Year in review: a general introduction to merger control issues in Switzerland

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All questions

Introduction

Merger control in Switzerland is governed primarily by the Federal Act on Cartels and Other Restraints of Competition (CartA) and the Merger Control Ordinance (see also Section III). These competition regulations came into force on 1 July 1996 and were revised in 2003.

Concentrations are assessed by the Competition Commission,2 an independent federal authority based in Berne that consists of up to 15 members, who are nominated by the federal government. There are currently 12 members, the majority of whom are independent experts (i.e., professors of law or economics). As of 1 January 2023, the Commission has a new president, Dr Laura Melusine Baudenbacher, who was elected to replace former president Andreas Heinemann. Deputies of business associations and consumer organisations take the other seats. Cases are prepared and processed by the Secretariat of the Competition Commission (with a current staff of 76 full-time and part-time employees, mostly made up of lawyers and economists). It is organised under four divisions: product markets, services, infrastructure and construction. A resources division is in charge of administrative and technical tasks within the Secretariat of the Competition Commission.

The types of transactions that are subject to control are mergers of two or more previously independent undertakings and direct or indirect acquisitions of control by one or more undertakings over one or more previously independent undertakings or parts thereof. Joint ventures are also subject to merger control if the joint venture exercises all the functions of an independent business entity on a lasting basis. If a joint venture is newly established, it is subject to merger control if, in addition to the above criteria, the business activities of at least one of the controlling shareholders are transferred to it.

Pursuant to Article 9 of the CartA, pre-merger notification and approval are required if two turnover thresholds are reached cumulatively in the previous business year before the concentration as follows:

  1. the undertakings concerned have reported a worldwide aggregate turnover of at least 2 billion Swiss francs or an aggregate turnover in Switzerland of at least 500 million Swiss francs; and
  2. at least two of the undertakings concerned have reported an individual turnover in Switzerland of at least 100 million Swiss francs.

These thresholds are considered to be relatively high in comparison with international standards. A particularity of the Swiss regime is that, if the Competition Commission has previously issued a legally binding decision stating that an undertaking holds a dominant position in a particular market, that undertaking will have to notify all its concentrations, regardless of the turnover thresholds, provided that the concentration concerns that particular market or an upstream, downstream or neighbouring market (CartA, Article 9(4)). In 2020, the Federal Administrative Court confirmed the Competition Commission’s view that the proximity requirement to such other markets must be interpreted broadly (see Section II). According to Article 4(2) of the CartA, an undertaking is considered to hold a dominant position if it is ‘able, as regards supply and demand, to behave in a substantially independent manner with regard to the other participants in the market (competitors, suppliers, buyers)’.

If the thresholds are met, or in the case of a dominant undertaking (as explained above), the concentration must be notified to the Competition Commission before its implementation. If a concentration is implemented without notification or before clearance by the Competition Commission (or if the remedies imposed are not fulfilled), the companies involved may be fined up to 1 million Swiss francs. Members of company management may also be fined up to 20,000 Swiss francs. To date, the Competition Commission has imposed several fines on companies for failure to notify but there have been no criminal sanctions (fines) on members of management.

Furthermore, the Competition Commission may order the parties to reinstate effective competition by, for instance, unwinding the transaction.

The CartA does not stipulate any exemptions to the notification requirements. However, if the Competition Commission has prohibited a concentration, the parties may in exceptional cases seek approval from the federal government if it can be demonstrated that the concentration is necessary for compelling public interest reasons; however, no such approval has been granted so far.

Specific rules apply to certain sectors. Thus, a concentration in the banking sector may be subject to a review by the Swiss Financial Market Supervisory Authority, which may take over a case involving banking institutions subject to the Federal Law on Banks and Saving Banks and authorise or refuse the concentration for reasons of creditors’ protection alone, irrespective of the competition issues. If the parties involved in a concentration hold special concessions (e.g., radio, television, telecommunications or rail or air transport), a special authorisation by the sector-specific regulator may be required. Moreover, under the Federal Law on the Acquisition of Real Estate by Foreign Persons, for any concentration involving a foreign undertaking and a Swiss real estate company holding a portfolio of residential properties in Switzerland, the approval of the competent cantonal or local authorities may also be necessary.

The Swiss merger control regime features a very high standard of assessment compared with other jurisdictions; this is sometimes called the dominance-plus test or the qualified dominance test. Pursuant to Article 10 of the CartA, the Competition Commission may prohibit a concentration, or authorise it subject to conditions and obligations, if the investigation indicates that the concentration:

  1. creates or strengthens a dominant position;
  2. is capable of eliminating effective competition; or
  3. causes harmful effects that cannot be outweighed by any improvement in competition in another market.

In two decisions issued in 2007 (Swissgrid and Berner Zeitung AG/20 Minuten (Schweiz) AG), the Swiss Supreme Court had to determine whether a concentration could be prohibited if there were a mere creation or strengthening of a dominant position or whether the conditions in points (a) and (b), above, were cumulative. This question has significant practical consequences because, if the two conditions are cumulative, then a concentration must be authorised, even if a dominant position is created or strengthened, if it cannot be established that the concentration will eliminate (or is capable of eliminating) effective competition. In the Swissgrid case, the Swiss Supreme Court held that the conditions in points (a) and (b), above, were cumulative. The reasoning followed by the Supreme Court was that merger control is part of the control of market structure. Therefore, to justify an administrative intervention, the concentration must result in a concrete negative change in the market structure and the competition must be altered. In this case, the Court found that competition did not exist prior to the concentration. Accordingly, the concentration would not change the market conditions and the administrative intervention was not justified. In some cases (notably the Tamedia/PPSR (Edipresse) case from 2009), the Competition Commission examined whether the concentration could eliminate effective competition but in a way that might indicate that it is in fact reluctant to give an autonomous scope to that criterion. In practice, the efficiency gains provided in the condition in point (c), above, have only very recently started playing a role. In the Gateway Basel North joint venture case from 2019, the Commission undertook an in-depth assessment of the condition in point (c), above (i.e., whether harmful effects of a concentration in a certain market were outweighed by an improvement in competition in another market). The Commission found that the establishment of Gateway Basel North, Switzerland’s first large-scale terminal with a gateway function, eliminated effective competition for the handling of containers, swap bodies, and semi-trailers in import and export traffic, primarily with regard to the turnover of goods transported by rail and ship-to-rail trans-shipment. However, in its assessment, the Commission found that the terminal was also expected to produce substantial economies of scale in intermodal transport and increase competition in the import and export rail transport. The Commission concluded that these advantages outweighed the negative effects in the area of cargo handling and, therefore, approved the concentration.

The threshold for intervention by the Competition Commission based on single dominance depends largely on the significance of the market shares of the merging entities, whereas the intervention in the case of lower market shares may be possible based on the theory of harm of collective dominance. By way of example, in the Sunrise/UPC case from 2019, the Competition Commission examined a planned takeover of UPC (Liberty Global) by Sunrise. With the merger, Sunrise would have become the second-largest telecommunications company in Switzerland after incumbent Swisscom by offering – as does Swisscom – fixed network, broadband internet and mobile telephony services as well as digital television on its own infrastructure in Switzerland. The in-depth investigation focused on the likelihood of the creation of joint dominance of the new Sunrise and Swisscom. However, the Commission concluded that the acquisition would not lead to a collective dominance by Sunrise and Swisscom and that coordination between the companies was unlikely because UPC and Sunrise on one hand and Swisscom on the other were positioned differently. As a result, the merger was not considered to lead to the creation or consolidation of a dominant position in any of the markets analysed and, therefore, was approved by the Commission. The deal was later cancelled because it lacked the backing of Sunrise shareholders.

Year in review

i General overview

The statistics in the Competition Commission’s 2022 Annual Report showed an upward trend in mergers and acquisitions compared with the previous two years. The Commission received 49 merger notifications (a considerable increase compared with 31 in 2021 and 35 in 2020, and the second highest number since 1996). All 49 were assessed within the statutory one-month deadline and were cleared in Phase I with no conditions or additional requirements.

The most notable recent concentration in the Swiss banking sector may have set a precedent in merger control practices as its assessment and approval was carried out by the Financial Market Supervisory Authority (FINMA), quashing the competence of the Competition Commission.

The takeover of Credit Suisse (CS) by UBS was announced after much disruption surrounding the news of the precarious situation of the second biggest bank in Switzerland. The merger was facilitated by the Federal Council, the Swiss National Bank (SNB) and FINMA, all three stepping in to bail out CS (which had been deemed too big to fail). The Federal Council’s Emergency Ordinance of 19 March 2023 blocked potential opposition to the merger from UBS shareholders. The SNB provided the necessary liquid backing to secure deposits, while FINMA approved the concentration.3

Mergers of this size clearly pass the notification threshold levels requiring assessment and approval by the Competition Commission. Under Article 10(3) of the CartA, however, if a concentration of banks within the meaning of the Banking Act is deemed necessary by FINMA for creditor protection reasons, the interests of creditors may be given priority. In these cases, FINMA takes the place of the Competition Commission, which is invited only to submit an opinion. Evoking the above-referenced provision of Article 10 of the CartA, FINMA carried out the review and approval of the transaction, leaving the Commission to a great extent as a mere bystander.

Being the first of a kind, the UBS/CS merger was largely covered by the media for its possible implications on the future stability of the Swiss banking industry and its potential ripple effects on the economy as a whole. Nonetheless, or maybe for these same reasons, most scholars, financial advisers and economists alike have kept cautiously silent about FINMA having taken over from the Competition Commission in what may prove to be the concentration with the most significant effects on competition in the banking sector.

ii Notification requirements and other considerations

According to Article 51 of the CartA, any undertaking that implements a notifiable concentration without filing a notification can be fined up to 1 million Swiss francs. Within this limit, the Competition Commission has considerable discretion in determining the size of the sanction. The fine under this provision acts as a prevention mechanism for non-compliance with the notification requirements.

The Commission’s decision of June 2022 in the concentration between Swissgenetics (based in Switzerland) and New Generation Genetics (NGG, based in Wisconsin, United States) in the agriculture sector is a case in point. The transaction received clearance by the authorities; however, as the merger had not been notified in accordance with Article 9(4) of the CartA (see Section I), in September 2021, the Secretariat of the Competition Commission opened an administrative penalty procedure based on Article 51 of the CartA, which ended with a decision to approve the concentration and a sanction of 50,000 Swiss francs imposed on Swissgenetics for failure to notify.

It is evident from the decision that this case departs from the Commission’s former sanction practice that was established in 1998, known as the Curti practice after the Curti & Co AG decision). Under this practice, the following three objective criteria had to be taken into account when assessing a penalty:

  1. the position of the involved companies on the affected market, or markets;
  2. the potential threat of the concentration to competition, the risk being deemed to exist if the combined market share exceeds 20 per cent or if the market share of one of the parties exceeds 30 per cent on one of the relevant markets; and
  3. the possibility that effective competition could be eliminated because of the concentration.

In view of the maximum sanction amount of 1 million Swiss francs, the Commission considered it appropriate to start calculating the sanction from a basic amount corresponding to 0.1 per thousand of the annual turnover (but not exceeding 300,000 Swiss francs). Depending on whether the other two criteria were met, the penalty finally imposed could be significantly higher or lower than this amount.

In its June 2022 decision, the Commission changed its practice. It now examines the size of the undertaking on the relevant market (taking into account the Swiss turnover relative to one of the other competitors), the type and gravity of the infringement, and the presence of any mitigating or aggravating circumstances. In examining the type and seriousness of the violation, it takes into account criteria II and III4 developed in the Curti practice, while considerations relating to the seriousness of the breach of the duty of care are taken into account when evaluating mitigating or aggravating circumstances.

The deterring effect of Article 51 of the CartA spurred several cases in which the Competition Commission was asked to issue a notification compliance opinion in view of a contemplated merger. One such request was filed in early 2022 by Swisscom AG regarding its imminent acquisition of Innovative Web AG, Innovative Web Marketing and Service AG and Innovative Government AG. After the acquisition, the new structure, dubbed i-Web, would be assigned to the business unit of Swisscom Directories AG.

At the outset, the Commission ruled out the notification requirement based on turnover under Article 9(1) of the CartA as i-Web would not meet the necessary turnover thresholds to trigger such a requirement. The other consideration was the application of Article 9(4) of the CartA. i-Web would primarily create websites for municipalities and authorities, including cantons, schools, fire departments and the like. The Commission’s analysis of the case found that i-Web would not be active in any of the downstream markets of fixed network telephony (markets for directory data, directory listings and address directory services). The interest in i-Web would not be based on possible synergies with Swisscom Directories’ data and directory business. Rather, Directories would expand its existing offering for municipalities with the higher quality services of i-Web. The Commission concluded that the target companies of the planned concentration operated in the field of software provisioning – activity that could not be considered as being in an upstream, downstream or neighbouring market’s relationship with Swisscom landline phone services within the meaning of the above-referenced provision. The notification obligation was therefore ruled out.

Furthermore, the question on reporting obligations of foreign transactions in Switzerland is of increasing relevance in Swiss merger control practice. A good example is provided in the request filed by Post CH AG (Swiss Post) asking the Commission to issue an opinion on whether or not the merger between Bächle Logistics GmbH (purchaser) and Hugger Holding GmbH and Logistic Center Villingen GmbH (targets) should be subject to a notification obligation in Switzerland on the premise that Bächle Logistics is wholly owned by Swiss Post. All three companies are based in Germany. The concentration would be notified to the German Federal Cartel Office on the basis of relevant turnover thresholds reached in Germany after the signing.

According to Article 2(2) of the CartA, the CartA applies specifically to practices that have an effect in Switzerland, even if they originate in another country. Accordingly, a proposed concentration is only subject to notification if it has (possible) effects in Switzerland. According to the Secretariat’s practice, there is no such connection to Switzerland if, on the one hand, a joint venture has neither activities nor sales in Switzerland (in particular, it does not make any deliveries to Switzerland) and, on the other hand, no activities or sales in Switzerland are either planned or expected in the future (see also Section III below).

The case at hand did not relate to the establishment of a joint venture. Nevertheless, the Secretariat stated that the notification exception might not only apply to the establishment of joint ventures but also to the acquisition of sole control and, in particular, to cases under Article 9(4) of the CartA. Both the target and the buyer had a small number of Swiss customers; however, neither company made direct deliveries to Switzerland. Rather, these few Swiss customers were being supplied exclusively by subcontractors, which did not belong to Swiss Post. Regardless of this, the Secretariat considered that there was enough of a connection to Switzerland and with this (contrary to the opinion of Swiss Post) the exception from the obligation to notify would not apply. However, since the thresholds of Article 9(1) were not exceeded, there was no obligation to notify the transaction under Article 9(1).

Since Swiss Post is also subject to a notification obligation under Article 9(4) of the CartA – a provision that makes it mandatory to notify a planned concentration if it concerns the market on which an involved party has been held to be dominant or an upstream, downstream or adjacent market thereof – the Secretariat further examined the obligation to notify under Article 9(4). According to the Commission’s practice, the markets for transporting general cargo by road and for forwarding services by road are delimited nationally. Therefore, the transportation and logistics services of the parties to the merger could not be found to have a relationship with the activities of Swiss Post that would trigger the application of Article 9(4). Accordingly, the Secretariat also ruled out the notification obligation by Swiss Post under Article 9(4).

The principle of collective dominance is another important topic in merger control. A recent decision by the Competition Commission in the media sector provides a concrete example of the practice. In the case at hand, the Commission had to assess the symmetry risks originating from a contemplated merger in the media sector (in particular, its potential implications on advertising activities). One of the two merging groups is active in Switzerland and operates in the areas of print and online media. The other operates in Switzerland, Germany and Austria and is active in the brokering and marketing of advertising in electronic media (television, radio and online) and outdoor advertising, as well as consulting services for advertisers (e.g., digital marketing, search engine advertising and social media). The competing group (whose own merger had been approved in the past by the Commission) is a market leader in the area of targeted television and mobile advertising, and has a broad portfolio of advertising products in the television and mobile sectors unmatched by other competitors. Based on a detailed analysis of the case, the Commission did stipulate that the undertaking resulting from the planned merger would become more symmetrical to the competitor based on technology, costs, business activities and capacities. Nonetheless, the Commission held that the merger would not restrict competition as the distinctive features of the competing companies had no significant effect in the past.5

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