The European Commission continues its scrutiny against breaches of the procedural obligations in the framework of the EU merger control regime. On 24 April 2018, it announced that it had imposed a fine of EUR 124.5 million on a multinational cable and telecommunications company. The Commission found that the company had implemented its acquisition of a Portuguese telecommunications operator before the transaction was notified and approved by the regulator.
The EU is a suspensory merger control regime. This means that, once it is ascertained that the parties must notify a transaction to the Commission because it meets the EU merger notification thresholds, they must not implement it before obtaining clearance from the Commission (the so-called “standstill” obligation under the EU Merger Regulation). If companies “jump the gun”, by either not notifying the transaction or implementing it before it is authorized, they risk a fine of up to 10% of their aggregated turnover in the last financial year. The seriousness of this breach is illustrated by the statement of the EU Competition Commissioner Margrethe Vestager who stressed that gun jumping: “undermine[s] the effectiveness of our merger control system”.
In this case, the company did notify the proposed transaction to the Commission in February 2015 and the regulator approved it conditionally in April of the same year. However, subsequently the Commission notified the company of its suspicions that it had implemented the acquisition before it was cleared and in some instances even before it was notified for approval.
The Commission found, in particular, that the purchase agreement granted the acquirer veto rights over decisions concerning the target’s ordinary business. In addition, the acquirer issued instructions regarding a marketing campaign and sought and received commercially sensitive information about the target outside of a confidentiality agreement. The Commission concluded that the breach by the acquirer was “at least, negligent”.
The Competition Commissioner has stated in relation to this case that: “There’s a difference between the day to day decisions a company makes, and the ones that really change the whole nature of the business. And if buyers want to be sure they don’t jump the gun in a merger, they shouldn’t have control over decisions in the ordinary course of business.” This decision sends a stark reminder for companies to be particularly careful when drafting the transactional documents and with their conduct prior to clearance of the transaction, as they may face significant fines in case of breach of the “standstill” obligation.