Partner, Co-head of International Arbitration
Rechtsanwalt, Legal Director
Out-Law Analysis | 02 Mar 2020 | 10:14 am | 5 min. read
'Gun jumping' is where companies close merger transactions before obtaining regulatory clearance. The concept is analogous to the false start in athletics.
In a judgment due on Wednesday 4 March, the Court of Justice of the EU (CJEU) will consider the concept of a 'single concentration' and the circumstances in which two separate transactions – a private acquisition and a subsequent takeover bid via the stock exchange – involving the same companies should be considered to be so closely connected that they should be considered in the round.
The CJEU will also explore whether the European Commission, and other national competition authorities across the EU, have scope to fine a company twice for gun jumping for breaching both notification and so-called 'standstill' obligations under the EU's Merger Regulation.
The EU's merger control regime is designed to enable the European Commission to assess prospective concentrations that have a 'Community dimension' and intervene if necessary to avoid those transactions from significantly impeding effective competition in the EU internal market.
A 'concentration' is deemed to arise from either a merger or acquisition where the deal leads to "a change of control on a lasting basis" and provides for "the possibility of exercising decisive influence on an undertaking".
The Merger Regulation requires concentrations that meet the 'Community dimension' thresholds to be notified to the Commission. The companies then are obliged to refrain from closing such a deal before the Commission has completed its review and clearance is granted. Violations of the obligation to notify and the standstill obligation can be punished by a fine of up to 10% of the total group turnover generated by the companies involved.
The European Commission has been in active pursuit of companies deemed to have breached the notification or standstill obligations in recent years.
Telecoms company Altice was fined €124.5m by the Commission in 2018 after it implemented its acquisition of Portuguese telco PT Portugal before notification and approval, and last year Canon was fined €28m after it jumped the gun by structuring a transaction allegedly to circumvent merger control requirements.
National competition authorities have also taken enforcement action in gun jumping cases. Altice was fined €80m by France's competition authority in 2016 after it was deemed to have prematurely implemented its acquisitions of SFR and Virgin Mobile in the country. The German Federal Cartel Office also previously imposed an interim injunction in the case of the Edeka-Kaisers Tengelmann merger control proceedings to prevent them from implementing parts of the planned merger before the authority had concluded its review.
Even in the UK, where the national merger control regime is voluntary, the Competition and Markets Authority (CMA) has also been engaged in gun jumping enforcement. The regulator fined PayPal £250,000 after the company had unintentionally contacted customers of Swedish mobile payments start-up iZettle. The CMA had previously ordered PayPal not to press forward with integrating its business with iZettle's until after the CMA had finished assessing the impact the prospective acquisition would have on market competition.
Dr. Laura A. Stammwitz
The ruling of the court is likely to shape competition regulators' approach to enforcement in gun jumping cases in future
The recent wave of gun jumping cases follows on from the Marine Harvest case, which the European Commission ruled on in 2014. It is in the context of this case that the CJEU is expected to provide clarifications in relation to merger control requirements and powers of enforcement.
Marine Harvest, now known as Mowi, is a Norwegian-owned salmon farmer and processor. In December 2012 Marine Harvest agreed to acquire a 48.5% stake in competitor Morpol. Marine Harvest subsequently acquired the majority of Morpol shares in the context of a public bid and then formally notified the European Commission of its plans in August 2013. The Commission cleared the acquisition one month later after Marine Harvest offered to divest most of Morpol's salmon farming activities in Scotland to address the Commission's competition concerns.
However, in 2014 the Commission imposed two €10m fines on Marine Harvest for failing to notify it of its share purchase agreement with Morpol in 2012 and for then completing its minority stake acquisition without the Commission clearing the deal first. The Commission took the view that in this case the minority stake actually transferred control to Marine Harvest given that the stake was enough to have a stable majority during shareholders’ meetings.
Marine Harvest challenged the Commission's decision in the EU's General Court, but in 2017 the court dismissed the appeal. The case has now come before the CJEU for consideration after Marine Harvest raised a further appeal, claiming the General Court had erred in law in reaching its verdict.
Marine Harvest has been given some encouragement for its appeal before the CJEU. In September last year, an advocate general to the court said the Commission's decision should be partly annulled.
The company's primary argument has been that the two Morpol deals were closely connected and therefore constituted a 'single concentration' which by way of exception had to be notified to the Commission only following the public bid. The effect of this, its claims go, is that it was not obliged to notify the Commission of the initial minority shareholding arrangement in 2012.
While the advocate general said the CJEU should dismiss Marine Harvest's appeal in that regard, he sided with the company's view that it had effectively been fined twice for the same offence and that this was against a core principle of EU law.
The advocate general examined the notification and standstill obligations in the Merger Regulation and the link between them. He concluded that under the Merger Regulation "the Commission cannot impose separate fines for the infringement, by the same conduct" in respect of both of the obligations.
"It is possible to infringe [the standstill obligation] without infringing [the notification obligation]," advocate general Evgeni Tanchev said. "Where a concentration is implemented after it is notified, but before it is declared compatible, the notifying party infringes the second limb of [the standstill obligation], which prohibits the implementation of a concentration before it is declared compatible. However, there is no infringement of [the notification obligation]."
"Consequently, [the standstill obligation], while containing, in the first limb, all the elements of [the notification obligation], contains, in the second limb, an additional element. In my view, it follows that the infringement of [the standstill obligation] subsumes the infringement of [the notification obligation]," he said.
On this basis, the advocate general concluded that the Commission was not allowed to impose an additional fine on Marine Harvest for disregarding the notification obligation, as this is already compensated by the €10m fine imposed on Marine Harvest for the infringement of the standstill obligation.
Tanchev's opinion in the case is non-binding, and it is possible that the CJEU will reach a different verdict in its formal judgment.
Either way, the ruling of the court is likely to shape competition regulators' approach to enforcement in gun jumping cases in future.
Should Marine Harvest's appeal be dismissed, the ruling will be another stark reminder that businesses should take the notification and standstill obligations seriously and put in place appropriate safeguards to prevent an early implementation of their transaction.
If Marine Harvest is successful in challenging the Commission's approach to fines, it will clearly limit the Commission’s leeway in fining companies for 'jumping the gun'. That said, as the recent activity in this area shows, fines for breaches of procedural merger control rules remain high on the enforcers' agenda. This is also true for other procedural breaches during merger review, such as the supply of incorrect information for which Facebook and others were fined in recent times.
24 Jul 2014
Partner, Co-head of International Arbitration
Rechtsanwalt, Legal Director