In most jurisdictions around the world, including the EU, the parties to mergers, acquisitions and certain joint ventures that need to be notified to competition authorities for antitrust vetting are prohibited by law from implementing the transactions before their notification to and approval by those competition authorities. At its most basic level, that means the parties may not close the transaction before they obtain all mandatory antitrust approvals. For that reason obtaining any such mandatory approvals is usually a condition to closing. In the period before antitrust approval, moreover, the parties may not integrate their businesses or coordinate their market conduct. Instead they must continue to operate as independent businesses, each making its own business decisions without influence by the other and without taking into account any competitively sensitive information obtained from the other during the negotiations and due diligence. The parties may, of course, conduct due diligence and work together to plan and prepare for the postclosing business integration, provided they do not implement those plans before obtaining the requisite antitrust approvals. Violations of these rules are often called “gun jumping” and can result in substantial fines. For instance, last month the European Commission imposed a fine of €125 million on a Dutch company for closing its acquisition of a Portuguese telecoms company before notifying the acquisition to the Commission and obtaining antitrust approval required under the EU Merger Regulation.1
Defining Gun Jumping
The boundary line between lawful planning/preparation and unlawful gun jumping is not always clear. In a ruling on May 31,2 the EU's Court of Justice confronted a situation in which a merger agreement between two accounting firms required one of the merging parties to terminate a cooperation agreement with a third accounting firm that was not a party to the merger agreement. The cooperation agreement was terminated before the merging parties notified their merger for antitrust approval. After the termination (but before the merger was approved), several customers switched their business from the merging party to the third accounting firm. The court interpreted the ban on gun jumping under the EU Merger Regulation as allowing the termination of the cooperation agreement, even though the merger had not yet been approved and the termination produced market effects (the switching of customers to another supplier). According to the court, the ban on gun jumping does not prohibit steps in the period before antitrust approval that are “preparatory or ancillary” to closing the transaction. Instead, it prohibits actions in that period that implement the transaction itself, notably by conferring on a merging party influence over the other merging party’s business.
This ruling should provide significant comfort to merging parties for whom the lack of clarity in gun-jumping rules can sometimes present a barrier to effective integration planning and to managing the expectations of customers and suppliers during the preclosing period.