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.
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.
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.