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Crackdown on gun jumping with mergers

28 June 2018 by Robert Bell

Crackdown on gun jumping with mergers

There is a global crackdown on companies failing to pre-notify authorities about mergers

Recent cases and high fines have highlighted the EU Commission’s growing determination to take firm action against procedural violations of the EU merger control rules. The EU Merger Regulation (Council Regulation 139/2014) provides for mandatory exclusive scrutiny by Brussels of certain large deals that have a ‘community dimension’, defined by reference to certain turnover thresholds. Also under the rules, the EU Merger Regulation places certain obligations on the merging parties to pre notify their deals and not implement them prior to clearance – completing a merger prematurely is known as ‘gun jumping’. It also gives the Commission powers to demand comprehensive and accurate information in relation to the deal from the merging parties.

These heightened enforcement activities against procedural merger control infringements have been mirrored around the world by other merger control authorities. In the EU, both the UK and Hungary have taken action against the provision of incomplete or misleading information, while Spain has fined a party for failure to notify. Outside Europe, antitrust authorities in US, China, India
and Mexico have fined parties for gun jumping or failure to notify.

With this global crackdown on procedural infringements, merging parties need to be fully aware of their obligations under the relevant merger control rules and understand how they can avoid complications in the merger control process.

Marine Harvest/Morpol

The Commission’s first steps in this stricter attitude to procedural infringements date back to 2014, when the European Commission fined Scottish salmon producer Marine Harvest €20 million foracquiring de facto control of a competitor without the Commission’s prior approval.

Marine Harvest acquired a 48.5% share in its Norwegian rival Morpol before the acquisition was notified to the Commission by the parties. The Commission considered this transaction gave de facto sole control to Marine Harvest of Morpol and Marine Harvest had therefore breached Articles 4(1) and 7(1) of the Merger Regulation by not pre-notifying the acquisition of the shares.

Although clearance was eventually given, the clearance decision did not exonerate the company’s failure to notify the Commission before de facto control was established.

This case was really a technical violation, given the fact the transaction was notified soon after the relevant de facto control was established and it was subsequently cleared.

However, the Commission was keen to emphasise that failure to notify is a strict liability infringement of the EU Merger Regulation. Their decision was designed to safeguard the Commission from opening the floodgates to many non-contentious acquisitions seeking retrospective clearance.

Facebook/WhatsApp

Facebook/WhatsApp was the first instance of the Commission adopting a decision to impose a fine on a company for provision of incorrect or misleading information since the 2004 Merger Regulation entered into force.

In this case, the European Commission fined Facebook €110 million in 2017 for providing incorrect or misleading information during the Commission’s 2014 investigation under the EU Merger Regulation of Facebook’s acquisition of WhatsApp.

Upon the imposition of the fine, the EU competition commissioner, Margrethe Vestager, stated that the very significant fine was designed to ‘send a clear signal to companies that they must comply with all aspects of EU merger rules, including the obligation to provide correct information’. This is essential for the Commission to review mergers and takeovers in a timely and effective manner.

“If a potential breach is identified, seek immediate legal advice”

When Facebook notified the Commission of the acquisition of WhatsApp in 2014, it informed them it would be unable to establish reliable automated matching between Facebook users’ accounts and WhatsApp users’ accounts. It stated this in the notification form and a reply to a request of information (RFI) from the Commission. Yet, in August 2016, WhatsApp announced updates to its terms of service and privacy policy, including the possibility of linking WhatsApp users’ phone numbers with Facebook users’ identities.

The Commission found Facebook had provided misleading information and, in contrary to Facebook’s statements in the 2014 merger review process, the technical possibility of automatically matching Facebook and WhatsApp users’ identities already existed in 2014 and Facebook staff were aware of such a possibility.

Altice/PT Portugal

The most recent procedural infringement case for gun jumping taken by the Commission concerned Altice, a multinational cable and telecommunications company based in the Netherlands. On 24 April 2018, the European Commission announced it had imposed a fine of €124.5 million on Altice for implementing its acquisition of the Portuguese telecommunications operator PT Portugal before notification to, or approval by, the Commission. This was the largest fine imposed by the Commission on a company for procedural infringements under the EU Merger Regulation.

The Commission’s decision of 24 April has no effect on the earlier April 2015 decision to authorise the transaction under the EU Merger Regulation. Still, the latest decision condemns Altice for its breaches of the procedural elements of the EU Merger Regulation, which took place before
either the notification and/or the clearance of the transaction by the EU Commission. The level of the fine demonstrates the Commission considers Altice was aware of its obligations under the regulation, and therefore their non-observance of their obligations was, at least, negligent.

This case is significant, providing further evidence of the Commission’s direction of travel in getting tough on procedural infringements. In addition, it shows the Commission is cracking down on those who indulge in gun jumping and its stance has hardened over the past four years since the Marine Harvest case. This latest case is designed to send a clear message to others and deter this type of activity.

Implications for business

In view of the above, merging parties need to be aware of their legal obligations and, if any potential breach is identified, you should seek immediate legal advice. In particular, you should have regard to the following:

Merger filing assessment: Merging parties should make an early careful analysis of the necessary filings needed. They should comply with their filing obligations in those countries and not take any steps to complete the transaction until they obtain clearances from the appropriate regulators.

Act independently pending closing: Merging parties must continue to act independently on the market and limit any cooperation between them to permissible pre-merger planning to avoid allegations of gun jumping – and indeed more general allegations of anticompetitive conduct under antitrust law – prior to clearance.

Avoid sharing competitively sensitive information: Ensure competitively sensitive information and, in particular, current or future prices, marketing plans or other sensitive commercial information is not shared between the merging parties unless under an appropriate ‘clean team’ arrangement.

Comprehensive and accurate responses: It is important all information given by the parties to the European Commission and other merger control authorities in merger submissions and responses to RFIs should be comprehensive, accurate and consistent. Any inconsistencies between the information in merger submissions/RFI responses and the merging parties’ internal documents should be flagged up and explained.

Robert Bell is a partner at Bryan Cave Leighton Paisner LLP

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