The EU Commission has today imposed a fine of €20 million on Marine Harvest for acquiring a 48.5% stake in its competitor Morpol (in advance of the acquisition of the remaining shares via a public bid) prior to notifying the transaction and receiving clearance from the Commission.
This decision, following the €20 million fine in the similar Electrabel case (upheld by the EU Court of Justice earlier this month (see here)), demonstrates that the Commission will not tolerate breaches of the EU merger control rules and will impose significant fines. It is an important reminder of the need for all companies to carefully consider the application of EU merger control to their transactions and the severe consequences of getting it wrong.
The parties to a transaction which falls within the scope of the EU Merger Regulation (EUMR) are required to notify the transaction to the Commission and cannot implement the transaction before approval is granted (the so called "standstill obligation"). Early implementation prior to authorisation is a violation of the standstill obligation known as "gun jumping".
The EUMR (Article 7(2) EUMR) contains an exemption on this prohibition on gun jumping applicable only to public bids and to series of transactions in securities admitted to trading on a stock exchange whereby control is acquired from various sellers (i.e. "creeping bids"). Such transactions can be implemented prior to a notification being made and clearance being received provided that:
- The transaction is notified to the Commission without delay; and
- The acquirer does not exercise the voting rights attached to the relevant securities.
A transaction falls within the scope of the EUMR if: (i) it constitutes a "concentration"; and (ii) the turnover of the parties to the transaction meets specified jurisdictional thresholds, regardless of whether the transaction will have any substantive effects on competition in the EU. Where it is not clear whether either test is met, companies can consult with the Commission as to whether an EUMR filing is triggered.
The concept of a "concentration" is wide. It includes both the acquisition of de jure and de facto control (i.e. the ability to exercise "decisive influence") over an undertaking, and both sole and joint control. This includes acquisitions of minority shareholdings where the acquirer obtains veto rights over the strategic commercial decisions of the target, or can in practice determine or veto such decisions (for example as a result of having a majority at shareholders' meetings due to the dispersal of and/or non-attendance by other shareholders).
The Commission has the power under Article 14 EUMR to impose fines of up to 10% of annual group worldwide turnover for failure to notify a transaction and for implementation of a transaction in breach of the standstill obligation, whether intentionally or negligently.
2. Marine Harvest / Morpol transaction
On 14 December 2012 Marine Harvest (a Norwegian salmon farmer and processor) entered into a share purchase agreement (SPA) with Friendmall and its subsidiary Bazmonta to acquire a 48.5% stake in Morpol (a Norwegian competitor of Marine Harvest). Morpol is a company listed on the Oslo stock exchange. The SPA transaction, which was not notified to the Commission under the EUMR, completed on 18 December 2012.
On 15 January 2013 Marine Harvest made a mandatory public offer under the applicable Norwegian rules for the remaining 51.5% shares in Morpol, the majority of which were ultimately acquired on 12 March 2013. The transaction was formally notified, following "pre-notification contacts" with the Commission, in August 2013. As part of this process Marine Harvest informed the Commission that it would not exercise any voting rights or other control over Morpol, in accordance within Article 7(2) EUMR.
Following a "Phase I" investigation the Commission raised concerns that the transaction gave rise to substantive competition concerns. Marine Harvest committed to divest part of Morpol's business in order to remedy these concerns and obtain clearance, which the Commission issued on 30 September 2013.
3. Commission infringement decision
The Commission raised in its decision clearing the transaction its view that, prior to the public offer, Marine Harvest had already acquiredde facto sole control over Morpol as a result of completion of the SPA, and indicated the possibility of a breach of the EUMR notification and standstill obligations. The Commission opened an investigation into this issue and in March 2014 issued a "Statement of Objections" to Marine Harvest outlining the suspected breach.
On 23 July 2014 the Commission issued an infringement decision finding that Marine Harvest had breached the notification and standstill obligations and imposing a fine of €20 million (see its press release here).
The Commission found that the acquisition of the 48.5% stake pursuant to the SPA did confer on Marine Harvest de facto sole control over Morpol, as Marine Harvest enjoyed a stable majority at Morpol shareholders' meetings in practice, due to the wide dispersion of the remaining shares and previous attendance rates at meetings.
The Commission's infringement decision itself has yet to be published, and its press release does not deal explicitly with the Article 7(2) exemption from the standstill obligation, in light of the subsequent public offer in this case. However, in its decision clearing the transaction the Commission recalled that the exemption applies to acquisitions of control via the acquisition of packages of shares from various sellers in the context of a public bid or creeping bids. The Commission noted (consistent with previous case law, e.g. its 2007 decision in Yara/Kemira GrowHow) that the exemption does not apply where a controlling stake is acquired by the purchaser of a single package of shares from one seller.
In deciding that the breaches of the EUMR requirements had been negligent (such as to justify the imposition of a fine), the Commission specifically noted that Marine Harvest is a large company with previous experience and familiarity with the EUMR rules, and therefore should have been aware of its obligations to notify the transaction and await clearance before completion.
In relation to the level of the fine, the Commission stated that €20 million is both proportionate and adequate to ensure sufficient deterrence in light of the facts of the case. It pointed on the one hand to the gravity of the infringement (stating that any infringement of the notification and standstill obligation is serious as it undermines the fundamentals of the EUMR regime, as confirmed by the EU courts in the previous Electrabel case (see our e-bulletins here and here)), the duration of the infringement (prior to a notification being made), and the fact that the transaction gave rise to substantive competition concerns. On the other hand it pointed to the fact that Marine Harvest did not exercise its voting rights in Morpol prior to clearance, and did disclose the SPA transaction to the Commission during pre-notification contacts.
The fine imposed in this case, and on Electrabel previously, signals a clear message from the Commission (supported by the EU courts) that it will not tolerate breaches of the fundamental rules under the EUMR and that it will impose significant fines.
The facts of the cases demonstrate that the Commission is willing to do so even where the assessment of control under the EUMR is relatively complex. Although the Marine Harvest case involved a transaction giving rise to competition concerns, the Electrabel case illustrates that a strict approach will be taken even in the absence of any substantive competition issues (and even when the failure to file and obtain clearance emerges many years after the transaction in question).
Given the severe consequences of a failure to comply with the EUMR notification and standstill requirements (not only fines but also potentially invalidity of the transaction in question), all acquisitions, including those of minority stakes and those which take place through a series of transactions, must be scrutinised carefully to ensure compliance with the EUMR.
If the Commission decides to extend the EUMR rules to also cover non-controlling minority stakes, on which issue it is currently consulting (see here), the need for such scrutiny will increase even further.