Summary: Recent enforcement actions by the European Commission and competition authorities in Hungary and Mexico emphasise the importance of correctly following merger control procedures globally. In this blog, we examine these recent actions and outline the lessons that companies involved in merger reviews can take from them to protect against committing similar procedural violations.

Background

Most developed economies globally have a merger control regime, which allows the competition authorities in those countries to examine whether a merger may have anticompetitive effects.

The majority of merger control regimes are “mandatory” meaning that, if certain jurisdictional thresholds (usually based on the turnover of the merging companies) are met, the merger parties must notify the merger to the competition authorities before implementing it. Further, most regimes are also “suspensory”. This means that the merger cannot be implemented until the competition authority has issued a decision clearing the merger (often referred to as a “standstill obligation”).

The recent actions of the European Commission and the Hungarian and Mexican competition authorities discussed below emphasise the importance of providing accurate information to competition authorities and respecting notification and standstill obligations.

The European Commission – Heavy fine for misleading information & launch of gun-jumping investigation

The European Commission made two announcements on 18 May 2017. First, the Commission announced a EUR110 million fine against Facebook for providing misleading information to the Commission during its review of Facebook’s acquisition of WhatsApp. Secondly, the Commission announced that it had issued formal charges against Altice, alleging that Altice implemented its acquisition of PT Portugal before it had received Commission approval.

Facebook/WhatsApp

In 2014, Facebook notified its acquisition of WhatsApp to the Commission. During the Commission’s investigation into the merger, Facebook stated (both in its notification and in response to a further request for information) that it would not be able to establish reliable automated matching between the accounts of Facebook users and WhatsApp users. However, in August 2016, WhatsApp’s terms of service and privacy policy were updated to include the possibility of linking WhatsApp users’ phone numbers with Facebook user identities.

Having issued formal charges against Facebook in December 2016, the Commission found that despite Facebook’s statements in 2014, the possibility of automatic matching did in fact exist at that time. The Commission therefore considers that it was misled by Facebook during its investigation and imposed a fine of EUR110 million on Facebook.

Although the Commission considers it was misled, it does not believe that the misleading information had an impact on the outcome of its clearance decision. The Commission’s clearance decision therefore remains valid. The significant fine imposed on Facebook, however, shows that the Commission will take seriously the obligation to provide truthful information, even if that information does not ultimately impact its decision.

Altice/PT Portugal

Altice notified its acquisition of PT Portugal to the Commission in February 2015 and it was cleared in April 2015. However, in formal charges issued on 18 May 2017, the Commission has taken the view that certain terms of the sale and purchase agreement allowed Altice to exercise “decisive influence” over PT Portugal prior to Commission clearance and that Altice did in fact exercise such influence on some occasions.

If the Commission establishes its charges, Altice’s behaviour would be in breach of the standstill obligation under EU merger control. Accusations of such “gun jumping” are not new to Altice. In November 2016, the French competition authority fined Altice EUR80 million for implementing its acquisition of SFR prior to receiving clearance – a fine that was four times as high as the Commission’s highest gun-jumping fine to date of EUR20 million against Electrabel.

While Altice could face a fine of up to 10% of its worldwide turnover, a finding that Altice did breach the standstill obligation will not impact the validity of the Commission’s clearance decision. Altice will now have a chance to reply to the Commission’s statement of objections and the Commission will issue a final decision in due course.

Hungary – Reversal of a merger clearance for failure to provide correct information

A decision of the Hungarian competition authority in early May went one step further than the Commission’s fine against Facebook, and reversed a previous clearance decision.

In January 2017, the authority had cleared Infineon’s acquisition of Wolfspeed. However, the authority was informed by the Federal Trade Commission in the United States that Infineon had provided misleading and incomplete information relating to the size of the markets and companies’ market shares. In particular, different data had been submitted to the Hungarian and US authorities.

As this misleading information was “material” to the authority’s decision, the authority reversed its decision and fined Infineon approximately EUR244,000. This is the second time the Hungarian authority has reversed a decision this year.

As well as illustrating the importance of providing fully accurate information, the Hungarian authority’s decision also emphasises that companies notifying a merger in a number of jurisdictions worldwide should ensure that they provide consistent information to each competition authority. Competition agencies co-operate closely on international merger reviews, and if inconsistent information is provided to different agencies, it is highly likely that those agencies will find out.

Mexico – Fine for failure to file a merger

Finally, the Mexican competition authority has fined Panasonic and Ficosa around EUR2.7 million for failing to notify a transaction that met its merger control thresholds. This goes one step beyond the allegations against Altice, as the authority found that the transaction was not notified at all, rather than that it was implemented prior to clearance being received.

This fine illustrates the importance of carefully reviewing notification thresholds across the globe, and ensuring that mergers are notified where thresholds are met. Again, the fact that competition agencies closely co-operate in global reviews means that agencies have a strong chance of finding out about significant mergers that have not been notified to them.

Conclusion – Clear signals from the regulators

Three core lessons can be taken from these recent actions, namely:

  • Companies engaging in a merger or acquisition should carefully review merger filing requirements globally prior to entering into an agreement and implementing their merger.
  • When merger filing requirements are triggered, the merging parties should ensure that any standstill obligations are strictly complied with, and take careful steps to ensure they do not inadvertently breach those requirements.
  • Merger parties should ensure that all information they provide to competition authorities is completely accurate, and that information provided to different authorities is consistent.

In the case of the European Commission, the Wall Street Journal has reported that there may be more procedural violation cases to come. The Commissioner told the WSJ that her staff are taking a “second look” at other past deals that may have involved the provision of inaccurate or misleading information, which could lead to further merger procedure enforcement actions in the near future.

While compliance with merger control procedures across the world’s 100+ merger regimes is always essential, the recent flurry of procedural infringement cases indicates a heightened scrutiny among agencies worldwide of the information provided and the procedural actions (and inactions) of companies involved in merger reviews. This sends a clear message that vigilance is vital to ensuring complete compliance in the complex area of global merger control.