On 6 July 2017, the European Commission (“Commission”) announced it had opened three investigations against companies which have allegedly breached the European Union (“EU”) merger procedural rules.
Two of the cases concern the provision of incorrect or misleading information. During the EU merger review, merging companies must provide complete and correct information when responding to information requests or completing the Form CO (the notification form). In two of the cases under investigation the companies failed to inform the Commission about research and development projects which could have an impact on the substantive assessment of the transactions.
The third one relates to the premature implementation of a reportable merger before obtaining clearance from the Commission. The EU is a mandatory and suspensive jurisdiction. This means that the merging parties cannot implement a transaction before it has been notified to the Commission and before it has been approved by it (i.e. the “standstill” obligation). In this case, the Commission considers that a Japanese company failed to comply with the standstill obligation and “jumped the gun” by putting into effect an acquisition through a so-called “warehousing” two-step transaction structure.
These cases follow a recent Commission decision imposing a fine of EUR 110 million on a U.S. company active in social networking, consumer communications and online non-search advertising services for providing incorrect or misleading information during the merger review process related to its acquisition of a consumer communications services provider in 2014 (see here our publication of June 2017). Also, the Commission is currently investigating a multinational telecommunications company for allegedly implementing its acquisition of a telecommunications operator before the operation was notified to or approved by the Commission.
According to the Commission, these new investigations will focus only on the violation of the standstill obligation and on the procedural breaches occurred during the merger review of the transactions. As a result, the Commission’s findings in these investigations will not impact its initial clearance decisions.
However, the companies involved risk substantial fines if the Commission’s allegations are confirmed. Under the EU Merger Regulation (“EUMR”), companies providing incorrect or misleading information during the merger review can be fined up to 1% of their annual worldwide turnover in the last financial year. With regard to violation of the standstill ogligation, the implementation of a reportable transaction without notification and prior approval from the Commission can lead to a fine of up to 10% of the company’s annual worldwide turnover in the last financial year.
The three cases are yet another stark reminder for companies that they need to carefully comply with the procedural obligations in the framework of the EUMR. This was recently echoed by the EU Competition Commissioner Margrethe Vestager who considered that these investigations “send an important signal”. The Commission considers both the “standstill” obligation and the need to avoid incorrect or misleading information to be keyenforcement priorities and it will not hesitate to intervene and impose significant fines in case of breach.