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The Warsaw Voice » Law » January 26, 2012
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2011 M&A Deals in Poland: The Merger Control Lessons
January 26, 2012   
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Szymon Chwaliński, a lawyer at Gide Loyrette Nouel, talks to the Voice.

It the last year there have been several high-profile transactions on the Polish market. In some cases it became apparent that Polish merger controls are having a growing impact on the ability to implement transactions. What is your view on that as a lawyer dealing with antitrust issues?
Certainly, simply by looking at the statistics it is clear that this was a busy year in terms of the overall number of the acquisitions that were subject to merger review in Poland, or which involved Polish companies. In 2011, the Polish Competition Authority issued 172 decisions in this area, which is about 23 more than a year earlier. In 166 cases these were unconditional approvals, with two prohibitive decisions and three conditional approvals.

These numbers may give the impression that approval is simply a formality and so this part of the acquisition process does not need to be taken seriously...
I would not advise anyone to assume that the merger review in Poland is a mere formality. The antitrust scrutiny in Poland is very thorough, and the Competition Authority has made it clear on many occasions that it takes very seriously any threats to competition on the market that can be identified and is determined to counteract them.

Any examples?
The recent prohibitions on mergers are illustrative of the Competition authority’s current approach, bringing their own message to investors.

The first case concerned the Polish PGE, a major player on the domestic energy market. PGE was blocked in its attempt to take over a competitor, Energa. It turned out to be irrelevant for the competitive assessment that both companies are state-owned and that the transaction had political support from the government. Despite several economic and industrial policy arguments raised before the Competition Authority, it concluded that implementing the transaction would create too strong a market leader, and potentially bring higher energy prices to the market. The parties did not offer any concrete commitments to mitigate the potential market risks and the Competition Authority did not propose any. One may understand this uncompromising stance as a signal to the market: if the transaction generates antitrust risks, it is better to discuss them with the Competition Authority at an early stage, and even offer commitments up front, rather than waiting for the Competition Authority to voice its concerns. Otherwise a negative decision may be taken before the parties are able to react properly. Appeal proceedings are not an option for most deals, given their tight timing.

The second case raised the question whether new technology deals can enjoy any preferential treatment as the markets relevant for assessment are dynamically evolving, and thus are generally adapting to the changing market reality, such as consolidation. The blocked Empik.com/Merlin.pl merger is a failed attempt to create a domestic champion in online sales of books and music, similar to amazon.com. The parties were No. 1 and No. 2 in Polish online stores for books and music. It seems that for the competitive assessment it was decisive that the parties had a high combined market share and the highest brand recognition in the sector. The fact that the market for online sales is still growing and there is plenty of room for others did not tip the scales in favor of the deal, maybe because no evidence was provided that significant expansion on the market may indeed take place. A year down the road, there may be rumors, for example, that amazon.com is planning to enter the Polish market…

How do you read the second message then?
Even if you operate in a very competitive and dynamic market environment, and even if you are convinced that a planned consolidation will bring new quality to the market, you must be prepared to furnish evidence that the market is likely to develop, and not be dominated by you after all. This market resilience will not be assumed even for the new technology markets. You must fight for your market perception from the very beginning, even in such cases.

In your experience, have these messages been read and taken into account when preparing for the new transactions?
They have. Clients are becoming more and more aware that even if it seems evident that a transaction would not pose a threat to the market, the arguments in favor of the deal must be well developed right from the beginning, to avoid any surprises in the review process.

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