Recent ruling highlights the need for the M&A community to ensure merger control is high on the agenda when contemplating new transactions
A recent announcement by the European Commission provides a timely reminder of the need for businesses to ensure they obtain merger clearance before implementing a deal to avoid exposure to significant fines.
On 23 July 2014, the European Commission announced that it had levied a fine of €20 million on Marine Harvest ASA, a salmon farmer and processor, for failure to obtain authorisation under the EU merger regulation before acquiring its rival Morpol ASA. The Commission alleges that there was an eight month gap between Marine Harvest completing the deal and later notifying it. Marine Harvest stands accused of ‘jumping the gun’: rushing to get the deal done without having secured the necessary EU merger approval. The fine was imposed despite the fact the deal was subsequently cleared by the Commission (albeit with certain remedies being imposed).
The level of fine is significant for a procedural transgression, and has been described by the company as unduly punitive when compared with similar cases. However, it matches the €20 million fine imposed on Electrabel for a similar transgression in 2009, suggesting the Commission may be trying to establish a benchmark fine for failure to notify. Interestingly, whereas Electrabel’s failure to notify was only discovered some time after the event (when Electrabel notified a subsequent acquisition to the Commission), Marine Harvest claims it made a conscious decision to file at the point it believed was appropriate in the context of a Norwegian public takeover. While the Commission stated that Marine Harvest should have notified the acquisition of its initial (substantial) minority shareholding in Morpol (which triggered a mandatory takeover offer under Norwegian public takeover rules), Marine Harvest had understood it was fulfilling its obligations by simply holding fast on exercising its shareholder rights until clearance was obtained. In this context, Marine Harvest has responded vigorously in denying any wrongdoing, and has indicated it will appeal.
For observers, the Commission is sending a clear message that it will come down hard on any failure to report transactions qualifying for notification. The EU operates a mandatory regime whereby any transaction with an EUdimension which triggers certain turnover thresholds must be notified prior to implementation. From the Commission’s perspective, this waiting period – known as the “standstill obligation” - provides a necessary safeguard preventing anticompetitive mergers being implemented before the Commission has had a chance to review them (given the complications of undoing transactions which have already gone ahead).
For global operators now facing over 100 competition regimes around the world, this announcement reinforces the importance of structuring transaction timetables to allow careful consideration of the many practical and procedural hurdles arising from merger control processes, to assess where the risks arise, and facilitate early engagement with the authorities and guard against the risk of fines or other sanctions.