In a ruling that threatens to impact the interpretation of “gun jumping” in EU merger agreements, Advocate General (AG) Nils Wahl of the EU Court of Justice ruled on 18 January 2018 that the Danish competition authority was wrong in its oversight of a merger between Ernst & Young and KPMG Denmark.
The controversy began after the two companies signed a merger agreement, prompting KPMG Denmark to terminate a cooperation agreement with its former parent company KPMG International.
According to the Danish competition authority, by terminating this agreement KPMG Denmark violated the “merger standstill obligation,” a major tenet of the EU merger control system, because the termination of the cooperation agreement was merger-specific, irreversible, and impacted the entire market.
This case concerns the thorny issue of gun jumping, which is a violation of merger control rules in Europe and many national jurisdictions, and occurs when merging companies begin cooperating before a formal clearance decision is handed down from a national competition watchdog or the EC.
The EU’s merger standstill obligation requires merging companies to obtain clearance before implementing a merger agreement. Prior to obtaining clearance, they must continue to act independently, and cannot gain decisive influence by precipitately transferring assets and rights, integrating operations, exchanging commercially sensitive information, or moving personnel.
In the Danish case, however, the AG disagreed with the competition authority’s finding, and voiced criticism of the Commission’s recent focus on gun jumping.
“While the standstill obligation might be useful,” AG Wahl stated, “it would seem excessive, as the Commission does, to classify it as an indispensable tool for merger control.”
The advocate general opted for a negative definition, stating that the standstill obligation “does not affect measures which, although taken in connection with the process leading to a concentration, precede and are severable from the measures actually leading to the acquisition …”
The AG found that even if the merger agreement and the termination of the KPMG cooperation agreement were interrelated, the termination did not contribute to a shift in control, and the merging entities still remained competitors.
Interest in gun jumping comes in the wake of several high profile cases in European and national case law. In 2016, the French competition authority fined Altice €80 million for involvement in strategic decisions in the business of the merger target SRF. Gun-jumping allegations regarding PT Portugal’s acquisition of Altice and Toshiba’s merger with Canon are currently pending before the EC. The General Court recently upheld a fine imposed on Marine Harvest for having notified late its acquisition – in staged purchases – of salmon producer Morpol.
The AG’s decision appears to be more relaxed than the current interpretation of gun jumping and the standstill obligation. The AG’s opinion, however, is not binding, and a final decision from the EU Court of Justice is expected in the coming months.
See the opinion here.