In an unprecedented decision, on September 20, 2011, the French Competition Authority (Autorité de la concurrence) withdrew the authorization granted in 2006 for Canal Plus to merge with TPS, on the ground that Canal Plus Group subsequently breached some of the conditions of the merger authorization.  Furthermore, the Authority imposed a € 30 million fine (about $40 million) on Canal Plus and ordered it either to dismantle the merger or notify it afresh.  Never before in France has a merger authorization decision been withdrawn in such circumstances.  Even in the few cases where a breach of commitments has been sanctioned in the past, the fines imposed have been very modest in comparison.

In 2006, Canal Plus and Vivendi Universal acquired TPS and CanalSatellite and created the company Canal Plus France, which according to the French government thereby acquired a dominant position on the French market for the distribution of pay TV.  To alleviate the competition concerns expressed by the French Ministry of Economy, then in charge of merger control, Canal Plus offered fifty-nine commitments.  In particular, Canal Plus committed to make the seven most attractive pay channels available to competing distributors and to maintain the quality of those channels, in order to stimulate competition on the market.

According to the Competition Authority, Canal Plus failed to comply with ten of those commitments, in particular the two mentioned above:  the attractive channels were subsequently unbundled, and the quality of those channels was allowed to deteriorate over time, thereby depriving competing distributors of a chance effectively to compete with Canal Plus.  As a result, the Competition Authority concluded, Canal Plus maintained its dominant position on the French market for distribution of pay TV channels.

In such circumstances, French law (Art. L.430-8 of the French Commercial Code) authorizes the Competition Authority to either order Canal Plus to comply with its commitments or withdraw the decision authorizing the merger.  In the past, the Ministry of Economy always opted for an injunction in such circumstances.  In this case however, the Authority chose to withdraw the decision, because (i) an injunction requiring compliance would not have remedied the past breaches of the commitments and (ii) the breaches were particularly serious and essential to the 2006 authorization.  The Competition Authority emphasized that it found “repeated unwillingness and lack of diligence” from Canal Plus, a very experienced operator on the market. Vivendi Universal was not sanctioned because it had played no role in the breach of the commitments.

Following this unprecedented decision, the merger is now to be either dismantled or, more likely, notified afresh to the Competition Authority.  Companies now are warned that a merger authorization with commitments does not give blanket immunity and the Authority will watch over the implementation of each individual commitment. Dismantling a merger can no longer be seen as a theoretical threat but must be treated as a tangible risk.