By: German Zakharov & Dmitry Domnin (The Antitrust Attorney)
The Russian merger control regime is established by Federal Law No. 135-FZ dated July 26, 2006 “On Protection of Competition” (“Competition Law”). Details on merger control procedure and required submissions are provided in various regulations issued by the Russian antimonopoly authority, the Federal Antimonopoly Service (“FAS Russia”). For example, FAS Russia’s Order No. 129 dated April 17, 2008 “On Approval of a Form for Submitting to the Antimonopoly Authority of Information when Filing Applications or Notifications under Articles 27 – 31 of the Competition Law.” In addition, in 2021 FAS Russia published clarifications on merger control rules (“Merger Guidelines”)[1]. While this document is of a non-obligatory nature, applicants are still encouraged to review the Merger Guidelines when analyzing proposed transactions and preparing filings.
In addition to merger control rules, it also is important to analyze a planned transaction from the foreign investment regime perspective, which is established by two primary laws – Federal Law No. 57-FZ dated April 29, 2008 “On the Procedure for Making Foreign Investment into Companies of Strategic Importance for National Defense and State Security” and Federal Law No. 160-FZ dated July 9, 1999 “On Foreign Investments in the Russian Federation.” In 2008, a special body was created to review issues of control by foreign investors: the Government Commission on Monitoring Foreign Investment, chaired by the Russian Prime Minister. Within the process of reviewing such transactions, FAS Russia acts as a supporting authority, analyzing documents submitted by the applicants and providing analytical support to the Government Commission.
Transactions in the banking and financial sectors also may require separate regulatory approvals from the Central Bank of Russia depending on the transaction’s structure.
2 Transactions Subject to Merger Control Rules
All planned transactions must be analyzed by considering both (1) triggering events and (2) filing thresholds. A merger control filing is required if the transaction meets the criteria for a triggering event (2.1 below) and is above the filing thresholds (2.2 below).
2.1 Triggering events (types of transactions subject to review under Competition Law)
- Direct acquisitions of shares of a Russian joint-stock company or participatory interest in authorized capital of a Russian limited liability company. This group of triggering events relates to several types of transactions depending on an amount of purchased voting shares (participatory interests). More specifically, the following transactions trigger the merger control procedure:
- A direct acquisition of more than 25% of shares of a Russian JSC by an acquirer that does not hold any voting shares of the target or holds not more than 25%. For example, an acquirer intends to purchase 30% of company’s shares from a sole shareholder.
- A direct acquisition of more than 50% of shares of a Russian JSC by an acquirer if it already has not less than 25% and not more than 50% of shares. Referring to the previously described example, the acquirer purchased 30% and one year after decided to increase its stake by acquiring another 30% (60% in total).
- A direct acquisition of more than 75% of voting shares of a Russian JSC by an acquirer if it already has not less than 50% and not more than 75%. For example, the acquirer decided to increase its stake once again by way of acquiring 30% of shares in addition to the 60% stake that it already has (90% in total).These stepped share thresholds relate to any step-by-step increase of a stake in a Russian company. Acquisitions of 100% of shares in a single deal require only one filing.The same principle applies to the Russian limited liability companies but the percentages of directly acquired participatory interests differ: the filing will be triggered in case of an acquisition of more than 1/3, 50% or 2/3 of participatory interests in authorized capital of a Russian limited liability company.Indirect acquisitions (including foreign-to-foreign transactions with a Russian nexus) are assessed under the rules described in Point (C) below.
- An acquisition of fixed production assets located in Russia and (or) intangible assets located in Russia if their value exceeds 20% of the value of total fixed production and intangible assets of a transferring company. Under the Merger Guidelines, the value of assets should be calculated according to the latest available balance sheet of the selling company.In practice this rule usually applies to the transactions that are structured as a direct acquisition of Russian assets connected with a particular business of a company without acquiring a separate legal entity. For example, if an acquirer intends to purchase Russian plants and trademarks for manufacturing of a particular product, and under the latest available balance sheet of a seller the value of these assets constitutes 30% of the value of total fixed and intangible assets of the transferring company, the transaction meets the criteria for this triggering event.
- An acquisition of rights enabling an acquirer to control business activity of a target company or an acquisition of rights to exercise functions at the executive body of the target company. The target company here means (1) a Russian legal entity or (2) a foreign company supplying products to Russia for more than RUB 1 billion (approximately USD 13.46 million) during the year preceding the date of closing of a planned transaction.In contrast to the triggering events described in Point (A) above, for this case Competition Law does not provide any quantitative thresholds for acquired shares (participatory interest), and the necessity of merger control clearance depends on the scope of the acquired rights. Generally, a merger control filing under this ground is required if the acquisition of the rights leads to acquisition of opportunity to actively control decisions of the target company.Competition Law and the Merger Guidelines provide examples of what may be considered as an acquisition of rights: a direct/indirect purchase of more than 50% [2] of voting shares of the target company and (or) a direct/ indirect acquisition of rights to appoint a CEO and (or) more than 50% of members of the collegial executive body of the target company. Besides, contractual arrangements may provide the acquirer with the rights to give binding instructions to the Russian target, such as that all terms of business activity shall be defined by the particular person/entity…
