On 12 December 2012 the EU General Court dismissed Electrabel's appeal against the €20 million fine the European Commission had imposed on it for failing to notify a transaction - the acquisition of a minority shareholding - to the Commission under the EU Merger Regulation (EUMR) and completing the deal without prior clearance from the Commission. The General Court confirmed that such breaches of the EUMR are serious and justify the high fine imposed, even where the transaction did not raise substantive competition law concerns. The judgment serves as an important reminder of the need for all companies - whether based in the EU or not - to carefully consider the application of the EUMR to all transactions, and the severe consequences of getting it wrong.

1. Background

The parties to a transaction which falls within the scope of the EUMR rules are required to notify the transaction to the Commission and cannot implement the transaction before approval is granted (the so called "standstill obligation").

A transaction falls within the scope of the EUMR rules if (i) it constitutes a "concentration" and (ii) the turnover of the parties to the transaction meets specified jurisdictional thresholds, regardless of whether the transaction will have any substantive effects on competition in the EU.

The concept of a "concentration" is wide and includes both mergers of previously independent undertakings and the acquisition by one or more undertaking(s) of direct or indirect control over another undertaking or undertakings. Control for these purposes is defined as the ability to exercise "decisive influence" over an undertaking. Importantly, this includes not only out-right acquisitions of control, but also in some circumstances acquisitions of minority shareholdings, for example where the acquirer obtains veto rights over the strategic decision-making of the target, or can in practice obtain a majority at shareholders' meetings. The concept of a concentration also includes the acquisition of both sole and joint control, including through the creation of "full function" joint ventures. The application of the EUMR jurisdictional thresholds can also be wide in scope; for example these can be met by the turnover of the parents to a joint venture alone, regardless of whether the joint venture itself is or will be active in the EU.

Where it is not clear whether either test is met, companies can consult with the Commission as to whether an EUMR filing is triggered.

The Commission has the power under Article 14 of the EUMR to impose fines of up to 10% of annual group worldwide turnover for failure to notify a transaction and for implementation of a transaction in breach of the standstill obligation, whether intentionally or negligently. The applicable limitation periods for the Commission taking action to impose fines under the EUMR are 3 years for formal or procedural infringements (of provisions concerning applications or notifications, requests for information, or the carrying out of investigations) and 5 years for all other infringements.[1] Time begins to run upon the day on which the infringement is committed, or, in the case of continuing or repeated infringements, on the day on which the infringement ceases.

2. Electrabel transaction

Between June and December 2003, Electrabel, a Belgian company active in the energy sector, increased its shareholding in the French electricity company Compagnie nationale de Rhône (CNR) from 17.86% to 49.94% through a series of transactions, which ultimately conferred on Electrabel 47.92% of the voting rights in CNR (the Acquisition). Such a series of transactions within a short period would qualify as one concentration under the EUMR rules. The Acquisition was not notified to the Commission.

Around 4 years later, in August 2007, Electrabel contacted the Commission about its interest in CNR, and subsequently formally notified the concentration to the Commission (the Commission having concluded that Electrabel had sole control over CNR within the meaning of the EUMR rules; the turnover thresholds were clearly met in this case). In its decision of 29 April 2008, the Commission found that the concentration did not raise any substantive competition law concerns, and cleared the transaction under the EUMR. However, the Commission left open the question of exactly when Electrabel had acquired control over CNR within the meaning of the EUMR.

3. Commission infringement decision

Following an investigation, on 10 June 2009 the Commission concluded that Electrabel had through the Acquisition acquired "de facto" sole control over CNR in December 2003, thus triggering an EUMR filing requirement.

This was on the basis that, although Electrabel did not obtain a majority of the voting rights in CNR and therefore did not obtain a "de jure" right to exercise control over CNR, looking at participation and shareholder voting patterns at shareholder meetings, Electrabel would in practice exercise an absolute majority at such meetings, enabling it to exercise "de facto" control over CNR. The Commission found that this de facto control was reinforced by other factors, for example the fact that Electrabel was the sole industrial shareholder of CNR and had a central role in the operational management of CNR, and through its appointees to the Board of Directors.

The Commission therefore found that Electrabel had failed to notify the Acquisition and had breached the standstill obligation by completing the Acquisition (in December 2003) without obtaining prior clearance from the Commission (see our e-bulletin here).

In its decision the Commission imposed a fine of €20 million on Electrabel for negligent breach of the standstill obligation. It noted that Electrabel was a large sophisticated company, with substantial legal resources at its disposal, and that, even if it was not entirely clear that the Acquisition had triggered an EUMR notification requirement (which the Commission did not accept), the logical and usual course for Electrabel would have been to consult with the Commission as to whether the Acquisition fell within the scope of the EUMR.

Electrabel appealed both the Commission's infringement finding and, in the alternative, the level of fine to the General Court. It also argued that the Commission's action was time-barred.

4. General Court judgment

The General Court dismissed Electrabel's appeal in its entirety.[1]

Notifiability of the transaction

The General Court upheld the Commission's conclusion that the Acquisition resulted in Electrabel acquiring de facto sole control over CNR, and therefore amounted to a concentration within the meaning of the EUMR. The General Court held that Electrabel had not demonstrated that it was not "virtually certain" that it would obtain a majority at shareholders' meetings due to the dispersal of other shareholders and the pattern of voting at previous shareholders' meetings. The General Court also rejected Electrabel's challenges to the other factors relied on by the Commission when finding that Electrabel exercised control, such as its operational control and its majority on the Board of Directors.

Limitation periods

The General Court rejected Electrabel's arguments that the Commission's action was time-barred.

Electrabel had firstly argued that the relevant infringement should be characterised as a formal or procedural infringement, such that a 3 year limitation period applied. The General Court dismissed this argument, finding that breach of the standstill obligation cannot be categorised as merely formal or procedural, and that the applicable limitation period was 5 years.

In terms of when the 5 year period began to run, although not strictly necessary to do so, in particular given that the General Court found that the 5 year limitation period would in any event have been interrupted by a request for information made by the Commission in June 2008, the General Court went on to consider whether the breach of the standstill obligation constituted a single one-off infringement (as at the date of completion of the Acquisition), as argued by Electrabel, or an on-going infringement. The General Court dismissed Electrabel's submissions that, if found to be an on-going infringement, a breach would in effect be eternal, depriving a limitation period of any meaning. It instead endorsed the Commission's position (as put forward during the litigation) that a breach of the EUMR standstill obligation constitutes an on-going infringement until clearance is obtained from the Commission (or the transaction is abandoned, for example by the acquirer losing control over the target).

This conclusion has potentially very far-reaching implications for companies, as this gives rise to the risk of Commission action pursuing companies for breach of the standstill obligation many years after the relevant transaction has taken place (for example if this came to the Commission's attention when examining another transaction to which the relevant company is party).


The General Court upheld the level of fine imposed by the Commission on Electrabel, confirming that the Commission was correct to categorise the infringement as serious, even if the breach was negligent rather than intentional, and even though the Acquisition had no negative substantive effects on the market. In response to Electrabel's arguments on the proportionality of the fine, the General Court noted that, although the fine was high, it was at the "lower end" of the range of the level of fine which could have been imposed.

5. Conclusion

Prior to the Electrabel case, fines imposed under the EUMR for failure to file and for breach of the standstill obligation had been rare and at a relatively low level (having been imposed only in the Samsung/AST case in 1998 and the A.P.Møller case in 1999).

The fine imposed by the Commission on Electrabel, and its willingness to investigate a failure to file from many years ago, signalled a clear message from the Commission that it will not tolerate breaches of the fundamental rules under the EUMR and that it will impose significant fines where appropriate. The facts of the case demonstrated that the Commission is willing to do so even where the assessment of control under the EUMR is relatively complex, and that the Commission will investigate such jurisdictional infringements even where the transaction does not itself raise any substantive concerns.

The General Court has in this judgment firmly upheld the Commission's approach. In addition, its conclusion in relation to the application of limitation periods exposes companies to the risk of a Commission investigation for breach of the standstill obligation at any time while control is retained over the target company without EUMR clearance having been received.

Given the severe consequences of a failure to comply with the EUMR notification and standstill requirements (not only fines but also potentially invalidity of the transaction in question), all acquisitions, including those of minority stakes and those which take place through a series of transactions (which as in this case may be considered as one single concentration), must be scrutinised carefully to ensure compliance with the EUMR. Although not in issue in this case, this applies equally to transactions which, although not having any effects on EU markets, may nevertheless be caught by the EUMR jurisdictional rules, such as the creation of joint ventures intended to be operate outside the EU by parents who do generate sales into the EU.