Two concentrations recently prohibited by the Bulgarian Commission for the Protection of Competition with limited analysis have been widely criticized for their lack of valid economic arguments. Because both decisions were highly publicized and concern the politically sensitive sectors of media and energy, they are worth special attention.
On July 19, 2018 the CPC prohibited: (1) The sale of Nova Broadcasting Group AD, the second largest media conglomerate in Bulgaria, to PPF (owned by Czech businessman Petr Kellner); and (2) the sale of CEZ’s assets in Bulgaria, including its energy distribution and trade businesses and some small renewable energy parks, to Bulgaria’s Inercom, which maintains three solar power stations in the country.
In both decisions, the commission’s legal arguments were expressed in a few paragraphs and it remains unclear why it classified the acquisition of companies which are not major competitors as potential strengthening of the acquirer’s dominant positions.
In both prohibited concentrations the overlap on the horizontal and vertical market/s is none or almost non-existent. Also, both concentrations concern acquisitions of large undertakings in Bulgaria (with market share in certain relevant markets close to or exceeding 40%) while the market share of the acquirer is insignificant (below 5%).
Thus, for instance, in the prohibited concentration of Nova Broadcasting, the parties’ activities overlap only in the market of e-commerce, where both the acquirer and the target hold a market share of less than 5%. Indeed, the Nova Broadcasting Group holds a market share of approximately 40% on the markets of TV distribution and TV advertising. In these two markets, however, the acquirer is not active in Bulgaria, and there is no overlap. Despite the lack of actual threatening horizontal or vertical overlapping, the CPC considered that the “significant amount of mass information resources, which would be accumulated by the concentrated group, would lead to its significant advantage over the other participants in the media market. Thus, the participants in the concentration would have the incentive and actual possibility to change their trade policy (e.g., by limiting the access, price increases or changes in the terms of the concluded agreements).”
In the decision prohibiting the sale of CEZ’s assets in Bulgaria, the CPC found that there was a horizontal overlap between the participants’ activities on the market for the production and wholesale supply of electricity from photovoltaic power plants. The CPC also stated that the concentration generates vertical effects on downstream markets, namely the markets for electricity distribution, and supply and trade with electricity.
However, the CPC did not assess the market shares of the participants on these markets. The CPC only referred to a potential threat for the competition by analyzing the legislative changes in Bulgaria, which concern the buy-out of electric energy produced by small electricity plants with a capacity exceeding 4 megawatts. The analysis of the CPC failed to explain why the concentration would be detrimental for the concentration under the new legal regime considering that no substantial actual change would occur as a result of the concentration.
Next, in the CEZ decision, the CPC directly prohibited the concentration after a Phase I proceeding, without initiating a Phase II proceeding. As a general principle under the Competition Protection Act (CPA), when, during a Phase I proceeding, the CPC establishes that the concentration poses serious threats to effective competition on the market, it starts an in-depth investigation and analysis of the merger’s effects on competition. The CPC, however, directly prohibited the CEZ concentration based on the Phase I investigation alone.
In the Nova TV decision, the CPC formally opened a Phase II proceeding. However, the results of those proceedings were not clear. In particular, the conclusions the CPC drew from the Phase II proceedings were identical to the conclusions it drew which led to its opening of the Phase II proceedings in the first place.
Next, the CPC did not discuss the positive effects of the concentrations in either of the two decisions. While the CPC examined the stable and substantial financial resources of the acquirers and the experience of the targets, it seems that these factors were considered as negative per se in the context of the two transactions.
It also remains largely unclear as to why recent concentrations with almost identical factual backgrounds concerning markets as those under the prohibited decisions were approved without conditions, while these concentrations were directly prohibited by the CPC.
The decisions of the CPC can be appealed to the Supreme Administrative Court in the second instance. It remains to be seen what will happen.
By Ilko Stoyanov, Partner, and Galina Petkova, Attorney at Law, Schoenherr Sofia
This Article was originally published in Issue 5.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.