaking(s) in which the holding participates.
The test
The CPC approval is required in respect of a transaction that:
- is between entities which are not already under the same, direct or indirect, control;
- is not within the exclusive jurisdiction of the EU Commission; and
- the following cumulative turnover thresholds are exceeded: (i) the combined aggregate annual turnover of the participants in Bulgaria (including any revenues of their respective group companies originating from Bulgaria) in the preceding financial year exceeds BGN 25 million (c. EUR 12.8 million); and(ii) the aggregate annual turnover in Bulgaria for the preceding financial year of: (*) either the target, (**) or each of at least two of the participants in the transaction exceeds BGN 3 million (c. EUR 1.53 million).
Calculation of relevant turnover
Each threshold is calculated based on the annual aggregate turnover of the undertakings concerned realized in the preceding financial year (after deduction of value added tax, sales rebates and intra-group revenues). The aggregate turnover in any and all markets in Bulgaria in which the parties have accrued revenue or income is taken into account, irrespective of whether such markets are or may be affected by the notified concentration or not.
When a party to a concentration belongs to a group, the turnover in Bulgaria of the group as a whole is to be taken into account in order to determine whether the BGN 25 million (or respectively BGN 3 million) threshold is exceeded.
When a merger filing would be mandatory?
Notification is mandatory where the relevant turnover thresholds (specified above) are exceeded.
Who will be responsible to notify?
The party acquiring sole control, or respectively the parties acquiring joint control or merging will be responsible for filing the notification.
Can you close a notifiable transaction before its clearance?
The parties should not proceed to closing before the merger clearance is available. In Bulgaria (like under the EU regime), completion of a notifiable transaction, including taking any legal or factual actions aimed at such completion (for instance, registration of any changes in the managing body of the target company, any share or asset transfers, etc.), is prohibited before merger clearance has been obtained. Otherwise, the party or parties, responsible for the filing, will be liable for failure to notify or respectively for implementing the transaction before the merger clearance decision has been issued.
[The procedure rules will be discussed in Part 2.]
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.
