Mergers and acquisitions: what they are and when they are prohibited

Increased product sales in the market is not the only path to business growth - companies can also merge with other companies. What is known in Community parlance as a "concentration" occurs when one company merges with another or acquires control over another, enabling it to exercise a decisive influence on its operations. A concentration is also manifested when two undertakings unite their efforts in the form of a mutually-controlled joint undertaking that operates as an independent economic entity (a.k.a. full functional) in every respect, otherwise the joint undertaking would be cooperative in nature and categorized as an Agreement.

The source of concern, from the point of view of the operation of the market, is that a merger or an acquisition of another undertaking which was previously independent might substantially reduce competition on a lasting basis, and hence put the parties in a position to raise prices or impose conditions that are detrimental to consumers.

Law no. 287/90 provides that whenever the undertakings in question exhibit sales revenue in excess of certain predefined thresholds, the Antitrust Authority must be notified of any prospective merger operations before they are executed[1]. The law prescribes that advance notification must be provided for merger operations if the aggregate nation-wide turnover of each of at least two of the undertakings concerned and the turnover of the relevant group of undertakings on Italian territory exceeds predefined thresholds (presuming the absence of conditions that place the merger under the competency of the EU Commission).

The pre-merger notification form has come into force on 1 July 1996. It specifies more clearly in what instances there is no obligation to submit notification: in addition to the operations referred to in Section 5 of Law no. 287/90 (transitional acquisitions by banks or financial institutions of shares in firms; cooperative joint-ventures), and to the "infragroup" mergers (operations carried out by undertakings controlled by a single firm), a concentration has not to be notified when the parties involved do not carry out an economic activity. Furthermore, mergers that, with well-founded certainty, do not affect national markets, are not subject to the filing requirement.

The Antitrust Authority examines all of the operations it is notified of in order to determine their effects on competition. When a merger is deemed to represent the creation or strengthening of a dominant position that substantially reduces competition on a lasting basis, its realization is prohibited (Section 6 of Law no. 287/90).

The Act also provides, in addition to prohibiting mergers and acquisitions which restrict competition, a further possibility. Wherever possible, a merger or acquisition which restricts competition may be authorised by the Authority provided that the original project is amended in order to remove the distortive aspects. For example, such an operation may be authorised provided that a particular production facility or part of the acquired undertaking is sold to a third party.
In order to meet the need of companies for decisions to be taken rapidly and with certainty, a procedure has been identified which will enable the parties concerned to engage in productive discussions in the phase prior to the formal notification of mergers and acquisitions, and at the same time limit the need for the Authority to suspend statutory deadlines, bringing benefits in terms of streamlining the administration and greater promptness in issuing decisions by the Authority. The Authority''s offices are therefore at the disposal of the parties concerned for preliminary discussions of any problems connected with the formal notification of prospective mergers, provided that they exceed the second threshold provided for the obligation to submit prior notice pursuant to Section 16(1) of the Law.

[1] For motion picture distribution, the Antitrust Authority must be provided with advance notification whenever prospective mergers would result in direct or indirect control of at least 25% of the market share in one or more of the 12 zone-managing cities (Section 26 of Legislative Decree no. 28 of 22 January 2004).