05 Sep 2017

When sharing is not caring: exchange of information in M&A transactions and Serbian competition law

This update considers how exchange of information, as an essential part of any M&A transaction (from pre-acquisition discussions, through the due diligence procedure, and up to the closing of the transaction), may cause significant competition concerns under the Serbian Competition Act in terms of potential collusion between competitors.

The prohibition on entering into restrictive agreements under the current Serbian Competition Act (CA) applies, as a general rule, to sharing of commercially sensitive information between undertakings. Relevant provisions of the CA prohibit contracts, certain contract provisions, express or tacit agreements, concerted practices, as well as decisions of undertakings associations which have as their object or effect the prevention, distortion or restriction of competition within the relevant market.

Since certain information exchanges can be regarded as a concerted practice and may lead to considerable sanctions (up to 10% of consolidated group turnover), it is clear that appropriate measures among competitors must be taken to prevent such consequences.

Which information constitutes commercially sensitive information and may trigger a competition infringement?

 In general, commercially sensitive information is that which is not publicly available to competitors, and disclosure of which would allow competitors to adjust their business strategies and reduce the strategic uncertainty. While the exchange of such information is strictly prohibited, the local competition authority has not provided further guidance, but it follows its larger European counterpart.

The European Commission prescribes that strategic information can be related to: prices (actual prices, discounts, increases, reductions or rebates), customer lists, production costs, quantities, turnovers, sales, capacities, qualities, marketing plans, risks, investments, technologies as well as R&D programs and their results. Generally, information related to prices and quantities is considered the most strategic in nature, followed by information about costs and demand.

In order to assess whether certain information is commercially sensitive, the nature of the information exchanged, the characteristics of such exchange and the affected market should be taken into consideration.

Exchange of information at different stages of the transaction

First, before entering into the due diligence procedure and exchange of information on this basis, parties will sign a non-disclosure agreement (NDA), which will further define use of the information exchanged. The NDA represents only a first formal step within preliminary discussions and commonly only impedes information sharing in relation to third parties. In this form, an NDA cannot eliminate potential competition concerns that might arise between the parties involved.

Second, the due diligence procedure is the crucial phase of each transaction. Typically, in this phase, detailed information and data are necessary in order to make a well-founded assessment of the target business, which in turn may lead to competition issues. This risk is particularly high when it comes to sharing data such as pricing policies and formulas; detailed cost information; terms of sale (financing, rebates etc.); strategies or policies relating to marketing and competition.

In a third phase, between signing and closing of a transaction, information will commonly be exchanged to secure the implementation of the merger. However, in this phase, parties involved are still independent undertakings and therefore should be on a high-alert to any potential competition infringements.

Additionally, in transactions where a merger filing obligation exists, an exchange of commercially sensitive information may constitute early implementation (so-called “gun jumping”). Namely, procedural gun jumping, under applicable merger control rules, occurs when a notifiable concentration is effectively implemented without observing mandatory pre-merger notification requirements.

On the other hand, another form of gun jumping is substantial gun jumping: a concept that captures coordination of competitive conducts between the concerned parties during preparation of M&A deals. Unlike procedural gun jumping, substantial gun jumping occurs irrespective of whether the transaction is notifiable under applicable merger control law. As a result, instead of procedural merger regulations, rules applicable to cartels govern this type of behavior. Nevertheless, companies involved in preparation of M&A transactions are also exposed to this type of gun jumping, since the M&A operation itself assumes exchange of information between competitors that might be competition sensitive (as explained above).

How to avoid and/or reduce risks?

In order to minimize the risk related to the disclosure of commercially sensitive information and potential competition law issues, the following steps should be taken:

  • Limited use of information. The NDA should not only govern information sharing in relation to third parties, but also the manner and limitations of use of the information by the parties to the NDA themselves.
  • Aggregate, outdated and general data. Exchanges of general, aggregate data, where the extraction of individualized company level information from said data is sufficiently troublesome for the data processor, are much less likely to lead to restrictive effects on competition than exchanges of company level data.
  • Clean Team. Formation of a team consisting of both, external advisors and employees (individuals not involved in strategic decision making) whose involvement, tasks and responsibilities are governed by set of precise rules established by both parties.
  • Competition lawyer. The early involvement of a competition lawyer will keep the parties informed of potential competition law risks and provide necessary procedural and substantial safeguards in this regard.

This article was previously published by Thomson Reuters/Practical Law and available on our website with the permission of the publisher.


Sources: The Competition Act (“Official Gazette of the RS”, no.  51/2009 and 95/2013), available in English: http://www.kzk.gov.rs/kzk/wp-content/uploads/2011/07/Law-on-Protection-of-Competition2.pdf ; Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, Official Journal of the European Union C 11/1, January 14, 2011, para 86, available at: http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52011XC0114%2804%29; Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, para 89, available at: http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52011XC0114%2804%29