The European Commission has decided to impose a fine of 20 million Euros on Electrabel, an electricity producer and retailer belonging to the Suez Group (now GDF Suez) for acquiring control of Compagnie Nationale du Rhône (CNR), another electricity producer, without having received prior approval under the EU Merger Regulation.
Electrabel and GDF Suez are large companies which are very familiar with EU merger control proceedings. At the time of the infringement, Electrabel and Suez together had already filed six notifications under EU rules.
CNR is the second largest French electricity producer. By acquiring in December 2003 the shares of CNR held by EDF, the leading electricity producer in France, Electrabel became by far CNR's largest shareholder holding close to 50% of CNR's shares.
Electrabel did not consult the Commission until August 2007. The acquisition of CNR by Electrabel was cleared by the Commission on 29 April 2008 under the EC Merger Regulation.
The Commission found that Electrabel acquired control over CNR, France's second largest electricity producer in December 2003 without obtaining the prior approval of the Commission.
In other words, Electrabel infringed the "standstill obligation" which is a basic principle of the EU Merger Regulation. Under this obligation, the parties to a concentration (such as a merger or an acquisition of control) with a Community dimension must notify the concentration to the Commission before its implementation so that the Commission can examine whether the concentration would significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.
The Commission concluded that Electrabel already acquired de facto sole control of CNR in December 2003, i.e. more than four years before the notification. It is interesting that Electrabel was deemed to exercise without having "control" more than 50% of the shares of CNR.
The Commission concluded that the shareholder was able to control shareholder meetings because the shares owned by the remaining shareholders are widely dispersed. Based on past attendance rate at shareholders' meeting, it could have been anticipated that even a minority shareholding would grant Electrabel a stable majority at such meetings. This was reinforced by other factors, notably the fact that Electrabel was the sole industrial shareholder of CNR and had taken over the role previously held by EDF in the operational management of the power plants and the marketing of electricity of CNR following the commitments given by EDF to obtain clearance of its merger with EnBW.
Moreover, in this case, the existence of control arises from the assessment of a number of factual and legal elements. Electrabel and the Commission have held discussions since August 2007, when Electrabel consulted the Commission on whether or not it had acquired control over CNR. In the meantime, the Commission sent Electrabel a Statement of Objections to which it responded. Electrabel also requested an Oral Hearing which took place in March 2009.
The main elements on which control was found to exist date back to 2003 and have not materially changed in the meantime.
Fine without competition concerns
The fine was imposed even considering that the concentration did not raise competition issues and was cleared unconditionally by the Commission.
The fine was based on negligence as the Commission concluded that Electrabel, a sophisticated company which is very familiar with the EU merger control rules, should have approached the Commission in 2003 and not more than three and a half years after acquiring control of CNR. The Commission concluded that the infringement lasted for a significant period and that Electrabel should have been aware of its obligation to receive Commission approval before proceeding with the acquisition.
Breaching the standstill obligation is a serious infringement irrespective of the competition assessment because it goes against the basic principle of the EU Merger Regulation, that is, to ensure prior, ex ante control of any concentration with a European dimension.
The fact that eventually Electrabel did approach the Commission has been taken into account as a mitigating circumstance in the decision and in setting the level of the fine.