AUTHORISATION OF THE ACQUISITION OF FTC KFT BY FOTEX RT
The Competition Council cleared the acquisition of control over FTC Labdarúgó és Sport Kft by Fotex Rt. It also established that the notification of the acquisition for clearance was delayed and therefore missed the legal deadline.
I. The transaction
Fotex bought 80% of FTC Labdarúgó és Sport Kft (hereinafter FTC Kft) the 21 July 2001 from the owner sport club, FTC. The price was to be paid in four parts but the ownership moved to Fotex at the beginning of August 2001. At the next assembly of FTC Kft the articles of association were amended on a way, which ensured 80% voting rights for the club irrespective of its share in the undertaking. After the acquisition Fotex made re-capitalisation two times resulting in the increase of its share to 99.6 per cent.
On 2 August 2002 Fotex Rt notified the acquisition to the Competition Authority if it were a temporary acquisition under Article 25  of the Competition Act. These transactions do not qualify as concentrations under the condition that the ownership does not take longer than one year. As the date of resale was uncertain Fotex Rt asked the Competition Authority firstly to clear the acquisition secondly supposing that clearance is not possible to extend the period of temporary ownership. The secondary request was withdrawn at the public trial of 22 January 2003.
II. Undertakings affected by the transaction
The Fotex Group
The Fotex Group is built up around Fotex Rt which functions as a property managing holding company. Fotex Rt is controlled by Blackburn International Inc partly directly and partly indirectly through Plaza Park Kft and Fotex Ingatlanfejlesztési Kft. Zürich Investment Inc also has a minority share in Fotex Rt.
The undertakings belonging to the Group are active on the following markets
glass and crystal products,
production of furniture,
real estate management,
optical and photo products,
e-commerce, stationery, household equipment, clothing
Moreover Fotex Ingatlanfejlesztési Kft controls MTK Hungária Sport Kft which ones main activity is professional soccer.
FTC Kft was established by the sport club FTC for professional soccer.
III. Obligation for notification
The acquisition in its original form ensured direct control for Fotex and therefore qualified as a concentration under the Competition Act. The turnover thresholds established by the Act were also met. Therefore the acquisition of control was subject to authorisation.
IV. Markets affected by the concentration
As one of the undertakings was active solely on the market of professional soccer the Competition Council examined only this relevant market segment. Professional soccer as a market activity consists of different sub-activities, which result in revenues. Among these there are
participation in Hungarian and International leagues and cups,
disposition over playing rights of soccer players,
revenues from sponsorship and advertising,
The activities above do not always end up in revenues. Firstly it depends directly and indirectly on the results reached by the teams. Success in international cups means direct financial contribution form UEFA and increases the number of spectators of the individual matches and incomes from sales of tickets and sponsorship. However e.g. disposition over broadcasting rights might be restricted by national or international rules. At present in Hungary these rights are at the disposal of the Hungarian Football Federation.
Beside its economic nature soccer is a sport as well and the rivalry among the teams can not be subject of an investigation of the Competition Authority. The purely economic activity of the professional clubs can not be easily distinguished from this latter. At the establishment of the relevant market the Competition Council connected the success of the team with the economic activity of the owner undertaking. Therefore professional soccer is a product which can only be exercised and provided through participation in the national league and which is indispensable for the mentioned sub-activities of economic nature.
The relevant geographic market was established as Hungary.
V. Effects of the concentration
Both Fotex Rt and FTC Kft are active on the market of national professional soccer through the teams MTK and FTC respectively. At the time of the decision these two teams were among the first half of the first division of 12 teams. Calculating on the basis of the number of the teams each team had a share of 8.5 per cent and due to the concentration the share of the merging parties rose to 17 per cent. The Competition Council considered that there are no great differences among the weight of these 12 teams as
they have to provide the same financial guarantees at the beginning of the season,
compared to other ones the level of the national championship is low and the chance to successfully participate in international cups and leagues is unlikely,
broadcasting rights are sold by the Football Federation and therefore the income of the teams are more or less the same amount,
the attendance on the matches of the championship is generally low, ticket prices are similar,
the value of a team as an advertising medium does not increase considerably until it does not get into an international cup,
there are no footballers at the teams which ones sell could considerably increase a team`s income.
Based on these circumstances the Competition Council considered that the concentration did not have horizontal effects.
The concentration`s vertical effects on the market of advertisements were also negligible.
The concentration had no portfolio effects as Fotex Rt have already owned an undertaking active on the market of professional soccer. Such effects were unlikely even if the concentration resulted in the considerable strengthening of the financial background of FTC and even if we take into account that FTC had the largest number of supporters and the second largest number of average attendance per matches. Better financial background might end up in the possibility of restriction of competition only if it were accompanied by successful appearance in international cups.
The Competition Council established that the concentration did not established or strengthened dominant position on any of the relevant markets.
VI. General conditions of temporary acquisitions
Three conditions are established at Article 25 of the Competition Act a transaction shall meet in order to qualify as a temporary acquisition not subject to authorisation of the Competition Authority:
only specific undertakings professionally dealing with sale and purchase of other entities may enter such transactions  ,
the aim of the transaction shall be to prepare the undertaking for resale,
controlling rights shall not be used to a greater extent than indispensable to the attainment of these objectives.
The scope of the undertakings mentioned at the first condition is defined in other Acts and in Regulation 4064/89/EK. This latter could serve as a source of interpretation as the purpose of the amendment of the Competition Act in 2000, which enacted the relevant provisions was to harmonise Competition Law with that of the EC. The Competition Council established that the aim of the completion of Article 25 was to clarify the notion of temporary acquisition avoiding the possibility of its arbitrary interpretation by the undertakings. Previously it might have happened that a non-financial undertaking, which acquired an undertaking for short-term strategic purposes, with the intent to participate in the management of it without asking for the authorisation of the Competition Authority, later tried to present the transaction if it were solely a temporary acquisition. While in the case of non-financial undertakings it is likely that the purpose of an acquisition of an other undertaking is not to gain profit through its resale but to use it for strategic purposes the former can not be excluded either. However the extension of the applicability of Article 25 for non-financial undertakings would seriously render the Competition Authority`s duty more difficult in identifying the real purpose of a transaction.
A) Financial undertakings mentioned in Article 25 of the Competition Act are defined in the following Acts:
Articles 3-6 and Schedule No 2 of Act CXII of 1996 on Credit Institutions and Financial Enterprises
Investment companies: Articles 81, 86 of Act CXX of 2001 on the Capital Market
Insurance companies: Article 6 of Act XCVI of 1995 on Insurance Institutions and the Insurance Business
Property managing activity: derives from Chapter V of Act XXXIX if 1995 On the Sale of State-Owned Entrepreneurial Assets
Property managing organisations: Government Decree 28/1991 (II.21)
Financial holding companies and holding companies of mixed activity: Schedule No II of Act CXII of 1996 on Credit Institutions and Financial Enterprises; Decision of the European Council No 78/660 and 84/569
B) Conditions for the establishment of temporary acquisition
The intent for resale is declared before the acquisition (e.g. the minutes of the meeting of the directors).
The resale of the acquired undertaking within the one-year period is likely. The undertaking is in a condition suitable for resale and demand for the given kind of undertakings is high or can be increased to a suitable level.
Identification of a possible buyer is possible. This third condition should not be met in all cases.
The Competition Council established that undertakings, which need grater investment or intervention of strategic nature before the resale do not meet the second condition. This principle is in line with the European Commission`s view. 
C) Controlling rights should be exercised only to an extent, which is indispensable to the attainment of the resale
Based partly on previous decisions of the Competition Council it was established that representatives delegated by the acquiring party should not participate in decisions related to the acquired undertaking`s business policy and strategy.
D) Extension of the duration of a temporary acquisition by the Competition Authority
The condition for the extension is that the undertaking can show that is was not possible to carry out the disposal within one year. The changes causing the delay shall be unforeseeable at the time of the acquisition. It can not be invoked therefore that the party could not agree with the potential buyer on the price. However an unforeseeable change in the position of the buyer may be invoked.
VII. The statability of a temporary acquisition
Fotex Rt does not qualify as a holding company of mixed activity. It would only qualify if it controlled a financial institution that Fotex Rt did not own. Therefore - as it is clear that it does not belong to any other category of undertakings defined at Article 25 - Fotex Rt does not belong to the undertakings which may by law practice temporary acquisitions.
The Competition Council did not contest the alleged intent of Fotex Rt to turn FTC Kft to an joint stock company and to sell its property through the stock exchange. In fact FTC Kft became a joint stock company November 2002.
The amendment of the contract on the first assembly after the acquisition reducing the controlling right of Fotex Rt in FTC Kft proved that the former did not want to manage the strategic and business decisions of the latter. However Fotex did have controlling rights over FTC Kft until 30 December 2001 and the cession of the existence of such rights did not turned the acquisition automatically to a temporary one.
Although it did not influence the outcome of the case the Competition Council noticed that it was likely that the giving up of the controlling rights were only temporary. After changing FTC Kft to an joint stock company the constitution of the new undertaking would surely have ruled on controlling rights in favour of the main shareholder, namely Fotex Rt.
The Competition Council established that as the present transaction did not meet one of the three cumulative criteria it did not qualify as a temporary acquisition and therefore was subject to authorisation.
VIII. The authorisation of the transaction
The Competition Authority may not refuse to grant authorization for a concentration where it does not create or strengthen a dominant position. In the present case as transaction has no effects on competition the Competition Council authorised the acquisition over FTC Kft. The authorisation extended to the legal successor FTC Rt as well.
IX. Failure to submit an application for authorisation
The Competition Council established that Fotex Rt failed to submit an application for the authorisation of its transaction until 20 August 2001. The application was submitted 2 August 2002.
At the imposition of a fine for a delay the Competition Council shall take into consideration whether the undertaking believes bona fide and for an efficient cause that the transaction is not subject to authorisation. In 2001 and 2002 written consultation took place between Fotex Rt and the Competition Authority on the nature of the transaction. The Vice President of the authority expressed its view that the transaction was not a temporary acquisition but Fotex Rt upheld its position and did not notify the transaction to the Competition Authority.
Despite this fact the Competition Council did not impose a fine on Fotex Rt as it took into consideration that:
the transaction was clearly suitable for authorisation,
Fotex Rt has not reached identifiable gains due to the neglecting of the notification,
the notion of holding company in respect of Article 25 was not yet clearly established in the jurisdiction of the Competition Council,
Fotex Rt did not want to hide the transaction from the Competition Council,
no proceedings were initiated against Fotex Rt for similar behaviour previously.
Temporary acquisitions of control or ownership for a one-year period at the longest by insurance companies, credit institutions, financial holding companies, investment companies or property managing organisations for the purposes of preparing a resale do not qualify as concentrations provided that they do not exercise their controlling rights, or exercise them only to an extent which is indispensable to the attainment of these objectives. That period may be extended by the Office of Economic Competition on request where such undertakings can show that it was not possible to carry out the disposal within one year.
Insurance companies, credit institutions, financial holding companies, investment companies or property managing organisations
Commission Notice on Ancillary Restraint, para 45.), Kelt/American Express case