Following a 5 year investigation, the European Commission this week issued its decision in relation to a ten year cartel, which it said began in 1999 and involved 11 power cable producers (six in Europe and five in South East Asia). The Commission has fined the companies a total of €302 million. Among them was Prysmian, which was acquired by Goldman Sachs Capital Partners in 2005 from Pirelli. Goldman Sachs sold down its investment in Prysmian during its ownership.
The decision sees Pirelli and Goldman Sachs each held jointly and severally liable alongside Prysmian for the €104.6 million fine imposed on it. The Commission decided that the participants had reserved their home markets from competition, allocated other territories between them, and agreed price levels to effectively fix tender outcomes.
Reflecting its apparently central role, Prysmian’s fine was the largest. The Commission calculated Prysmian's fine based on its cartel conduct and then apportioned this between the two “parent companies” based on the period of their control of Prysmian. As a result Goldman Sachs is on the hook for one-third of the fine (€37.3 million). This decision sees the Commission pursue Goldman Sachs in line with the allegations published in its 2011 Statement of Objections.
This decision marks a step change in the approach the Commission has taken to the liability of private equity funds for the behaviour of their portfolio companies. This sees the Commission align its approach to parental liability more closely with other areas of competition law such as merger control. The Commission has fined investors on previous occasions for the conduct of their portfolio companies, but these were much smaller investors and smaller cartels.
The message is clear: if a parent company firm exercises “decisive influence” over a company and its decisions, authorities will look to hold it liable for any of that company’s anticompetitive conduct during its period of ownership. In this case, the Commission focussed on voting rights and board representation. It is understood that members of the board were from Goldman Sachs itself and that it therefore had de facto control of Prysmian for approximately 3 years of the cartel as it could replace the board of directors at any time and received regular updates on Prysmian business. There was however no suggestion that Goldman Sachs or its employees had knowledge of, or involvement in, the anticompetitive behaviour.
This is a reminder of the need for all investors (be they industry or private equity investors) to be alert to the competition law risks relating to their investments. They should conduct thorough due diligence and ensure compliance programmes are in place alongside regular audits.
Goldman Sachs is reportedly considering an appeal and while it may hope to convince the European Courts that it should not be liable for Prysmian’s conduct, previous decisions have found investors liable for anticompetitive behaviour by their portfolio companies even though they did not participate in the conduct themselves.