Gun jumping remains a hot topic – beware!

Following our blog post earlier this year, there have been further developments at European and national level regarding the use of firearms in merger cases. As a general rule, a breach of European or national rules can occur when the merging parties (i) fail to notify their merger when the relevant thresholds have been reached; and/or (ii) the parties implement the transaction prior to receiving the approval(s) (i.e. they fail to meet standstill obligations during the review period). Merging parties should not underestimate their obligations as failure to meet these obligations could result in substantial fines.

The General Court of the EU upheld a fine of 28 million euros for non-compliance with EU merger control rules

On 18 May 2022, the General Court confirmed a fine of 28 million euros imposed by the European Commission on a Japanese multinational specialized in the manufacture of optical and image processing products for its failure to comply with the standstill obligations and of notification in the acquisition of a Japanese medical equipment company.

The transaction was completed in two stages through the acquisition of different types of shares. In the first stage, the interim acquirer acquired various shares with voting and non-voting rights (95% control of the target), and the ultimate acquirer acquired 5% of the shares of the target. Second, the acquirer exercised its stock options, acquiring 100% of the shares of the target. Although the transaction was notified to the Commission as a whole (i.e. the acquisition of 100% of all the shares of the target) and the Commission cleared the transaction, the Commission also found that during the first stage of the transaction, due to the completion of the transaction, the acquirer did not notify a concentration in violation of Article 4(1) of Regulation (EC) 139/2004 and for carrying out a concentration in breach of Article 7(1) of that regulation. This is because the first step was taken before the transaction was notified to the Commission.

The Court confirmed that the implementation of a transaction can take place as soon as the parties to the transaction implement transactions contributing to a lasting change of control of the target. In other words, the implementation of the operation can intervene before the effective takeover of the target.

The French Competition Authority imposes a fine of 7 million euros for non-compliance with French merger control rules

The Autorité de la concurrence has imposed a fine of 7 million euros on a company active in the alcoholic beverages market (in particular the production and distribution of spirits) for having acquired another company active in the same market . Even though the merger was cleared on February 28, 2019, the acquirer was then subjected to dawn raids just a week after it was cleared. The Autorité noted that the acquirer had made the acquisition without notifying it and had not complied with the standstill obligation provided for by the Commercial Code.

The Autorité found that the acquirer exercised decisive influence over the target before the notification by:

  • Acquisition of majority stake in Target – resulting in 3 of Target’s 11 directors coming from the acquirer, allowing them to obtain competitively sensitive information and monitor Target’s business;
  • Intensify commercial and financial relations between the parties, for example by increasing supplies and opening lines of credit; and
  • Be involved in the target’s strategic and operational decisions (for example, by involving the appointment of the target’s general manager).

The above cases highlight that even if an acquisition is ultimately cleared by a competent authority, the parties can still face substantial fines if they fail to notify the transaction before implementation and/or implement the transaction before the authority has finalized the review. The parties must carefully assess each step of the proposed transaction in order to ensure compliance with merger control at European and national level.

Steptoe’s antitrust team will be happy to assist you with any merger control related assessments.

Jessica C. Bell