The General Court of the European Union (the "General Court") has upheld the substantial €20 million fine imposed by the European Commission (the "Commission") on Belgium's largest electricity supplier, Electrabel, for its failure to notify and obtain clearance under the European Merger Control Regulation ("ECMR")1 prior to its acquisition of effective control of Compagnie Nationale du Rhone ("CNR") in 2003.

The decision is significant because it reaffirms that:

  • Notification may be required where less than a majority of the shares of a target is acquired
  • Notification can thus be triggered by the acquisition of additional shares in an existing joint venture company
  • Fines for failing to notify in these circumstances will not be reduced on the grounds that notification was omitted due to a genuine error or oversight
  • Fines will also not be reduced on the ground that the transaction in fact gives rise to no competition concerns.

Under the ECMR, transactions giving rise to a change in control on a lasting basis must be notified where certain specified turnover thresholds are met. Control is acquired where one party obtains the possibility of exercising decisive influence over another company. Decisive influence will be obtained where legal (direct) control is acquired2 or where de facto (indirect) control is acquired3.

In 2003, Electrabel acquired an additional minority share in CNR, which resulted in it holding a total of 49.95 per cent. (the "2003 acquisition"). Electrabel did not notify the Commission or any national authority of the 2003 acquisition. Electrabel, did however, notify its proposed acquisition in 2008 of the remaining shares in CNR (the "2008 acquisition"), on the basis that this acquisition would give it sole control. The 2008 acquisition was cleared by the Commission; however, it prompted an investigation into whether Electrabel should have notified the Commission prior to its earlier 2003 acquisition. The Commission found that Electrabel had, in fact, obtained de facto sole control over CNR through its 2003 acquisition4 and imposed a financial penalty of 20 million euros on Electrabel for failure to notify; the largest fine ever imposed for this type of infringement.

Appealing the Commission’s decision to the General Court, Electrabel argued that the penalty should be reduced because in setting the level of fine, the Commission had not taken into account that (a) Electrabel had not appreciated that acquiring a minority shareholding could trigger a requirement to notify under the ECMR even where its total shareholding remained below 50 per cent or (b) the acquisition was not ultimately found to raise any competition concerns. Electrabel also argued that the fine was disproportionate. The General Court, on 12 December 2012, rejected Electrabel’s appeal concluding that the failure to notify was a serious violation which could not be mitigated by these facts. The General Court stated that although the fine of €20 million is significant, it is not disproportionate in order to achieve deterrence and in fact is still low compared to the maximum that could have been imposed5.

The Electrabel decision serves as a stark reminder that proposed acquisitions of minority shareholdings can give rise to an obligation to notify under the ECMR where decisive influence will be acquired, and that the penalties for failing to notify can be severe and imposed without mitigation.