- Business fined €124.5m by the European Commission for implementing a deal before getting approval
- Getting competition approval does not retrospectively validate "gun-jumping" (i.e. implementing a deal (even part of a deal) before approval)
- Merging parties need to be careful to not implement a deal prematurely
- Get competition law advice on pre-closure implementing planning
Parties to a merger, acquisition or joint venture have every incentive to "get on" with the task of implementing the deal. If the parties to a Merger & Acquisition deal close the deal early then the sellers will get their money and move on to new pastures sooner while the buyers will be able to "get their hands" on the target business and earn the profits they anticipate even sooner. Equally, the parties to a joint venture will be able to obtain the benefits of the joint venture which they could not achieve individually sooner if they implement the joint venture early. Parties to deals therefore have commercial incentives to move forward quickly.
There are however two main obstacles facing the parties from the competition law perspective.
First, there is often a "notification" requirement meaning that the parties to a deal must notify the proposed deal to a competition agency to obtain approval and a failure to obtain that approval will mean that the deal is unlawful. This is the so-called "notification obligation".
Secondly, some national or international competition law regimes (but not all) go further and insist not only on a notification but also insist that the parties may not "jump the gun" and implement the deal without first obtaining the necessary competition law approval. This is the so-called "standstill obligation". Speaking generally, the standstill obligation is imposed by jurisdictions such as the European Union, Germany and Ireland but not by other jurisdictions such as the UK. The value of the standstill obligation is that it prevents the potentially irreparable negative impact of a transaction on the market generally and consumers in particular being implemented pending the outcome of the competition agency's investigation.
As a general principle, under the EU's Merger Control Regulation, the European Commission may impose fines of up to 10% of the aggregated turnover of businesses which intentionally or negligently breach the notification and/or the standstill obligations.
The main legislative instrument in EU merger control is Regulation 139/2004. It contains both the notification obligation and the standstill obligation.
The notification obligation is contained in Article 4(1) of the Regulation. The standstill obligation is contained in Article 7(1) of the Regulation.
The Commission's power to impose fines in the event of a breach of Article 4(1) or 7(1) is laid out in Article 14(2)(a) and (b) of the Regulation.
Altice is a multinational cable and telecommunications company based in the Netherlands. Altice sought to acquire Portuguese telecommunications operator PT.
On 9 December 2014, Altice entered into a transaction agreement with Oi (the Brazilian telecommunications operator which controlled PT Portugal) to acquire sole control of PT Portugal. On 25 February 2015, Altice notified the Commission its plans to acquire PT Portugal.
The transaction was conditionally cleared by the Commission on 20 April 2015. There were certain conditions attached to the clearance including an obligation to divest Altice's businesses in Portugal at the time (i.e., Oni and Cabovisão).
That was not the end of the process. The Commission believed that Altice had taken control before the Commission made its decision to approve the acquisition (i.e., while Altice was in the process of seeking Commission approval for the proposed transaction).
On 18 May 2017, the Commission announced that it had sent a Statement of Objections to Altice detailing its concerns that Altice implemented its acquisition of PT Portugal before obtaining the Commission's clearance, and in some instances, even before its notification of the merger.
"Gun-jumping" decision On 24 April 2018, the Commission announced that it had imposed a fine of €124.5m on Altice for breaching EU competition law by controlling PT Portugal before obtaining merger approval. The Commission believed that the fine was both proportionate and deterrent. (Such a fine would usually be appealed to the General Court, and even to the Court of Justice of the European Union so it will be interesting to see how the EU's courts view such a high fine.)
Announcing the fine, European Commissioner Margrethe Vestager, in charge of competition policy, said:
"companies that jump the gun and implement mergers before notification or clearance undermine the effectiveness of [the EU] merger control system. This is the system that protects European consumers from any merger that would lead to higher prices or reduced choice. The fine imposed by the Commission on Altice today reflects the seriousness of the infringement and should deter other firms from breaking EU merger control rules".
The Commission found that:
(a) certain provisions of the purchase agreement resulted in Altice acquiring the legal right to exercise decisive influence over PT Portugal (e.g., by granting Altice veto rights over decisions concerning PT Portugal's ordinary business); and
(b) in certain cases, Altice actually exercised decisive influence over aspects of PT Portugal's business, for example, by giving PT Portugal instructions on how to carry out a marketing campaign and by seeking and receiving detailed commercially sensitive information about PT Portugal outside the framework of any confidentiality agreement.
The fine for procedural breaches does not impinge on the validity of the Commission's substantive clearance decision in April 2015.
The Commission considers that these infringements are serious because they undermine the effective functioning of the EU merger control system. The Commission also believed that Altice was aware of its obligations under the Merger Control Regulation. Therefore, Altice's breach of procedural obligations was, at least, negligent.
Comment This is not the first time that the Commission has imposed a fine for procedural issues but certainly marks an increase in the level of fines. There are several other cases pending with allegations of parties supplying misleading information to the Commission for alleged gun-jumping. This case will not be the last but it is certainly a case with one of the most severe fines to date. The fines imposed by the Commission for such a breach have risen dramatically from the likes of €28,000 in the case of Samsung/AST for gun-jumping (and €5,000 for failing to notify) or €174,000 in a case involving AP Møller to €20m on Electrabel in respect of its takeover CNR and now €124,500,000 in this case. There is clearly a need for businesses to be patient, not to jump the gun and await approval.