Merging with a competitor

When Your Transaction Is a Merger, Even If You're Not Buying the Whole Company

A concentration of undertakings is deemed to occur if one or more entrepreneurs acquire the ability to directly or indirectly control another undertaking or part thereof, particularly by acquiring shares, stock, by contract, or by other means that enable such control (Section 12 of the Act on the Protection of Competition). A merger of two previously independent undertakings and the establishment of a joint venture that performs all the functions of an autonomous economic entity on a long-term basis also constitute a concentration.

For a joint venture, this autonomy is the decisive factor. A company founded by two partners merely as a sales channel or production capacity for each other is typically not an autonomous economic entity. Conversely, a company with its own management, resources, and market presence towards third parties can be, and its establishment is then assessed in the same way as an acquisition.

The key concept is control, not ownership. Control means the ability to exercise decisive influence over the activities of another undertaking based on legal or factual circumstances. It can be conferred by a majority stake, but also by a minority stake with veto rights over the strategic budget, business plan, or other fundamental business decisions, a voting rights agreement, or the right to appoint a majority of the board. Companies buying a thirty percent stake with a veto right are often unaware that, from the Office's perspective, they have acquired joint control.

The second often-forgotten concept is a part of an undertaking. This also refers to a set of assets used to carry out an activity to which turnover can be clearly attributed, even if it does not form a separate branch. The purchase of a single production plant, division, or customer portfolio can thus be a concentration, just like the purchase of an entire company. The same applies to the purchase or lease of an enterprise.

The third rule is the aggregation of related steps. Two or more concentrations that are mutually conditional and related in substance, time, and personnel are assessed as a single concentration. Therefore, splitting a transaction into two smaller ones to avoid reaching the thresholds does not work. The rule for calculating turnover has the same effect, whereby multiple concentrations between the same undertakings within a two-year period are assessed jointly.

Conversely, the Act excludes several narrowly defined situations. These include the temporary acquisition of shares by a bank or an investment service provider under legally specified conditions and generally for no longer than one year, and the transfer of the powers of statutory bodies to a liquidator or insolvency administrator. The conditions for these exceptions are specific and do not apply to a typical acquisition. The broader context of transaction preparation is summarized in the book on company sales.

Two Turnover Tests That Decide

A concentration is subject to the Office's approval if at least one of two tests is met (Section 13 of the Act on the Protection of Competition). In the first test, the total net turnover of all concentrating undertakings in the Czech Republic is greater than CZK 1.5 billion, and at the same time, at least two of them have each achieved a turnover in the Czech Republic of more than CZK 250 million. Both criteria must be met simultaneously.

The second test varies depending on the type of concentration. A Czech turnover of over CZK 1.5 billion must be achieved by at least one of the merging parties in a merger, by the target undertaking or its acquired part in an acquisition, and by at least one of its founders in the establishment of a joint venture. Simultaneously, another concentrating undertaking must have a worldwide turnover of over CZK 1.5 billion. This test mainly captures cases where a large Czech company is acquired by a foreign group with low turnover in the Czech Republic.

The turnover from the last completed accounting period is used, and the turnover of the entire group is counted. This is the point where thresholds are most often underestimated. A buyer who does not have a turnover of CZK 250 million on their own may have it as part of a holding, and the turnover of all entities that exercise control over them or over which they exercise control enters the calculation. On the seller's side, on the other hand, only what is being sold is counted.

Both tests are purely numerical. Market share, industry, or whether competitors are merging do not affect the obligation to file a notification; these factors only play a role when assessing whether the Office will approve the concentration. Thus, a transaction between two companies from completely different fields may be subject to approval, while a merger of two smaller direct competitors may not. For planning purposes, the situation as of September 2026 applies; the Office is preparing an amendment that is intended to raise the thresholds and introduce the possibility of requesting review of sub-threshold transactions, but this is not yet effective law.

In practice, the calculation gets stuck on data, not law. You need documents to calculate the net turnover for the last completed period for each company in the group, broken down by the Czech Republic and the rest of the world, and for the target company, only for the part that is actually being sold. When selling a division or a plant, the turnover must first be separated from the rest of the seller's company, which is impossible without their cooperation.

Whether your transaction exceeds the thresholds is a laborious calculation for groups with multiple layers and foreign parent companies, and it pays to do it before the term sheet is signed—which is why the lawyers at ARROWS law firm, together with the buyer's financial team, verify the turnover test for a specific structure.

Prohibition on Closing the Transaction Before Approval

Before filing the notification and before the decision approving the concentration becomes final, the concentration must not be implemented (Section 18 of the Act on the Protection of Competition). Signing an agreement with a condition precedent is not affected by this; what is prohibited is taking control, i.e., exercising voting rights, appointing management, or interfering in the target company's business decisions.

The line between preparation and premature implementation is thinner than it seems. A buyer who approves the target company's business plan, exchanges price information with it, or dictates which contracts to accept between signing and closing risks the Office evaluating the concentration as already implemented. Reasonable protective clauses aimed at preserving the value of the target company are permissible, but they must not prematurely transfer de facto control over its day-to-day or strategic management to the buyer.

For direct competitors, there is a second, separate risk. An inappropriate exchange of sensitive information, such as future prices or business strategies, can be a prohibited agreement distorting competition (Section 3 of the Act on the Protection of Competition), even if it does not in itself constitute a takeover of control. The transaction can thus come before the Office twice, once for the concentration and once for a cartel.

If an undertaking implements a concentration in violation of the prohibition, it commits an administrative offence. This is punishable by a fine of up to CZK 10 million or up to 10% of the net turnover for the last completed accounting period; the turnover-based rate is not used only where the purpose of the fine would not be achieved by it (Section 22a of the Act on the Protection of Competition). However, the fine is not the worst that can happen.

The Office may decide on measures to restore effective competition, even if no notification was filed at all. It can impose an obligation to sell the acquired company or part of it, to rescind the contract on which the concentration was based, or to implement other appropriate measures. A forgotten transaction can thus fall apart years after closing, with all the consequences for financing and relations with the seller.

There is an escape route for exceptional cases. The Office may, upon request, grant an exception to the prohibition if the undertakings or third parties would otherwise face serious damage or other serious harm, typically in a rescue of a company in crisis. It will decide on the request within thirty days at the latest, and if it does not issue a decision in time, the exception is deemed to have been granted. This tool is not intended for ordinary transaction time pressures.

How Long It Takes and How to Shorten the Proceedings

After initiating proceedings, the Office will, within thirty days, either decide that the concentration is not subject to approval, or approve it, or announce that it raises serious concerns and will continue the proceedings (Section 16 of the Act on the Protection of Competition). If it does not issue a decision or announce that it is continuing within this period, the concentration is deemed to have been approved. If it continues the proceedings, it must decide within five months of their initiation.

However, the clock does not start from the submission of the notification, but from the delivery of a complete notification. If the notification does not contain all the required elements, the proceedings are not initiated, and the Office will only issue an opinion that the notification needs to be supplemented. Moreover, the time from the delivery of a request for additional information until its fulfillment is not counted towards the deadlines. In practice, therefore, the quality of the documentation determines the length of the proceedings more than the statutory deadline itself.

A shorter path is the simplified procedure with a twenty-day deadline. It is available if the parties do not operate in the same relevant market or their combined share is less than 15%, and they do not operate in vertically related markets or their share in each of them is less than 25%. It can also be used when a buyer takes over sole control of a company that they previously controlled jointly with another party.

The most time is saved by filing the notification even before the contract is signed, which the law explicitly allows, and by preparing the documents in such a way that the Office does not have to request supplements. How much time to allocate in the schedule depends on how the parties' markets overlap and whether there is a risk of the proceedings continuing—which is why the lawyers at ARROWS law firm set the closing date based on a specific assessment, not on the statutory deadline. How to account for this in the non-binding phase is shown in the text on when a term sheet is binding.

How to Incorporate the Notification into the Contract and Schedule

The first step is to make the Office's approval a condition precedent to closing. The purchase agreement is signed, but the transfer of the share and the takeover of control will only occur after the decision becomes final. The contract should also include a long-stop date by which the condition must be met, and the consequence if it is not, i.e., who can withdraw and who bears the costs incurred.

The second step is to allocate responsibility for the filing and the risk of failure. Who files the notification depends on the type of concentration: in an acquisition of control, the one acquiring control; in a merger, the merging parties; and in the establishment of a joint venture, its founders. However, the seller usually has the documents about the target company, so the contract must specify who provides what, who bears the costs, and what commitments to the Office the buyer is willing to offer.

The third step is ancillary restraints, typically a non-compete clause for the seller. The decision approving the concentration also covers restrictions on competition that the parties have stated in the notification and that are directly related and necessary to the implementation of the concentration. A non-compete clause not mentioned in the notification or agreed for an unreasonably long period is not covered by the approval, and its permissibility is assessed separately under the rules on prohibited agreements.

The fourth step is the regime for the period between signing and closing. You need to protect the value of the acquired company, but you must not take over decision-making in it. A narrow list of actions for which the seller needs the buyer's consent, limited to extraordinary operations, and a separate team for the exchange of sensitive information have proven effective. How to conduct due diligence without violating this rule is discussed in the text on due diligence in a company acquisition.

In a management buyout, where the buying group is usually just being formed, the thresholds are often far off. However, if a financial investor with a broader portfolio enters the transaction, their turnover is included, and the obligation may arise. The structure of such a transaction is discussed in the text on how to structure and finance an MBO.

Mistakes That Cost a Fine or the Entire Transaction

The most common mistake is calculating the turnover only for the acquiring company. A group that buys through a newly established special purpose vehicle can easily overlook that the turnover of the entire group is counted, and complete a concentration subject to approval without a notification. The special purpose vehicle has no history and no turnover, so an isolated calculation will always come out below the threshold.

The second mistake is taking over the management of the target company right after signing. The new owner wants to make decisions from day one, places their people in management, or merges sales teams. This is precisely the conduct that the law prohibits, and an agreement with a condition precedent does not cover it in any way. If the parties are direct competitors, the risk of a prohibited exchange of information is added to this.

The third mistake is a non-compete clause not mentioned in the notification. The clause is then not covered by the decision approving the concentration, and its permissibility must be assessed separately; only if it were to distort competition as an agreement would it be prohibited and void. The buyer thus gets a contentious clause instead of certainty and the risk of losing the protection they paid for in the purchase price.

The fourth mistake is an unrealistic closing date. A schedule built on thirty days will not hold up as soon as the Office sends a request for supplementation or announces the continuation of proceedings. A purchase agreement without a buffer and without a clear long-stop date for meeting the condition then leads to a dispute over who bears the delay. Whether it is worthwhile for your transaction to go straight to full proceedings or to try the simplified one is assessed by the lawyers at ARROWS law firm based on how the parties' markets overlap.

The fifth mistake is an overlooked joint venture. Companies that establish a new company together with its own management and its own market often perceive it as a business partnership, not a transaction. However, if the partners meet the turnover thresholds and the new company performs all the functions of an autonomous economic entity, it is a concentration, and the same prohibition on closing before approval applies to it. For cross-border transactions, it is also necessary to verify whether the concentration falls under the European Commission under the terms of the EU Merger Regulation.

What to Check Before You Sign

• Acquisition of control: Are you gaining the ability to exercise decisive influence with the transaction, including veto rights over the budget, plan, or appointment of management?

• Entire group turnover: Have you calculated the net turnover for the last completed accounting period for all companies in the buyer's group?

• Target company turnover: Do you know what turnover the specific company or part of the business you are buying achieves in the Czech Republic?

• Related steps: Are other transactions with the same parties mutually conditional, so that they will be assessed as a single concentration?

• Condition precedent: Is the Office's approval a condition of closing in the contract, with a long-stop date for fulfillment and a consequence for non-fulfillment?

• Period until closing: Is the list of buyer's consents limited to extraordinary operations, and is the exchange of sensitive information ring-fenced?

• Ancillary restraints: Is the non-compete clause stated in the notification, and do its duration and scope correspond to what is necessary for the transaction?

• Closing schedule: Does the closing date account for a buffer for requests for supplementation and for possible continuation of the proceedings?

Final Summary

The article has shown that the obligation to notify a concentration is not determined by whether you are merging with a competitor, but by two turnover tests and the concept of control, which also applies to minority stakes and parts of undertakings. An overlooked notification not only leads to a fine but can lead to an obligation to unwind the transaction.

For company management, this boils down to three numbers and one date. For the first test, you need the sum of the Czech turnovers of all concentrating undertakings, including their groups, and the Czech turnover of each of them; the sum must exceed CZK 1.5 billion, and at least two individual turnovers must each exceed CZK 250 million. The date is the closing date, by which the approval must become final; without it, control cannot be taken over.

Delay does not pay off here, because the notification can be filed even before signing, and every week of waiting is directly reflected in the closing date. Transactions that went smoothly had the turnover test calculated before the term sheet and the notification prepared concurrently with the purchase agreement.

The lawyers at ARROWS law firm will assess whether the transaction is subject to approval, prepare and file the notification for approval of the concentration, incorporate it into the purchase agreement and schedule, and represent you in the proceedings before the Office. The firm also connects clients who are looking for an investor, buyer, or business partner. Write to us at consultation@arws.cz or browse our company sales and transaction advisory service.