What are Merger Control Regulations?

Merger control regulations are laws put in place by governments to oversee mergers and acquisitions between companies. Their primary goal is to maintain competitive markets by preventing mergers that could significantly reduce competition or create monopolies while MENA Merger Control Firm generally requires companies to notify and seek approval from regulatory authorities before completing certain types of mergers that vary across jurisdictions. These regulations vary across jurisdictions but generally require companies to notify and seek approval from regulatory authorities before completing certain types of mergers.

• Merger control regulations are a cornerstone of competition law, designed to prevent market distortions that could arise from unchecked consolidation of businesses. They typically apply to transactions where companies combine assets, operations, or ownership, potentially altering market dynamics. By scrutinizing mergers, authorities ensure that competitive markets thrive, benefiting consumers through lower prices, increased innovation, and wider product choices.
• These regulations often distinguish between different types of mergers, such as horizontal (between competitors), vertical (between companies in different stages of the supply chain), and conglomerate (between unrelated businesses). Each type may raise unique competition concerns that regulators assess based on market structure, the potential for market power, and the likelihood of consumer harm.
• Jurisdictions worldwide have their merger control frameworks, ranging from mandatory pre-merger notifications to voluntary filings. Understanding the specific requirements and thresholds applicable in each jurisdiction is crucial for businesses planning international expansions or cross-border mergers.

Thresholds and Notification Requirements

Most jurisdictions have specific thresholds that trigger merger control obligations. These thresholds are based on factors such as the companies' combined revenues or market shares within a particular market. If a proposed merger meets or exceeds these thresholds, the companies involved are typically required to notify the relevant competition authority and obtain clearance before proceeding.

• Thresholds triggering merger control obligations vary widely among jurisdictions and may include factors such as the combined turnover or market share of the merging entities within specific markets. These thresholds help authorities prioritize reviews for transactions likely to have significant competitive impacts.
• Notification requirements typically mandate that merging parties submit detailed information about the transaction, including market shares, financial data, and potential competitive effects. Early engagement with competition authorities allows parties to assess regulatory risks and plan accordingly, potentially influencing deal structures or timelines.
• Failure to meet notification obligations can result in severe consequences, including fines and legal challenges to the merger's validity. Understanding and complying with these requirements is essential for avoiding delays and uncertainties that could jeopardize the success of a merger or acquisition.

Review Process and Timeline

Once a merger notification is submitted, competition authorities conduct a thorough review to assess its potential impact on competition. This review process may involve gathering information from the merging parties, competitors, customers, and other stakeholders. The timeline for review varies depending on the complexity of the merger and the jurisdiction but can range from several weeks to several months.

Key Objectives of Merger Control

The objectives of merger control regulations include safeguarding consumer interests, promoting market efficiency, and ensuring a level playing field for all businesses. By evaluating mergers, authorities aim to prevent anticompetitive behaviour that could lead to higher prices, reduced choice, or lower quality products and services for consumers.

• Safeguarding consumer interests is a primary objective of merger control regulations. By preventing mergers that could lead to reduced competition, authorities aim to maintain fair pricing and quality standards across industries. This protection extends beyond immediate consumer benefits to include long-term considerations of innovation and economic efficiency.
• Promoting market efficiency involves ensuring that resources are allocated optimally within an economy. Competitive markets encourage firms to innovate, invest, and operate efficiently, driving overall economic growth. Merger control helps preserve this efficiency by fostering conditions where new entrants can compete and thrive alongside established players.
• Ensuring a level playing field supports smaller businesses and new market entrants. By preventing monopolistic practices, merger control regulations allow startups and smaller firms to compete based on merit rather than facing insurmountable barriers created by dominant market players.

Remedies and Consequences

In cases where a merger is found to substantially lessen competition, competition authorities may impose remedies or conditions to address concerns. These remedies could include divestitures of certain assets or businesses to preserve competition. Failing to comply with merger control regulations can have serious consequences, including fines, invalidation of the merger, or other legal penalties.

Credit: Tom Fisk on Pexels

Navigating merger control regulations is a critical aspect of any merger or acquisition strategy. By understanding the basics such as the objectives, thresholds, review process, and potential consequences you can better anticipate regulatory challenges and ensure compliance. Whether you're a multinational corporation or a small business, staying informed and seeking expert legal advice when necessary can help you successfully navigate the complexities of merger control regulations and achieve your business objectives while operating within the bounds of the law.

After finalizing the Purchase and Sale Agreement, the Ownership Group of Seattle Sounders FC and global investment firm Carlyle have joined forces to invest in and manage Seattle Reign FC, a prominent club in the National Women's Soccer League (NWSL). Reign FC, which has been owned and operated by France's OL Groupe since 2019, is recognized as one of the top clubs in the highly competitive NWSL, known as the premier women's soccer league in international football.

Latham & Watkins LLP represented Carlyle in the transaction with a corporate deal team led by New York partners Frank Saviano, Stelios Saffos, and Peter Sluka, with associates Adam Rosenthal, Omeed Anvar, Rachel Klein, Kaitlin Ray, and Sam Shropshire.

As part of this new structure, Sounders FC Owner Adrian Hanauer is serving as Governor of Reign FC on the NWSL Board of Governors. Carlyle’s Head of Private Credit, Alex Popov, will serve as Alternate Governor.

“Today is a milestone day for soccer in our city and I am humbled to be a part of it,” said Hanauer. “This announcement is about keeping one of the top women’s teams in the world locally rooted in our community for generations of fans to enjoy. I am a deep admirer of the Reign organization, and alongside our new partners at Carlyle, we are excited to steward this incredible club. Our goal is to be a standard-bearer in global soccer. This means creating a first-class environment for players, staff and fans, while staying authentic to our community. For anyone that loves the sport of soccer and its place in Seattle, today’s news brings everyone together and allows us all to run toward an incredible future.”

Hanauer continues, “I’d also like to take this opportunity to thank the NWSL Board of Governors and Commissioner Berman for their partnership in this process and their belief in our bid, in addition to John Textor and his counterparts at Eagle Football Holdings and OL Groupe.”

Carlyle is united with Sounders FC Ownership in a vision for the ascendancy of women’s soccer, the NWSL and Seattle Reign FC. From connecting with strategic partners, to making the right capital investments, to ensuring high-quality experiences for fans and players, Carlyle brings the commitment and resources to this partnership to drive future growth for the Seattle Reign FC. Since 2018, Carlyle’s Global Credit business has deployed more than $4 billion into the sports, media and entertainment sectors, including investments into Atalanta Bergamo FC, Infront, a global sports marketing company, and Deltatre, a technology and media solutions provider to the sports and entertainment industries.

“Today marks a significant occasion for professional women’s soccer in the United States and the greater Seattle sports community,” said Popov. “It is also an exciting moment for the Carlyle organization as we extend our investment expertise into women’s sports. We believe there is a massive disconnect between the excitement and engagement around women’s soccer and the level of investment into the leagues, teams and players that drive this fandom. In partnership with Adrian Hanauer, Hugh Weber, Maya Mendoza-Exstrom and the rest of the experienced ownership of Seattle Sounders FC, we are excited to drive investment and growth for Reign FC while engaging meaningfully with the Seattle community. Reign FC is a storied club that has seen tremendous on-field and off-field success, and we’re committed to being a steward of that success for the team. We’d like to thank Commissioner Berman and the NWSL Board for their support and partnership during this process.”

“On behalf of the NWSL and its Board of Governors, we’re thrilled to welcome this new ownership group into the NWSL,” said NWSL Commissioner Jessica Berman. “Combining the operational expertise and long-term community leadership of the group led by Adrian Hanauer, with the financial investment of one of the world’s leading investment firms in Carlyle, this group positions Seattle Reign FC for success. We look forward to the continued growth of the Club.”

Reign FC’s women-led leadership team is being helmed by Maya Mendoza-Exstrom, who steps into the role of Chief Business Officer following 10 years with Sounders FC in Major League Soccer. Partnering with General Manager Lesle Gallimore and Head Coach Laura Harvey, Mendoza-Exstrom is leading the club’s business operations, strategic growth and off-field impact. She most recently served as Chief Operating Officer for Sounders FC, where she was charged with leadership of club operations in strategic initiatives, legal and external affairs, people and culture, social justice and philanthropy, government affairs and civic relations, growth and the organization’s impact. Previously she served as the club’s first General Counsel and has been an active community leader and board member supporting several local organizations, including serving on the board of RAVE Foundation.

A product of Washington Youth Soccer, Mendoza-Exstrom is a Seattle native and has extensive experience across the youth, collegiate and professional soccer landscape. She has been a principal stakeholder in key civic matters, including Seattle’s successful bid to become an official host city for the FIFA World Cup 2026™, working in a leadership role on Seattle’s local organizing committee. An All-American soccer player at the University of Puget Sound, Mendoza-Exstrom is also a graduate of the University of Washington School of Law.

"I am excited and deeply honored to step into a role of leadership for Seattle Reign FC,” said Mendoza-Exstrom. “This game has been a part of my life since I was four years old. The opportunity to lead this club – my club – at this important moment where the unique value of women's sports and athletes is being met with investment, interest and visibility is humbling. My commitment and one I make alongside two incredible teammates in Lesle Gallimore and Laura Harvey, is simple: to accelerate the growth of our business and build our brand and fanbase to meet the opportunity of this global movement in women's sports. I believe in this club, its brand, and in the profound ability for soccer to impact our community off the pitch. I look forward to working hard along with our players, staff, partners and fans to build upon the strong foundation that has been laid. Together we strive to grow Reign FC into a globally renowned club that wins championships and leaves our sport better than we found it for the next generation."

Mendoza-Exstrom continues, “I’d also like to thank outgoing CEO Vincent Berthillot for his years of service leading Reign FC here in our market.”

It is a fact that prices for goods and services are generally speaking higher in Switzerland compared to surrounding countries like France, Germany, Italy or Austria. For decades, the Commission for Competition (Comco), its Secretariat and the courts have been elaborating substantial caselaw regarding the prohibition to restrain parallel imports into Switzerland. Contrary to the European Union that aims at ensuring and strengthening a single market across the EU, the Swiss approach is driven by the concept of “expansiveness Island” within the European continent, against which the political authorities intend to fight, for the benefit of locally based business and, ultimately, consumers. 

In January 2022, a modification of the Cartel Act entered into force, in particular its article 7. Said modification introduces the concept of relative market power by prohibiting the abuse of such relative power. More specifically, a new lit. g) has been added to article 7,which deems it unlawful to restrict buyers from purchasing goods or services offered both in Switzerland and abroad at the market prices and conditions customary in the industry of the foreign country concerned. 

Concretely speaking, this allows a buyer based in Switzerland to force a purchaser based abroad to supply it at market prices and conditions that are applied in its own country, assuming the concerned goods or services are offered in both countries. 

It is worth noting that simultaneously, the Swiss parliament modified the Federal Act against unfair competition in order to introduce a prohibition of the so-called geo-blocking (article 3a I of the Act against Unfair Competition), mirroring the European Regulation (EU) 2018/302. 

At first sight, it seems obvious that a franchisor or a master franchisor has a relative market power deriving from the franchise agreement towards its franchisees and master franchisees. Assuming the first one is based in a foreign country where the second is in Switzerland, will article 7 of the Cartel Art force it to grant to its Swiss based counterparts the conditions customary abroad?  

Relative market power Dependence 

According to the new article 4 § 2bis, a company with relative market power is one on which other companies are dependent for the supply of or demand for a good or service, because they do not have sufficient and reasonable alternatives. 

In principle, one must assume that this situation is exactly the case in a franchise relationship, assuming however that franchisor and franchisee are economically independent and shall participate autonomously to the economical process. Indeed, where franchisee and franchisor are not deemed to be “undertakings”, but are part of the same group, the group benefits in principle from the so-called “group privilege” recognized by the Swiss federal Supreme Court in connection with the limitation of parallel imports. 

Further, the concept of relative market power differs from the concept of dominance in the sense that it is not related to the positioning of an undertaking on a specific market, but it applies to an individual and specific bilateral relationship between two undertakings. In other words, the same undertaking can be deemed to have a relative market towards one contractual partner, but not necessarily another one. 

This nuance is probably not relevant with regards to franchise networks as we can assume that the same rules shall apply to all the Swiss based franchisee of the same franchise. Thus, a potential analysis by the authority shall probably more focus on the network itself and its consequences in Switzerland rather than on each any bilateral relationship, on a case-by-case basis. 

It is worth noting that neither the market shares of the concerned undertakings nor their size is relevant regarding the determination of a relative market power. In addition, it is sufficient that the concerned practice as an effect on the Swiss market, without any quantitative appreciation of such effect.  

Sufficient and reasonable alternatives 

This condition must be analysed on a case-by-case basis and is certainly the one that is critical while evaluating the position of a franchisor. Indeed, at first sight, being the franchisor of a specific cosmetic brand or pastry chain does not prevent the franchisee to decide to terminate its existing relationship to become the franchisee of a competing franchisor.  

It seems however that such an alternative shall not be deemed reasonable in the sense of the law, considering in particular the specific franchise-related investments and the conversion costs. But it remains however that the cause of the dependence still relies in the decision of the dependent undertaking to enter into the contractual relationship, even if the alleged discrimination in the supply conditions lies with the supplier, in that case the franchisor. 

Another question is whether it is necessary for the dependent undertaking to demonstrate that it effectively tried to develop alternative sourcing channel. As said above the case-law that prohibits restrictions to parallel trade is quite strict in Switzerland and one could expect the franchisee to have explored such channels. That being said, it has to be noted that nothing in the law set forth such a condition. Further, parallel trade will never allow a purchaser in Switzerland to acquire goods or services directly from the supplier at conditions that are customary abroad, as it will necessarily have to deal with an intermediary.  

The buying power? 

Certain markets in Switzerland are characterized by the presence of very strong buyers or importers. In other words, it could be very difficult for suppliers abroad to decide not to deal with those counterparts. Would such a situation have an impact on the analysis of the alleged abuse of a relative market power? 

The law does not mention the potential counter-power of the dependent undertaking that should be taken into consideration while applying the provisions on the relative market power. Considering the fact that a strong buying power can lead to certain obligations to contract under the rules prohibiting the abuse of a dominant position, one must assume that a balanced allocation of market powers on both sides might exclude the concept of dependence of one undertaking towards the other. And the dependence is one of the characteristics of the relationship that is envisaged by the new provision. 

There would be a tension between a strong market power, in general and a relative market power in particular that certainly be dealt with on a case-by-case basis, taking into consideration the criteria set forth by Article 7 Cartel Act regarding the abuse of dominance. 

In such case, this should be alleged and demonstrated as a defence by the undertaking that is deemed to abuse its relative power, in our case the Franchisor. With the modification of the law, apart from attempting to fight against the expansiveness island mentioned above, the law maker is clearly targeting an unbalanced allocation of powers between the parties. This means that such a defence should be very strictly assessed, notwithstanding the fact that it would, as a matter of principle, depends on the analysis of the position of the buyer on the market in general and not only in its bilateral relationship with its counterpart. 

From the perspective of the franchisor, the analysis of the respective market powers should not be limited to the situation on the Swiss market, as the franchisor should be deemed to be the concerned undertaking. And from the perspective of the franchisee, it is certainly utmost relevant whether it is the sole franchisee on the Swiss market, or not.  

The decision to become a franchisee 

In principle, no business is forced to become a franchisee. 

According to the message of the Federal Council in support of the proposed modification of the law, there can be no dependence when a company has put itself in a bind. 

To put it differently, the law should not support or protect those who decide to take unreasonable entrepreneurial risks considering a disproportion between the commercial risks and opportunities. This is in particular the case of those franchisee which decide for instance to establish a shop in a border area, and which is most of their newly acquired clientele eventually deciding to cross the border to acquire the same product at a lower price… Considering the size of Switzerland and its geographical location within Europe, this example is certainly not a theoretical example. 

This is a very critical point while considering the abuse of relative market power within a franchise network. Indeed, as mentioned above, it is a reality that the prices for goods and services are significantly lower in the surrounding countries of Switzerland, including within many most the well re-known franchise networks. Additionally it is also a reality that the levels of salaries, rental costs and others are significantly higher in Switzerland than in the surrounding countries. But if the conditions offered to the franchisee in Switzerland by the franchisor abroad are not similar to the conditions the franchisors offered to franchise in its own country, there is potentially an abuse of relative market power. 

The principle mentioned above regarding the lack of protection granted to the entrepreneur which established an objectively unreasonable business has something to do with the concept of fault. The dependency should not have been created by the fault of the dependent undertaking. 

As already mentioned, the establishment of a franchise is connected to adherence to a franchise model or network, which goes far beyond simply acquiring goods or services from a supplier. Evaluating the choice of the franchisee to put themselves in a situation where they depend on the franchisor – dependence which, by the way, is inherent to any franchise system- will depend on “all the circumstances”, as the Supreme Court often states.. 

In a jurisdiction where franchise law does not exist per-say and where the franchise relationships are governed by the general provisions of contractual law, unfair competition, competition law or other sectorial or specific regulations, a peculiar attention should be given by both parties, but specially by the franchisor to pre-contractual obligations and talks. The fact that no disclosure is required does not mean that no disclosure should take place.  

Conclusion  

Assuming a franchisor based in France or Germany supplies its Swiss franchisee with a significant mark-up compared to those based in France or Germany. Assuming such mark-up cannot not be objectively justified. Assuming that the franchisor is not facing significant buying power from its franchisee. This franchisor can avoid being condemned by the Swiss authorities for restricting the buyers’ opportunity to purchase goods or services at the market prices and conditions customary in the industry in the foreign country concerned, only if it can demonstrate that the franchisee knowingly put itself in that bind. This will only be possible through a very well documented and transparent disclosure of information during the pre-contractual discussion.  

About Christophe Rapin 

Christophe Rapin is a partner and co-head of Kellerhals Carrard’s Competition, Trade and Regulatory group. He is admitted to the bars of Geneva and Brussels and is recognized for his specific experience in the legal and economic aspects of business relations between Switzerland and the EU. 

Christophe assists and represents clients with regards to antitrust matters as well as competition law matters and competition law procedure (cartel investigations, abuse of dominance, national and international merger control filings, counselling & compliance). He also has wide ranging experience in international distribution, including franchising. 

He is also a member of Kellerhals Carrard’s M&A and corporate team and he is active in M&A transactions, particularly in connection to regulated industries. 

Christophe has been chairman of the Swiss Association for Competition Law (ASAS) for eight years and is currently President of the International League for Competition Law (LIDC).  

About Kellerhals Carrard 

Kellerhals Carrard has equally strong local roots in all three language regions and all Swiss economic centres. We work in all national languages and many foreign languages and have global connections with leading law firms, economic centers, and professional organizations in all areas of business. 

Our team advises domestic and foreign clients on antitrust proceedings at the Competition Commission and at civil courts, both under Swiss and European law. Many of our clients are market leaders and are therefore aware of the legal and economic implications of competition law. We also regularly represent our clients in merger control proceedings before the Swiss and European Competition Commission. In addition, our team has extensive experience in advising clients on proceedings relating to sector-specific regulations in the energy and telecommunications market.  

Christophe Rapin 

Partner, Kellerhals Carrard 

Tel: +41 58 200 33 30 

Fax: +41 58 200 33 11 

E: christophe.rapin@kellerhals-carrard.ch 

www.kellerhals-carrard.ch 

Published by Lawyer Monthly Magazine - June 4th, 2024