On 27 June 2019, the European Commission (the Commission) imposed a fine of € 28 million on Canon for partially implementing its acquisition of Toshiba Medical Systems Corporation (TMSC) by using a two-step warehouse transaction structure, before having notified that transaction and thus also before merger control clearance had been obtained.
Mergers and acquisitions that meet the EU turnover thresholds must be notified to the Commission (the “notification obligation”) and may not be (partially) implemented before merger control clearance has been obtained (the “standstill obligation”). It follows from the Commission’s press release that the acquisition of TMSC by Canon was subject to notification and clearance under the EU merger control regime.
Prior to notification and merger control clearance, an interim buyer had acquired 95% of TMSC’s shares for € 800. Canon paid € 5.28 billion for the remaining 5% of the shares and share options rights in relation to the shares of this interim buyer (the “first step”). After notification and merger control clearance was obtained, Canon made use of its share option rights to acquire 100% of TMSC’s shares (the “second step”). Canon notified its intention to do so to the Commission.
The Commission imposed a fine of € 28 million on Canon, because it found Canon had already partially implemented the notified transaction with the first step before notification and clearance had been obtained. According to the Commission, the first step contributed to (and was necessary to) acquire final control over TMSC by Canon in the second step. As such, the Commission found that the two steps formed a single concentration and Canon violated the notification and standstill obligation by carrying out the first step without prior notification and clearance.
In a recent judgment (C-633/16 – KPMG/EY), the European Court of Justice clarified that “gun-jumping” (as such violations of the EU merger control regime’s standstill obligation are called) requires a change of control. Control is defined as the possibility to exercise decisive influence on an undertaking. Therefore, certain preparatory actions are allowed prior to merger control clearance as long as these do not result in a change of control.
The Canon/TMSC case indicates that the partial acquisition of a company in a warehouse construction before merger control clearance is obtained could result in gun jumping and thus may be prohibited. The Commission seems to take a very strict approach and it remains to be seen whether the European Court of Justice (should Canon appeal the decision) will uphold this decision.