Has the General Court provided clarification about business transactions in which a joint venture act as a buyer?
Judgment T-380/17 of 5 October 2020 (Heidelberg Cement AG and Schwenk Zement KG v EK) assesses competition law and in this context also lays down rules for determining the relevant markets, a significant share of the EU market, an assessment of the effects on the existence of competition, estimation of the commitments by which the breach can be remedied, etc. However, in this article we focus solely on the issue of assessment of the real participants in the notification procedure.
In the actual case, the above-mentioned German companies jointly established a company named Duna-Dráva Cement Kft. (joint venture) in Hungary, in which they each held a 50% of the shares. As a joint venture, this company entered into two share purchase agreements in the Cemex group, both operating on the Hungarian and Croatian market. A transaction was concluded in cooperation with both of the German companies, i.e. shareholders of joint venture.
In the unformal notification of the concentration procedure before the EC the parties claimed that the parties to the concentration were Duna-Drava Cement Kft. as buyer and Cemex Hungary and Cemex Croatia as targets. Consequently, according to the notifying parties, it was not necessary to notify the concentration to the European Commission, but only to the national competition authorities.
The General Court has stated, in the above-mentioned Judgement, the importance of the economic reality of the actors behind the transaction and in the actual case assessed that the parent companies are the real actors in the transaction. The facts, demonstrating the stated, were shown in particular by the fact that the company Heidelberg Cement AG:
- accepted the decisions regarding the implementation and composition of the steering committee that oversees the transaction process;
- participated in the negotiations with the seller and prepared a detailed documentation, evaluation of the transactions and other key components of the transaction;
- negotiated with the seller the non-disclosure agreement;
- concluded an oral agreement regarding the key components of the transaction (including the purchase price).
The parent companies have also jointly discussed the potential structure of the transaction and the financing structure of the transaction. On this basis, the General Court concluded that the real actors in the transaction were Heidelberg Cement and Schwenk, not Duna-Drava Cement Kft. Consequently, each of the two parent companies had to be considered as the participating companies and their annual turnover had to be taken into account and on this basis, it had to be concluded whether the transaction reaches the dimensions of the EU.
In view of the above, it should be concluded that in transactions in which a joint venture successfully acquires the shares of the target, the relevant companies (with regard to the protection of the competition law) are in principle the joint venture and the target. However, this rule does not apply if:
- the joint venture is an empty shell (e.g. an SPV company);
- there are clear cases of avoidance, e.g. if a fully operational company that is not relevant for the transaction is used to carry out the transaction, and this is clear and obvious to all the participants in the transaction.
Author: Matevž Klobučar, Attorney-at-law
