Double Caution: Gun Jumping Risks in M&A Transactions

By Pauline Kuipers, Hera Butt

03-2020

In its appeal judgement of 4 March 2020, the European Court of Justice ("ECJ") dismissed the appeal against the General Court’s judgement upholding the European Commission’s ("Commission") fines of EUR 20 million imposed on Marine Harvest ASA (now: Mowi ASA). The Commission had actually imposed a double fine (2 x EUR 10 million) on Mowi for double infringement of the EU Merger Regulation in 2014 1) by acquiring control over Morpol, then a listed company, without prior notification to the EU Commission and 2) by implementing the transaction without prior clearance of the transaction by the Commission.

In the Mowi-case, the ECJ confirms the strict approach taken to gun-jumping in merger cases by the Commission. It is the second judgment by the ECJ relating to gun-jumping following its (2018) preliminary ruling in the Danish case relating to the acquisition of KPMG Denmark by Ernst & Young. And more is to follow in the pending appeal cases Altice/PT Portugal (2018) and Canon/Toshiba Medical Systems (2019), which are both pending in appeal before the General Court.

In this article, we explain the current debate on gun-jumping in the EU, discuss the recent developments in the cases decided by the ECJ and the EU Commission and indicate how a better balance may be struck between legitimate business interests and merger regulation enforcement. 

Gun Jumping - The Current Debate

The rationale behind mergers is increasing efficiencies that enhance welfare for society.[1]  Conduct by merging parties between conceiving a deal and closing - following clearance by a competition authority - has been subject to increased enforcement. Several recent ‘gun jumping’ fine decisions have been adopted which has, logically, attracted increased attention in the competition community and prove the increased significance in M&A transactions. ‘Gun jumping’ in relation to merger control rules may manifest itself in three ways:

  1. The failure to notify a transaction, in violation of the obligation in Article 4(1) of the EU Merger Regulation ("EUMR")[2] or national merger control obligations – this can result in fines and/or invalidity of the transaction; and

  2. The possible violation of the standstill obligation of Article 7(1) EUMR between the moment of notification and clearance resp. closing of the proposed transaction.[3]  Violation of the standstill obligation consists of the premature exercise of control over the target company (or part thereof) before merger clearance is obtained; or

  3. The exchange of competitively sensitive information during a merger process which, particularly in the event of horizontal mergers, may lead to coordination and restrictions of competition between the buyer and the target company prior to merger approval or closing. Although this is strictly speaking not gun-jumping, it is often mentioned as such when it takes place in the context of a transaction between competitors.

    Such exchange of competitively sensitive information is caught by the prohibition of Article 101 of the Treaty on the Function of the European Union (“TFEU”) for the fact that the companies involved are considered to be independent market players as long as the merger is not approved. Exchange of competitively sensitive information is a risk that occurs in different stages of a merger process, for example, during the due diligence phase, the calculation or assessment of post-merger efficiencies or the preparation of post-merger implementation. 
Competition authorities have a valid concern about possible gun jumping issues from an enforcement perspective. They wish the contacts between and planning activities of merging parties to be limited to what is necessary and proportionate. On the other hand, the implementation process and therewith the efficiency benefits from a merger may be delayed and jeopardized if firms are too restricted in effective preparatory activities during the standstill period. 

The Commission's attention to gun-jumping in the past has been more incidental and often focusedon the failure to notify than on the exercise of control or exchange of competitively sensitive information prior to merger approval. In 1997-98, the Commission for example investigated possible gun jumping in the context of the Bertelsmann/Kirch/Premiere merger, in which it raised concerns about one party marketing the other party's products prior to approval[4].  In the Ineos/Kerling merger in 2007,[5]  the Commission conducted dawn raids to investigate suspicions that the parties had exchanged competitively sensitive information. However, neither of these cases resulted in finding an infringement or fines.  

However, recent matters in the EU have shed new light on some of the uncertainties surrounding gun jumping risks. They also make clear that significant fines can and will be imposed if a transaction is concluded without required merger notification and/or the standstill obligation is breached during the course of a merger procedure. In particular, the very recent appeal judgement by the ECJ in the case Mowi (Marine Harvest) / Commission, which follows on the ECJ’s 2018 preliminary ruling of the ECJ in the case Ernst & Young/KPMG Denmark[6] and the sanction decisions of the Commission in the cases Canon/Toshiba Medical Systems[7] and Altice/PT Portugal[8]. In absence of specific guidance by the Commission on the avoidance of gun-jumping in merger cases, these precedents are useful and create more clarity on various issues. At the same time, they still leave open several outstanding uncertainties and risks in a still somewhat 'grey' area of EU competition law. A discussion on these topics may prove helpful to provide the EU legal community with more clarity and to unify differing opinions in various jurisdictions. It might even inspire the Commission to give guidance on how to avoid gun-jumping risks during a merger procedure.

In this respect, it is important to note that a balance needs to be struck between the prohibition on gun jumping by unlawful acquisition of control during a standstill period on the one hand and, on the other hand, legitimate reasons for the exchange of confidential information (e.g. during due diligence and transition planning), provided of course that due care is taken to avoid coordination of (current) market behaviour of the merging parties.[9]  

On the latter point, it is apparent that the preservation of the value of a target business is an essential element in the context of mergers. This is even more important for complex, horizontal mergers which are investigated in-depth in a lengthy Phase II investigation. In these cases, not only a long period of time inevitably lies between the conception of the transaction and the closing – during which period the parties must prevent that the value of the transaction dilutes as a consequence of uncertainty among personnel and suppliers/ customers – but also efficiencies increasingly play a role in getting the merger through. Paradoxically, the identification of such efficiencies by the parties and the critical assessment by the Commission often requires that the parties of the transaction exchange a lot of (sensitive) information in order to prove that the efficiencies are: i) beneficial to consumers; ii) merger specific; and, most notably, iii) verifiable.[10]  

The ECJ gives guidance on Gun-Jumping

1. ECJ judgement re. Mowi (Marine Harvest) / Commission (2020)

On 4 March 2020, the ECJ confirmed the General Court’s dismissal of Mowi’s appeal against the EUR 20 million fine, [11] which was imposed in 2014 by the Commission on Mowi (then called Marine Harvest) for ‘jumping the gun’ in the acquisition of Morpol ASA, a listed Norwegian producer and processor of salmon in 2012. The fine actually consisted of 2 fines of EUR 10 million each, one for failure to notify the acquisition of the (first) 48.5% of the shares in accordance with Article 4(1) EUMR and one for implementing the transaction before having obtained clearance from the Commission in violation of Article 7(1) EUMR.

Mowi acquired Morpol, a listed company at the time, in 3 steps. First, it acquired 48.5% of the shares from two legal entities controlled by Morpol’s founder. Secondly, Mowi acquired another 29.6% of the shares through a public bid and the last step in which acquired all remaining shares and delisted the company completed the purchase.

The first appeal ground of Mowi concerned the scope of a single concentration. According to Mowi, the transaction of acquiring 48.5% of the shares and the subsequent public bid should be taken together to form a single concentration. In essence, Mowi stated that the provision of Article 7(2) EUMR should be interpreted broadly in light of recital 20 EUMR. And if done so, these two transactions are steps in a single concentration within the meaning of the EUMR. 

The ECJ rejects this view of Mowi by stating that the decision of the Commission focused on the transaction in which Mowi acquired the control, i.e. the acquisition of the 48.5% of the shares. The fact that the acquisition and the subsequent public bid were related actions do not invalidate the Commission's original finding. According to the ECJ, Mowi cannot rely on a broad interpretation of the wording of recital 20 EUMR in order to extend the scope of Article 7(2) EUMR. In this regard the ECJ refers to its judgement in C-633/16 Ernst & Young/KPMG DK merger (2018)[12] in which it stated, based on Article 3 EUMR, that a concentration arises as soon as the merging parties implement operations contributing to a lasting change in the control of the target undertaking[15]. Furthermore, the ECJ explained that only transactions which are necessary to achieve a change of control are capable of falling within the scope of Article 7 EUMR. Based on this the ECJ concludes that a transaction which is not necessary to achieve a change of control of an undertaking, such as the public bid launched after the acquisition of control of the target undertaking, does not fall within the concept of concentration within the meaning of Articles 3 and 7 EUMR.

In the second appeal ground Mowi argued in essence that the General Court failed to apply the principle ne bis in idem. Mowi claimed that the Commission infringed this principle as it had fined the same conduct with two fines: one fine for the breach of Article 4(1) EUMR and the other fine for the breach of the standstill obligation as laid down in Article 7(1) EUMR. 

The ECJ does not follow Mowi's view that the two infringements found are substitutes for each other (basically a single infringement) and holds that Articles 4(1) and 7(1) EUMR can operate independently. The distinction between them is that the infringement of the duty to notify of Article 4(1) EUMR is an instantaneous infringement and the infringement of the standstill obligation of Article 7(1) EUMR is a continuous infringement. The ECJ agreed with the General Court that this distinction is relevant for the assessment whether one of these two infringements should be classified as “more specific” and therefore whether one is capable of subsuming the other, which it is not. 

Interestingly, the ECJ did not follow the reasoning by Advocate General Tanchev in this case. In his Opinion, the AG considered that Article 4(1) EUMR is subsumed by Article 7(1) and therefore that the implementation of a transaction before regulatory clearance without notification amounts to an infringement of Article 7(1) EUMR alone. Notwithstanding, the AG concluded that the conditions for the principle of ne bis in idem were not met in this case: the facts must be the same, the offender must be the same, the protected legal interest must be the same and there must be an earlier decision that can no longer be challenged. Because there was no earlier decision in this case, the AG concluded that there was no ne bis in idem. The ECJ, however, finds that the infringement of Article 7(1) constitutes a separate (additional) violation of the EUMR compared to the infringement of Article 4(1) EUMR. For, both can be sanctioned as standalone offences and therefor do not constitute one single infringement as explained above.

2. ECJ judgement Ernst & Young / KPMG DK merger (2018)

On 18 November 2013, a number of KPMG entities in Denmark ("KPMG DK") and Ernst & Young ("EY") entered into a merger agreement. On the same day, KPMG DK gave notice to terminate the cooperation agreement with KPMG International as per 30 September 2014. The merger was notified to the Danish Competition and Consumer Authority ("DCCA") and approved on 24 May 2014. The DCCA found an infringement of the standstill obligation because it considered that the parties were jumping the gun by deciding to terminate the KPMG International agreement, which would take effect only after the merger. Ernst & Young appealed the decision in front of the Maritime and Commercial Court, which referred preliminary questions to the ECJ. 

Following Advocate-General ("AG") Wahl's Opinion,[13] the ECJ held in 2018 that serving notice to terminate the cooperation agreement did not constitute 'gun-jumping' under Article 7(1) EUMR. The ECJ defined the benchmark for assessing whether a measure amounts to gun-jumping as follows: "A concentration is only implemented by a transaction which, in whole or in part, in fact or in law, contributes to the change of control of the target undertaking"[14].  According to the ECJ, the withdrawal by KPMG DK from the cooperation agreement with KPMG international did not meet this test. In this respect, the ECJ considered that: "even though that withdrawal is subject to a conditional link with the cooperation in question and is likely to be of ancillary and preparatory nature, the fact remains that, despite the effects it is likely to have on the market, it does not contribute, as such, to the change of control of the target undertaking".[15]  

In other words, even though KPMG DK had terminated the agreement in anticipation of the merger, this did not mean that it was due to unlawful control by Ernst & Young. Thus even though - without the concentration - KPMG DK would likely not have terminated the agreement, the termination itself did not confer on Ernst & Young any possibility of exercising influence over KPMG DK, as KPMG DK was independent from Ernst & Young both before and after the termination.

The judgment and AG's Opinion contain a number of important takeaways: 

i) The Court explicitly seems to limit the scope of Article 7 EUMR to the concept of 'concentration' as laid down in the EUMR. Exchange of competitively sensitive information is caught under Article 7 EUMR (only) if it results in or contributes to a change of control over (a part of) the target company. Pre-merger coordination and exchange of competitively sensitive information between the parties that does not result in any change of control will not violate the standstill obligation but may well be caught under Article 101 of the Treaty on the Functioning of the European Union ("TFEU"). The Court thus seems to confirm that the suspension obligation and Article 101 TFEU are complementary in relation to exchange of competitively sensitive information;

ii) The rationale behind the standstill obligation is that merging firms need to remain competitors until the moment of clearance by the Commission. The Court emphasizes the dividing line between preparatory measures and measures that constitute the implementation of a concentration. A measure is considered to bring about the implementation of a concentration only when it contributes to a lasting change of control. This could for example be the result of the purchaser acquiring influence over the appointment of members of the target company's board prior to closing or the purchase agreement conferring decision-making rights on the purchaser allowing it to influence the ordinary course of the target's business.

The ECJ does not, however, discuss whether the application of Article 101 TFEU in the specific context of a merger process should take account of the legitimate reasons – and often even the need – of the merging parties to assess and protect the value of the transaction, to identify and map efficiencies and to prepare for post-merger integration to capture synergies of the merger as soon as possible following closing.

Even though varying interpretations are possible, it could be inferred from the judgment (and the AG's opinion) that certain exchange of information in the context of integration planning and due diligence could be considered as 'ancillary and preparatory' to the concentration, and does not give rise to an infringement of the standstill obligation provided that parties avoid exercising decisive influence over the target. At the same time, there can be no doubt that the parties must comply with general EU competition law, notably the prohibition under Article 101 TFEU when competitors are engaging in exchange of competitively sensitive information. Even though this case provides welcome additional clarity, it should be noted that the facts in this case were very specific. This makes it particularly difficult to draw general conclusions regarding the permissibility of exchanges of information and thus continued caution is therefore advised. 

More Gun-Jumping Appeals in the Pipeline at the General Court

While the Mowi (Marine Harvest) case was the first case on a gun-jumping fine imposed by the Commission to reach the ECJ, there are two more cases currently pending in appeal before the General Court. In both cases, the Commission has imposed high fines for infringement of Articles 4(1) and 7(1) EUMR.

The first case is an appeal by Altice S.A. (“Altice”) against the sanction decision in which the Commission imposed a fine of € 124.5 million for gun-jumping in violation of Articles 4(1) and 7(1) EUMR when it acquired telecom operator PT Portugal in 2014. [16][17]

The second ‘gun-jumping’ appeal case pending before the General Court is the appeal by Canon Inc. (“Canon”) against fine of EUR 28 million imposed on 27 June 2019 for completing the acquisition of Toshiba Medical Systems Corporation (“TMSC”) without notification or approval of the transaction in accordance with Articles 4(1) and 7(1) EUMR.[18]

 

1. Appeal in case T-425/18 – Commission decision re. Altice/PT Portugal (2018)

On 24 April 2018, the EU Commission imposed a fine of € 124.5 million for gun-jumping in violation of Articles 4(1) and 7(1) EUMR[19].  The case represented the second fine on Altice for gun-jumping, following an earlier € 80 million fine by the French Competition Authority (“FCA”) in 2016 relating to gun-jumping in relation to 2 subsequent transactions by Altice in France (to acquire the telecom providers SFR and OTL)[20]

Altice brought an appeal against the Commission’s decision before the General Court.[21]  Although a number of points are now established caselaw in the light of the ECJ’s Mowi judgement, the Altice appeal will hopefully result in more guidance on a number of practical issues in merger transactions between competitors.

The Commission’s fine related to the acquisition by Altice of sole control over PT Portugal in 2014. The transaction was notified to the Commission in February 2015 and approved, subject to conditions, in April 2015. At the time of the notification, Altice's Portuguese subsidiaries Cabovisão and ONI were direct competitors of PT Portugal in the markets for telecommunication services in Portugal. The Commission had concerns that the merged entity would face insufficient competitive constraint from the remaining players on the market for fixed telecommunications. The clearance decision was therefore conditional upon Altice's divestment of both ONI and Cabovisão.[22]  

The Commission found that, prior to merger clearance, Altice had acquired decisive influence over PT Portugal by having a veto right over PT Portugal's ordinary business decisions. Furthermore, the Commission found that Altice gave instructions to PT Portugal's management concerning the renewal of campaign contracts. On the basis of internal documents, the Commission alleged that Altice sought and received sensitive commercial information from PT Portugal on a regular basis, without the use of clean teams. These practices together were found to constitute gun jumping. The Commission qualified the violation of the standstill obligation as a continuous infringement. 

Without prejudice to the outcome of the appeal, there are several takeaways – or rather considerations – from the Commission decision in Altice/PT Portugal:

i) The Commission recognizes the legitimacy of target value protection between signing and closing. The acquirer may veto any conduct relating to 'material changes' to the target business if this is 'directly related and necessary' for the implementation of the transaction;[23]

ii) Whether a measure falls within the scope of the 'ordinary course of business conduct of the target” serves as a 'good indication' to determine whether it will have a material impact on the target. The Commission uses amongst others the following criteria to determine whether such an impact will materialize: (i) whether many or few measures are covered by the relevant clause requiring purchaser content; (ii) whether the action is important for the day-to-day functioning of the target business; and (iii) whether monetary value thresholds are high or low compared to the overall value of the target and the purchase price[25]

iii) The SPA must not give the acquirer the right to intervene in the target's day-to-day business as this would confer decisive influence over the target, i.e. violate the standstill obligation of Article 7 EUMR. 

iv) The Commission[26] (like the FCA in the French case) [27] recognized that competitively sensitiveinformation can be exchanged in the context of a merger, but only if appropriate safeguards (for example clean teams[28]) are put in place to ensure confidentiality of the information exchange and prevent coordination of pre-merger, standalone market behaviour.[29] In this particular case: (i) the exchange happened  frequently and was both current and granular (e.g. financial and weekly KPI data, which were  granular, non-historic and individualized); (ii) it occurred outside of the framework of any confidentiality agreement or other precautionary measures; (iii) there were no limitations on how that confidential information was then used or disseminated; and (iv) it happened while the Commission had already formulated its objections against the merger in a Phase I (Article 6(1)(c) EUMR) decision.[30] 

v) It appears as if the unlawfulness of the information exchange is primarily understood by the Commission as being harmful because Altice used that information to exercise decisive control over the PT Portugal since it was irreversible.[31]

The appeal in the Altice case is particularly interesting because it goes beyond assessment of Articles 4(1) and 7(1) EUMR but also addresses exchange of strategic and competitively sensitive information pending a merger notification procedure under Article 101 TFEU.

2. Appeal in case T-609/19 – Commission decision re. Canon/Toshiba Medical Systems

On 27 June 2019, the Commission imposed a fine of EUR 28 million on Canon for completing the acquisition of Toshiba Medical Systems Corporation (“TMSC”) without notification or approval of the transaction in accordance with Articles 4(1) and 7(1) EUMR. The Commission stated that through the 2-step transaction structure used for this acquisition, Canon had implemented the acquisition before notifying it to the Commission and obtaining approval for the merger. Canon has appealed against the decision to the General Court, where the case is currently pending.[32]

Canon notified the Commission on 12 August 2016 of its intention to acquire TMSC. The Commission cleared the acquisition on 19 September 2016. Canon used a so-called “warehousing” two-step transaction structure involving an interim buyer for this acquisition.

The first step was that the interim buyer acquired 95% in the share capital of TMSC for (only) EUR 800 (the Commission refers to this as the Interim Transaction), whereas Canon paid EUR 5.28 billion for the remaining 5% of the shares and share options over the interim buyer's stake (the Commission refers to this as the Ultimate Transaction). The first step, the Interim Transaction, was carried out before the notification to or approval by the Commission.

According to the Commission, the Interim Transaction and Ultimate Transaction together constituted a single concentration, which should have been notified before implementing the Interim Transaction. The Commission explained in its decision that the Interim Transaction was only undertaken considering the Ultimate Transaction. The purpose of the Interim Transaction was to facilitate the acquisition by Canon of control over TMSC. In this light the Commission also looked at the fact that Canon was the only party in this case that could determine the identity of TMSC’s ultimate acquirer and it was also the one bearing the economic risk of the Interim Transaction.[33]

The following interesting paragraph illustrates the line of reasoning of the Commission – and its critical view – on warehousing schemes:

“As acknowledged by the CJN, warehousing schemes are generally characterised by the fact that the ultimate acquirer “often bears the major part of the economic risks and may also be granted specific rights”. This is exactly what happened in the present case, as explained in the remainder of this Section. As of the Interim Transaction, Canon (the ultimate acquirer of TMSC) was indeed bearing the entire economic risk of the operation, and was granted the right to determine the identity of TMSC’s ultimate acquirer.[34]

In the decision, the Commission refers to the test of a lasting change of control as set out by the ECJ in C-633/16 Ernst & Young/KPMG DK merger (2018). The Commission sets out that the Interim Transaction was necessary for Canon to achieve a lasting change of control over TMSC. And because of this there was a direct functional link with the change of control over TMSC. The Commission is of the opinion that the Interim Transaction contributed to the change of control over TMSC or at least to a certain extend.[35]

The Commission concluded that by carrying out the Interim Transaction, Canon partially implemented its acquisition of TMSC before the notification and the approval of the Commission. And this first step was necessary for Canon according to the Commission to gain control over TMSC. According to the Commission this resulted in a breach of the notification requirement and the standstill obligation. 

It is yet to be seen how the General Court thinks about this. One of the appeal grounds of Canon is that the Commission ignores the existing case law by relying on an unprecedented and unsupported concept of “partial implementation of a single concentration”. According to Canon the assessment of the Commission does not establish that the Interim Transaction contributed to a lasting change of control over the target in the way required by the case law.[36] But that predates the ECJ’s judgement in Mowi (Marine Harvest) so it may be considered established case law by the General Court.

Striking a balance between legitimate business interests and merger regulation enforcement

From a business perspective it is extremely important, in the context of mergers (a) to be able to accurately valuate a target (during due diligence phase or later e.g. in relation to a purchase price adjustment, funding or accounting decisions etc.), (b) to  preserve the target value during the merger notification procedure; to identify and calculate efficiencies, and finally (c) to be able to adequately plan for the post-merger integration of two separate undertakings (especially in complex transactions). 

Competition authorities have a valid concern about possible gun jumping issues from an enforcement perspective. They wish the contacts between and planning activities of merging parties to be limited to what is necessary and proportionate. On the other hand, the implementation process and therewith the efficiency benefits from a merger may be delayed and jeopardized if the companies concerned are too much restricted in effective preparatory activities during the standstill period. This holds particularly true if such preparatory actions are carefully conducted to avoid exchange of competitively sensitive information between the companies, e.g. by the institution of clean teams, confidentiality agreements, (secured) data rooms, and antitrust protocols. 

Unclear notions, vague rules, grey areas, and unbalanced enforcement have contributed to legal uncertainty, and did perhaps not surprisingly lead to either transgressions (for example in the Canon case) or over-conservatism when determining the purchaser's behaviour in the interim period before obtaining merger clearance – both of which are ultimately detrimental to the welfare of society.  Also, uncertainty about the legal boundaries raises lot of costs and concerns for parties; involving external consulting agencies (which are often less able than the business to determine the right scope of possible efficiencies and synergies) and counsel is time-consuming and involves very significant costs.

There are several points that would benefit from further clarification and/or practical guidance by the Commission and/or the EU Courts, not so much in relation to the obligation to notify or the standstill obligation but particularly relating the contact between the parties during the standstill period: 

a. First, it is unclear to what extent information can be exchanged relating to post-merger integration, i.e. about the future activities of the merged entity and synergies to be realised. In Altice [37], the Commission specifically mentions that the valuation of a business could be a legitimate reason, however – in view of the Commission's interest in efficiencies in horizontal mergers – it is not surprising that the merging parties will also want to determine the efficiency benefits of the merged entity. Competition authorities should clarify that such exchanges are permissible when appropriate safeguards are taken and define such safeguards. Unfortunately, the Commission did not clarify this in Canon).

b. Second, it should be further clarified what types of provisions in sale and purchase agreements are permissible to protect the asset value of the target, particularly if a lengthy notification procedure cannot be ruled out. As it still follows from the recent cases Mowi (Marine Harvest) and Canon, various legal practitioners (such as legal counsel and competition authorities, and ultimately the ECJ) have diverging views with regard to what types of provisions (or termination agreements) constitute(d) a change of control within the meaning of the EUMR. 

c. Third, the extent to which the merging parties can plan reorganisation activities calls for concrete guidance. An explanation of the dividing line between merely preparatory measures (with ancillary information exchange) and implementation of a concentration is necessary in the light of legal certainty. 

d. Fourth, it might need further clarification to what extent it is possible to plan a joint marketing campaign for the launch of new products and services by the merged entity (previous guidance from the Federal Trade Commission (“FTC”) and a case from the Commission suggest that joint marketing of the merger is permissible, whilst joint marketing of competing products is not).[38] If companies could only start developing new products after clearance, this might delay the merged entity in actually bringing about the efficiency benefits of the merger in a timely manner. It would therefore be helpful, especially in the context of being able to realise merger efficiencies as soon as possible, if the Commission provided further guidance on this topic.

e. Finally, it would be helpful if the Commission further clarifies what is allowed in the period between merger approval and closing. Although the purchaser may legitimately control the target company, it seems that Article 101 TFEU may still apply as long as the transaction has not been closed (until which moment buyer and target remain two separate companies). In other words, the buyer may take decisions over the target but cannot receive the information necessary to do so in an informed manner?
 
In addition to clarification of the relevant legal notions, it would be helpful if the Commission gives concrete guidance on what it expects from merging parties and what (minimum level of) precautionary measures should be taken in terms of compliance measures and clean team arrangements if the exchange of competitively sensitive information is necessary to achieve legitimate goals of post-merger planning and integration for realising efficiencies as soon as possible after clearance of the transaction.

Whilst competition authorities recognize that competitively sensitive information must sometimes be exchanged in order to calculate efficiencies or prepare for post-merger integration, there is no clear and explicit guidance on the issue of gun jumping from authorities within the EU. This is problematic because competition authorities appear to have different views with regard to what constitutes a ‘clean team’: whilst the FCA seems to argue that a clean team of in-house lawyers could not qualify as a proper clean team,[39] the Commission (in Altice) describes clean teams as ‘a restricted group of individuals from the business that are not involved in the day-to-day commercial operation of the business who receive confidential information from the counter party to the transaction and are bound by strict confidentiality protocols with regard to that information’. From the definition used by the Commission, it appears that, for instance, a group of in-house lawyers subject to a strict protocol should be able to be part of a clean team.[40] Such diverging views result in uncertainty, and consequently misguided behaviour.

The current situation in the EU is perhaps somewhat comparable to what happened in the US a couple of years ago following the adoption of some gun jumping cases. In a well-known speech in 2005, [41]   the FTC's then General Counsel had emphasized – in order to reduce uncertainty in the market that had followed after these cases - that FTC enforcement on the topic of gun jumping was mostly 'targeted to particular violators whose objectionable conduct occurred as part of a wider array of activities'. The Brazilian Competition Authority [42] issued very helpful guidelines indicating how gun-jumping can be prevented in M&A transactions.

Further guidance on the topic of gun-jumping from the Commission would thus be welcomed. Such guidelines could in particular further define what constitutes, in the context of a merger notification processes, particularly sensitive information, and suggest mechanisms that can be used to implement the information exchanges that are indispensable to such processes, acceptable to the authorities. As long as such guidelines do not exist, it will be for the ECJ to set the goalposts for the business and competition community in Europe in its continuing case-law on gun-jumping issues.

 

[1] OECD, 'Suspensory Effects of Merger Notifications and Gun Jumping', Background Note by the Secretariat, 4 October 2018, p. 9.

[2] Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ 2004 L24/1.

[3] OECD Background note, "Suspensory Effects of Merger Notifications and Gun Jumping" (DAF/COMP(2018)11), endnote 29: "Strictly speaking, conduct post-clearance but pre-closing could also raise concerns, in particular with regard to competitor co-ordination, as the parties are expected to act as separate, competing entities until the concentration was put fully into effect (see for example (Blumenthal, 2005, p. 9[13]), (Liebeskind, 2003, p. 1[19])). This may, however, be lower on the priority list of competition agencies."  

[4] Commission Decision Case No IV.M.993 – Bertelsmann/Kirch/Premiere, 27 May 1998.

[5] Commission Decision Case No COMP/M.4734 – Ineos/Kerling, 31 January 2008.

[6] Case C-633/16 Ernst & Young P/S v Konkurrencerådet [2018] ECLI:EU:C:2018:371.

[7] Commission Decision Case No M.8179 - Canon/Toshiba Medical Systems, 27 juni 2019.

[8] European Commission, Case M.7993 Altice / PT Portugal, 24 April 2018.

[9] As prohibited under Article 101 of the Treaty on the Functioning of the European Union ("TFEU")

[10] As is required on the basis of the Commission Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings (OJ 2004, C31/3).

[11] C-10/18 P Marine Harvest ASA, whose legal successor is Mowi ASA v European Commission, ECLI:EU:C:2020:149. C-10/18 P Opinion of AG Tanchev delivered on 26 September 2019 in Marine Harvest ASA, whose legal successor is Mowi ASA v European Commission, ECLI:EU:C:2019:795.

[12] Case C-633/16 Ernst & Young P/S v Konkurrencerådet [2018] ECLI:EU:C:2018:371.

[13] C-633/16 Opinion of AG Wahl delivered on 18 January 2018 in Ernst & Young P/S v Konkurrencerådet [2018], ECLI:EU:C:2018:23.

[14] Case C-633/16 Ernst & Young P/S v Konkurrencerådet [2018] ECLI:EU:C:2018:371, para 59.

[15] Ibidem, para 60.

[16] Ibidem, para 621.

[17] The case represented the second fine on Altice for gun-jumping, following an earlier € 80 million fine by the French Competition Authority in 2016 for gun-jumping in relation to 2 subsequent transactions by Altice in France (to acquire the telecom providers SFR and OTL) see Autorité de la Concurrence Décision n° 16-D-24 du 8 novembre 2016 relative à la situation du groupe Altice au regard du II de l’article L. 430-8 du code de commerce.

[18] Commission Decision, M.8179 Canon/Toshiba, 27 June 2019.

[19] Ibidem, para 621.

[20] Autorité de la Concurrence Décision n° 16-D-24 du 8 novembre 2016 relative à la situation du groupe Altice au regard du II de l’article L. 430-8 du code de commerce.

[21] Case T-425/18 Altice / Commission, action brought on 5 April 2019, see for a summary of the appeal grounds: http://curia.europa.eu/juris/document/document.jsf?text=&docid=206084&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=2552717

[22] Commission Decision, Case M.7993 Altice / PT Portugal, 24 April 2018.  

[23] Commission Decision Case M.7993 Altice / PT Portugal, 24 April 2018, para. 70.

[24] Ibidem, paragraph 4.1.2.3. 

[25] Ibidem, paragraph 4.1.2. 

[26] Ibidem, paragraph 4.2.2. 

[27] See for example paragraph 260 of the Decision:  “whatever the reasons for which the companies may need to exchange information, it is their duty to put in place measures that eliminate any communication of strategic information between independent undertakings.” See also para. 266: “exchanges of strategic information that have as their object or effect the preparation of the implementation of the transaction once FCA’s clearance is obtained constitute de facto an unlawful bypassing of the standstill rule of merger control proceedings.".

[28] In the French Altice case it was decided that a 'clean team' of in-house lawyers did not justify the information exchange, because they were not considered sufficiently independent from the management and therefore not 'clean' enough (see para. 318). 

[29] Decision Altice / PT Portugal, 24 April 2018, para. 422, see also footnotes 220 and 221 on clean teams. The Commission, however, describes clean teams in its Altice/PT Portugal Decision as "a restricted group of individuals from the business that are not involved in the day-to-day commercial operation of the business who receive confidential information from the counter party to the transaction and are bound by strict confidentiality protocols with regard to that information." In this wording, it appears that for the purpose of EU law,  in-house lawyers could subject to a strict protocol also be able to qualify as a proper clean team.

[30] Ibidem, par. 48-57. See also par. 205: "On the occasion of these exchanges, Altice asked for and received commercially sensitive information on PT Portugal's commercial strategy (including future pricing intentions). The information received was akin to the type of information that Altice would only be entitled to receive following the Closing Date. The exchange of such commercially sensitive information, as well as Altice instructing the Target on the campaign makes it difficult, if not impossible, for the Commission to restore the prior competitive situation because once the information had been exchanged, the harm to competition could be considered as having already materialised. This aspect is further aggravated by the fact that the Commission raised concerns as regards the compatibility of the Transaction with the internal market".

[31] Decision Altice / PT Portugal, 24 April 2018, para. 200ff. See also European Commission, ‘Competition Merger Brief’, Issue 1/2018 – July, p. 15: the exchange of sensitive information is discussed in the framework of ‘actual exercise of decisive influence’

[32] Case number T-609/19 Canon / Commission, action brought on 9 September 2019, see for a summary of the appeal grounds http://curia.europa.eu/juris/document/document.jsf?text=&docid=221064&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1290411

[33] Commission Decision, M.8179 Canon/Toshiba, 27 June 2019, para. 142.

[34] Commission Decision, M.8179 Canon/Toshiba, 27 June 2019, para. 133

[35] Commission Decision, M.8179 Canon/Toshiba, 27 June 2019, para. 161

[36] See the summary of Canon’s appeal grounds in http://curia.europa.eu/juris/document/document.jsf?text=&docid=221064&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1290411

[37] European Commission, Case M.7993 Altice / PT Portugal, 24 April 2018.

[38] See Federal Trade Commission,  'Avoiding Antitrust pitfalls during pre-merger negotiations and due diligence', 2018.

[39] See para. 318 of the French Altice decision 

[40] See para. 422 of the Altice/PT Portugal Decision including footnotes 220-221.

[41] W. Blumenthal, 'The Rethoric of Gun Jumping', Speech Federal Trade Commission (2005). See also Federal Trade Commission,  'Avoiding Antitrust pitfalls during pre-merger negotiations and due diligence', 2018.

[42] Conselho Administrativo de Defesa Econômica ("CADE" - Brazilian Competition Authority), Guidelines for the Analysis of Previous Consummation of Merger Transactions, 26 September 2016.