Can the Ukrainian business be excluded from a global transaction to avoid the need for Ukrainian merger clearance?

Legal alerts

Can the Ukrainian business be excluded from a global transaction to avoid the need for Ukrainian merger clearance?

Recently, the Ukrainian competition watchdog has made it clear that the answer is no.

On 22 June 2023, the regulator imposed a hefty fine (around EUR 623,375) on Cheplapharm Arzneimittel for violating the standstill obligation and closing the acquisition of the Valcyte® business from Hoffmann-La Roche during the Phase II review.

What happened?

In December 2021, the parties asked the regulator to clear the transaction. The regulator launched the Phase II review in January 2022 after finding grounds for prohibiting the deal. During the in-depth transaction analysis, the regulator discovered that the parties had closed the deal on 1 February 2022, carving out the Ukrainian business.

Cheplapharm admitted to formally violating Ukrainian merger control rules in response to the statement of objections. However, they argued the penalties were unwarranted (or should be nominal) because:

  • the transaction excluded the Ukrainian business, resulting in no adverse effect on the relevant markets in Ukraine; and
  • the Ukrainian competition law applies to arrangements that affect or may affect the local competition environment.

Nevertheless, the regulator imposed the fine on Cheplapharm, emphasizing that the carve-out did not create a safe harbour for the parties. The regulator’s jurisdiction over the transaction was established by the fact that the parties hit the local merger control thresholds, and it was irrelevant whether they were not registered or had no direct sales in Ukraine, or the transaction did not have any impact on the Ukrainian markets.

Key takeaways

This case highlights that:

  • the carve-out arrangements designed to avoid local merger clearance are ineffective in Ukraine;
  • the regulator closely monitors public information to ensure compliance with the Ukrainian merger control rules; and
  • closing a foreign-to-foreign transaction with no or little Ukrainian nexus will still be subject to local merger clearance if the parties hit the relevant jurisdictional thresholds.

How to mitigate the potential exposure?

In our experience, if the parties are willing to take the risk and close a transaction before clearing it in Ukraine by carving out the local business, they must communicate this decision to the regulator reasonably in advance and provide sufficient evidence showing how exactly the carve-out would work from a practical perspective.

While it may not guarantee complete protection against fines, taking this step can certainly minimise them.

Feel free to reach out if you have further questions about this matter or any other antitrust inquiries.

Authors

MYKYTA NOTA

Partner

mnota@avellum.com

ANTON ARKHYPOV

Counsel

aarkhypov@avellum.com

VERONIKA HUMENIUK

Associate

vhumeniuk@avellum.com

Related practices

Posted on July 31, 2023

Law on regulation of digital content and digital services adopted

On 30 August 2023, the President of Ukraine signed Law of Ukraine “On Digital Content and Digital Services” No. 3321-IX (“Law”), designed to implement EU Directive 2019/770. The principal provisions of the Law enter into force on 2 March 2024.   Key provisions of the Law   Additional notes This LEGAL ALERT is issued to inform AVELLUM clients […]

Posted on September 8, 2023 by MYKOLA STETSENKO

Law of Ukraine on regulating activities of branch offices of foreign companies in Ukraine entered into force

On 3 September 2023, Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on the Regulation of Activities of Separate Subdivisions of a Legal Entity Established in Accordance with the Laws of a Foreign State” No. 3257-IX, dated 14 July 2023 (“Law”), entered into force. The Law improves the procedure for state registration […]

Posted on September 5, 2023 by MYKOLA STETSENKO
Subscribe to our Newsletter
Back
Search results: