Companies beware: the European Court of Justice has confirmed the Commission’s practice of imposing two separate fines for gun jumping; one for failing to notify a concentration prior to its implementation, and another for implementing the concentration before obtaining clearance.
The ruling underlines, once again, the increased focus of competition authorities on procedural merger control breaches – good reason for companies to keep a watchful eye on their gun jumping obligations and to take note of the possibility of two separate gun jumping fines.
For now, at least: two more gun jumping cases currently pending at the General Court have also raised the issue of the imposition of two separate gun jumping fines.
Commission imposes two fines for gun jumping
In 2014, the Commission fined Marine Harvest for “gun jumping” its acquisition of Norwegian salmon producer Morpol [see our August 2014 newsletter]. The Commission's gun jumping rules require companies (i) to notify an intended concentration to the Commission before its implementation if the EU Merger Regulation's thresholds are met (the ‘notification obligation’) and (ii) to await the Commission's clearance of the concentration before implementing it (the ‘standstill obligation’).
The acquisition of Morpol, at that time a listed company, was carried out in three steps. First, Marine Harvest acquired 48.5% of the share capital in Morpol from two legal entities controlled by Morpol's founder in November 2012. Second, Marine Harvest submitted a public bid for Morpol’s remaining shares, which allowed it to increase its shareholding in Morpol from 48.5% to 87.1%. Thirdly, the purchase was completed on 12 November 2013, followed by the de-listing of Morpol. The first step in this process was closed before it was notified to the Commission.
According to the Commission, the acquisition of the 48.5% stake sufficed to confer de facto control over Morpol, based on the wide dispersion of remaining shares and past attendance rates at Morpol’s shareholders’ meetings. As a result, in closing the acquisition of the 48.5% stake in Morpol before it was notified, and before it was declared compatible with the internal market, Marine Harvest infringed the gun jumping rules.
The Commission subsequently imposed two separate fines on Marine Harvest, in a single decision:
- a fine of EUR 10 million for violating the notification obligation (Article 4(1) of the EU Merger Regulation), and
- a fine of EUR 10 million for violating the standstill obligation (Article 7(1) of the EU Merger Regulation).
ECJ upholds Commission’s decision
The European Court of Justice (ECJ) upheld the General Court’s earlier dismissal of Marine Harvest’s appeal against the Commission’s gun jumping fines (see our November 2017 newsletter). The ECJ agreed that the first step of the transaction had indeed resulted in Marine Harvest – now called Mowi – acquiring sole control over Morpol. The fact that this 48.5% acquisition was only the first step in a three-stage transaction was no reason to conclude otherwise.
Additionally, the ECJ rejected Marine Harvest’s arguments that it should not have been fined twice. According to the ECJ, the General Court had not infringed the principle governing concurrent offences – under which a ‘primarily applicable provision’ excludes all other provisions – by holding that the Commission had correctly penalised Marine Harvest for both infringements.
The ECJ found that the General Court had rightly concluded that no such ‘primarily applicable provision’ exists in the EU Merger Regulation. Although a violation of the notification obligation automatically results in an infringement of the standstill obligation, a violation of the standstill obligation can also be committed independently. Furthermore, the notification obligation is an obligation to act, whereas the standstill obligation is an obligation not to act. Moreover, the infringement of the notification obligation is an instantaneous infringement, whilst the infringement of the standstill obligation is a continuous infringement, which is triggered when the notification obligation is committed and ends on the date of the Commission’s clearance decision. On this basis, the Commission was entitled to impose two separate fines on Marine Harvest in a single decision.
This ruling provides yet another warning of the increased focus on compliance with procedural merger control rules by competition authorities (see our newsletters of August 2014, August 2017, May 2018 and July 2019). Companies should double-check applicable merger filing obligations in all M&A transactions (including minority shareholdings) and take note of the Commission’s practice of imposing two separate gun jumping fines. For now, at least: two more gun jumping cases currently pending at the General Court (see Altice and Canon) have also raised the issue of the imposition of two separate gun jumping fines.
This article was published in the Competition Newsletter of March 2020.