In its decision dated 20 December 2013, the French Competition Authority (FCA) imposed sanctions on the parent company of the Castel Frères group, active in the production, bottling and marketing of wine, for having failed to notify a merger prior to its implementation. This is only the third decision sanctioning a failure to notify a merger since the transfer of the French Minister of Economy’s jurisdiction over merger control to the FCA. However, the decision suggests an acceleration of the regulator’s practice in this field.
Once certain thresholds under domestic French legislation are crossed, which thresholds are below those applying on a European-wide basis, any person acquiring a company is required to notify the merger to the FCA prior to implementation thereof. Failure to comply with this obligation may result in significant penalties of up to 5 per cent of the acquirer’s French turnover increased, as the case may be, by the acquired target’s French turnover.
From 1 January 2009 – the date as from which the FCA acquired jurisdiction regarding merger control from the Ministry of Economy – to 11 May 2012, no sanction had been imposed for failure to notify. The financial risk incurred could therefore have seemed to be theoretical only, particularly as the sanctions previously imposed by the Ministry had been symbolic. Nevertheless, in the last 31 months, the FCA has issued three decisions sanctioning failures to notify, turning this risk into a very real one. While the fines levied in the Colruyt and Réunica cases were approximately €400,000, in the Castel Frères case, the fine amounted to €4 million. Although it is difficult to draw a definitive conclusion concerning a possible trend of increasing the severity of sanctions, it seems that the difference in size between Castel Frères, on the one hand, and Colruyt or Réunica, on the other hand, alone is not sufficient to justify the amount of the penalty having been increased tenfold. This most recent case provides clues identifying the factors that can lead to a high penalty.
In its decisions, the FCA first points out that, by its very nature, a failure to notify constitutes a serious breach as it impedes its function of promoting effective competition on the market, of which merger control is a part. For the FCA, the possible anti-competitive effects of the non-notified mergers is not relevant; it is the principle of failing to notify that is at issue: indeed, in all three cases, the mergers were ultimately authorised.
The FCA then analyses the seriousness of the offence, assessing whether the notifiable nature of the operation was obvious, and if the companies voluntarily failed to notify in order, for example, to knowingly circumvent the obstacles raised by the scrutiny to which the notification would have subjected the proposed merger, or in order to implement the operation quickly. The FCA also takes into account the individual circumstances of the acquirer and verifies whether the size of the undertaking allows for the financial means to obtain appropriate legal advice. In the cases of Réunica and Castel Frères, the FCA also notes that these companies had already experience in notifying a merger in the past.
The significant factor therefore seems to be the good faith of the notifying parties. Thus, in the cases of Colruyt and Réunica, the acquirers spontaneously informed the FCA of their failure to notify. On the contrary, in the Castel Frères case, the failure to notify was revealed to the FCA by a third party in a subsequent merger case. In addition, since Castel Frères began by arguing that the transaction was not notifiable, the FCA did not consider that it was entitled to raise its cooperation as a mitigating circumstance. On the contrary, the FCA even goes further and recalls in its decision that the sanctions imposed in this area are meant to have a deterrent effect.
Therefore, we highly recommend undertakings to ensure in the first place that they comply with the stage of notification of a merger and, in the event that they forget to do so, to rectify it spontaneously and as soon as possible. Even outside of the case of a denunciation by a disatisfied third party, the risk of having the FCA informed of the non-notified operation during the implementation of another merger in the same sector is genuine.