Further to our blog piece at the beginning of this year, there have been additional developments at the EU and national levels in respect to gun-jumping in merger cases. In general, a breach of EU or national rules could occur when the merging parties (i) fail to notify their merger when the relevant thresholds have been met; and/or (ii) the parties implement the transaction before receiving the approval(s) (i.e., fail to observe standstill obligations during the review period). The merger parties should not underestimate their obligations as failure to do so could result in substantial fines.
EU General Court confirmed a € 28 million fine for a failure to comply with EU merger control rules
On May 18, 2022, the General Court confirmed a fine of € 28 million imposed by the European Commission on a Japanese multinational company specialising in the manufacture of optical and image processing products for its failure to observe the standstill and notification obligations in the acquisition of a Japanese medical equipment company.
The transaction was carried out in two steps through the acquisition of different types of shares. During the first step, the interim acquirer acquired different voting and non-voting shares (95% control of the target), and the ultimate acquirer acquired 5% of the shares of the target. As the second step, the acquirer exercised its share options, acquiring 100% of the shares of the target. While the transaction was notified to the Commission as a whole (i.e., the acquisition of 100% of all shares of the target) and the Commission cleared the transaction, the Commission also found that during the first step of the transaction, due to the partial implementation of the transaction, the acquirer failed to notify a concentration in breach of Article 4(1) of Regulation (EC) No 139/2004 and for implementing a concentration in breach of Article 7(1) of that regulation. The reason is that the first step was carried out before the notification of the transaction to the Commission.
The Court confirmed that the implementation of a transaction can take place as soon as the parties to the transaction implement operations contributing to a lasting change of control of the target. In other words, the implementation of the transaction can take place before the actual acquisition of control over the target.
French Competition Authority imposed a €7 million fine for a failure to comply with French merger control rules
The French Competition Authority imposed a fine of € 7 million on a company active in the market for alcoholic beverages (especially production and distribution of spirits) for implementing its acquisition of another company active in the same market. Even though the merger was cleared on February 28, 2019, the acquirer was then subjected to dawn raids just a week after its’ clearance. The Authority found that the acquirer implemented the acquisition without submitting a notification to the Authority and failed to observe the standstill obligation under the French Commercial Code.
The Authority found that the acquirer exercised decisive influence over the target prior to the notification by:
- Acquiring the majority stake in the target – resulting in 3 of 11 directors in the target being from the acquirer, which allowed them to obtain competitively sensitive information and monitor the activities of the target;
- Intensifying commercial and financial relations between the parties, for example, by increasing supplies and opening credit lines; and
- Being involved in the strategic and operational decisions of the target (e.g., through the involvement of appointing the managing director of the target).
The above cases highlight that even if an acquisition is ultimately cleared by a competent authority, the parties can still face substantial fines if they fail to notify the transaction before the implementation and/or implement the transaction before the authority has finalised the review. The parties should carefully assess each step of the proposed transaction to ensure merger control compliance at the EU and national level.
Steptoe’s antitrust team would be happy to support you in any merger control-related assessment.