When a transaction meets the thresholds of the EU Merger Regulation, companies must notify and obtain clearance from the European Commission before implementing the transaction. This means that until clearance is obtained, companies should continue to operate independently (including separately determining prices, bidding for contracts and dealing with customers). Prematurely completing a transaction or taking steps towards integrating a business without prior merger approval may amount to “gun-jumping” in the EU and many other mandatory merger clearance regimes in the world. In the EU, such conduct has started to become a real enforcement focus for the first time and in theory it can lead to very significant fines of up to 10% of a company’s aggregate worldwide turnover, although in practice fines at that level are still unlikely.
On 18 May 2017, the Commission sent a Statement of Objections to Altice to investigate whether its acquisition of PT Portugal was implemented prior to the Commission’s clearance of the merger on 20 April 2015. The Commission considers that the purchase agreement between the parties put Altice in a position where it could exercise decisive influence over PT Portugal, and that occasionally, Altice actually exercised decisive influence over PT Portugal.
From a practical perspective, the key distinction relevant to gun-jumping is between the planning and implementation of a transaction. While it is fine to plan the transition of a merger and develop integration strategies, the acquirer must not take concrete steps which may lead it to manage the business affairs of a target. Examples may include implementing changes to personnel, the target’s employees holding themselves out as representatives of the acquirer, the acquirer taking or directing investment or major strategic decisions which contradict the pre-merger business plan.
The Altice case is likely to provide important guidance as to how aggressive the Commission is prepared to be with respect to contractual provisions granting the acquirer rights between signing and close. Whilst it is very unlikely that standard “ordinary course” covenants will be criticised, more extensive rights such as those often seen in locked box structures may well need to be looked at closely.
In addition to avoiding the deal implementation prior to closing, if the target and acquirer are competitors, they should take care to also ensure compliance with Article 101 TFEU between signing and closing. In practice this means that the companies should not exchange strategic information without appropriate protections and compliance steps. Strategic information includes:
(a) non-public current or future demand or prices (including discounts, credit and other terms of sale);
(b) non-public current or future marketing plans or business plans outlining strategic decisions (such as the target’s future strategy, output expansion or reduction plans);
(c) competitively sensitive customer-specific or contract-specific data;
(d) non-public current or prospective profitability or cost data pertaining to the target’s products or services; or
(e) information regarding specific business opportunities for which the parties might compete prior to closing (such as competitive bids and joint venture arrangements).
In reality, such information may well need to be exchanged in the period between signing and closing for audit, compliance, implementation planning or other reasons. However, parties should have a clear rationale in mind before doing so and should use normal compliance protections, such as limiting disclosure to people who need to know for the legitimate purpose and to people who are not involved in the day-to-day operational decisions such as pricing, sales and marketing.
The Commission’s Statement of Objections against Altice was issued on the same day where the Commission fined Facebook EUR 110 million for supplying misleading information during the Commission’s review of its acquisition of WhatsApp. Further cases in a similar vein are expected. Notably, in both of these cases, the Commission has revealed that there is no impact on the outcome of these mergers which have already been approved. That the Commission has chosen to invest its limited resources in these cases regardless of the fact no adverse effects for European consumers arose represents a shift in enforcement focus that senior officials had been signalling for some time. Commissioner Vestager places a significant premium on ensuring—increasingly in a deliberately ostentatious manner—that everyone is playing by the same rules. She feels that trust in the EU and the liberal economic model more broadly has eroded significantly and as Competition commissioner, she can play a role in rebuilding that trust by aggressively pursuing procedural breaches by corporates.
This political context will affect how the Commission approaches the cases and how the companies involved should respond. A straightforward legal defence may need to be supplemented by engagement with the overarching political objectives.