FAS merger review getting tougher and longer, say Russian lawyers

Merger review by the Russian competition authority has become more stringent recently, due to increased scrutiny in certain areas, according to several Moscow-based competition lawyers.

The process by the Federal Antimonopoly Service (FAS) typically has a one-month Phase I which can be followed by an additional two months of in-depth investigation, if required.

But reviews have become longer, and the number of Phase II investigations have increased, one of the lawyers said. This happens not because of inaccuracy, but because of more thorough scrutiny, the lawyer said. Deals involving IT and telecoms in particular appear to be getting a closer look, said a second and a third competition lawyer.

Foreign-to foreign deals are also under the competition authority’s lens, the lawyers said. Large foreign-to-foreign mergers with Russian market interest face “more scrutiny, more analysis,” confirmed an external advisor to the agency. The process has not changed, but there has been more of a focus on global mergers in recent years, he noted.

A number of factors can hold up the timetable. One of these is FAS’s increased tendency to consult any ministry relevant to the deal, the second lawyer and a fourth one said. This consultation process is not embedded in the country’s merger control rules, but we see it happening more frequently, the second lawyer said, mentioning experience in a recent deal where the authority consulted the Federal Security Service. Government agencies can be quite slow, with the result that merger deadlines are not met, the lawyer added.

Consultation with industrial ministries generally does not generate a delay of more than a month, the second lawyer said. But if FAS consults the Federal Security Service the process could be longer, the lawyer added, depending on which stage the decision to consult is taken at. If consultation occurs at the beginning of a review, for example, FAS can carry it on in parallel with the rest of the review, the lawyer said.

A FAS spokesperson said that a number of changes in competition legislation and harmonization measures have set the agency’s course for combating unfair practices of transnational corporations that have “a significant impact” on the national economy. The spokesperson highlighted measures in the antitrust and abuse of dominance field – which have resulted in less cases being brought to the authority.

National security

The Federal Security Service (Federalnaya Sluzhba Bezopasnosti or FSB) is consulted when FAS has doubts over the deal’s impact on national security, the first lawyer explained, typically in cases involving foreign investors. FAS is in touch with the Federal Security Service regularly, depending on the situation, a fifth lawyer added.

A review by the FSB can result in the deal being sent for review by the Government Commission for Foreign investments. Under Federal Law 57-FZ, which entered into force in 2008, foreign investments into strategic sectors such as defence, nuclear power and telecommunications, are subject to screening by this body. The Commission does not have deadlines in its proceedings and the fact that it only meets a few times a year can be a further source of delay.

The FAS began to conduct more stringent reviews in the autumn of 2018, said a sixth competition lawyer. The Russian government updated its foreign investment legislation in July 2017, and particularly Law 160-FZ, adding a provision that allows the Prime Minister to refer foreign-to-foreign transactions to the Government Commission for Foreign investments regardless of whether they relate to Russian strategic companies.

According to FAS data, six cases were transferred to the Commission under this procedure since July 2017.

But it took around a year for the FAS to begin encompassing it into its reviews, this lawyer said. “There was no procedure for this power, it took some time to implement and now it appears they have done so,” said the lawyer.

The sixth lawyer said that the FAS’s ‘novel’ process for scrutinising mergers was still in development, but broadly involves reaching out to agencies and ministries that might have a potential interest in the deal. This updated type of review can encompass policy goals beyond competition – but neither those goals nor the process have yet been codified, the lawyer explained. “The FAS is still trying to figure out its criteria for the political review,” said the lawyer. One criterion is to reduce foreign-owned subsidiaries from exposure to US and EU sanctions legislation, said the lawyer.

IT, tech and digital

Some IT-related deals have seen FAS consult telecoms regulator Roskomnadzor, which also oversees data privacy regulation, even if they are not officially involved in the review, said the second lawyer.

Technology transfer – granting Russian companies access to valuable technologies – is a measure that is sometimes asked for clearance on high tech deals, said Maxim Boulba, partner at CMS in Moscow. This occurred for example in Bayer/Monsanto (2018). On that occasion the regulator created the Technology Transfer Center at the National Research University’s Higher School of Economics in order to monitor access by Russian companies to Bayer technology as well as data access in the sphere of plant breeding and digital farming.

FAS is also following a general global trend within antitrust authorities of heightened scrutiny of digital related matters, the second lawyer said. New trends in digital merger scrutiny could mean that competition concerns can stem even from quite insignificant market shares, the lawyer elaborated.
FAS is thoroughly scrutinizing transactions with a digital aspect, especially when the authority feels that they can significantly affect market conditions, the FAS spokesperson said.

The authority has put several measures in place to adapt to the fast-moving digital economy, the spokesperson said. These include a large-scale package of amendments to the antimonopoly legislation and the creation of a digital investigations division within the anti-cartel department.
In 2018, FAS initiated a number of progressive measures to enhance cooperation with other competition authorities on global digital economy issues, the spokesperson said. FAS has a focus on global M&A in high-tech markets and seeks to make decisions simultaneously with foreign partners, avoid information asymmetry and inconsistent remedies imposed on the merging parties, she said.

Cooperation with other competition authorities helps FAS understand the nature of setting conditions and remedies, apply them to its national tasks and challenges, and save resources to rethink such conditions at the national level. The authority has begun to apply new approaches to setting conditions and unifying the exchange of waivers, the spokesperson said.

Data protection is another area of focus for FAS, the second lawyer said. The authority has taken the lead on data-protection initiatives, publishing guidance on foreign applications collecting data on Russian users, the lawyer said. This is a sensitive topic, but not strictly from a competition view point, the lawyer commented.

Deal parties waived Russian clearance as a condition for closing in Gemalto’s acquisition by Thales, a deal focused on data encryption. In another deal, Travelport’s acquisition by Siris Capital and Elliott, active in the online travel booking software space, FAS approval was the last condition required for the deal to complete, following approval by shareholders and board in March. The parties announced the completion of the deal on 30 May.

Travelport’s FAS review drew considerable attention due to the apparent length compared to non-obvious issues. “I was surprised they even needed a clearance, they are not a number one player in the local market and do not own any critical infrastructure,” said a source familiar with discussions around Travelport’s FAS filing.

Current deals which require FAS approval include Wabco/ZF, Inmarsat/PE consortium, Celgene/Bristol Myers and Essel Propack /Blackstone. RPC/Berry Global announced today (6 June) that their deal has been cleared unconditionally.

by Sofia Okun in London, Jacob Parry and Francesca Micheletti in Brussels