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The EU Commission has imposed a fine of €124.5 million on Altice, a multinational cable and telecoms company, for having implemented its acquisition of Portuguese telecoms operator PT Portugal prior to notifying the transaction and receiving clearance under the EU Merger Regulation (EUMR), so-called "gun-jumping". The level of the fine reflects the Commission's strict approach to breaches of the EUMR's fundamental rules "which undermine the effective functioning of the EU merger control system", and is intended to act as a clear warning that this type of conduct will not be tolerated.

The Commission has imposed fines for gun-jumping in a number of cases and further investigations into possible gun-jumping conduct are currently ongoing. The latest fine should send a clear warning to companies involved in transactions subject to the EUMR (or other merger control regimes with similar requirements) that the standstill obligation must be respected and that pending receipt of merger clearance companies must continue to act independently on the market and should limit any cooperation between them to permissible pre-merger planning. The distinction between early implementation and permitted transition planning will not always be easy and will depend on the facts and circumstances of each individual transaction. It is therefore important to have clear and practical guidance in place, with appropriate on-going legal oversight, on what is and is not permissible pending a clearance decision.

1. Background

Transactions that meet the jurisdictional thresholds of the EUMR must be notified to the Commission and cannot be implemented before the Commission has issued a clearance decision. The Commission can impose fines of up to 10% of the aggregate turnover of the undertakings concerned where the parties, either negligently or intentionally, fail to notify a relevant transaction and obtain clearance, or where they start implementing a notified transaction prior to receiving clearance.

In February 2015 Altice notified its proposed acquisition of PT Portugal to the Commission under the EUMR. The transaction was cleared in April 2015, subject to the divestment of Altice's Portuguese telecoms businesses in order to remove the overlap with PT Portugal.

In May 2017 the Commission sent a statement of objections to Altice in which it alleged that Altice had partially implemented its acquisition of PT Portugal by exercising control over the target prior to clearance, and in some respects prior to notification.

2. The Commission's decision

Following a detailed investigation the Commission concluded that certain provisions of the purchase agreement between the two companies resulted in Altice acquiring the legal right to exercise decisive influence over PT Portugal before clearance of the transaction, in particular with Altice acquiring veto rights over PT Portugal's day-to-day business decisions. The Commission also concluded that in some instances Altice did actually exercise decisive influence over aspects of PT Portugal's business. The final decision is not yet available, but the Commission's press release provides two examples:

  • Altice had instructed PT Portugal on how to carry out a marketing campaign, and 
  • Altice sought and received detailed commercially sensitive information about PT Portugal outside the framework of any confidentiality agreement 

The Commission imposed a fine on Altice of €124.5 million, which takes into account the nature, gravity and duration of the infringement. The Commission found that Altice had breached both the notification and the standstill obligations of the EU merger control regime. The fine is considerably higher than fines imposed in previous gun-jumping cases (which were all failure to notify cases), but is in line with other recent fines imposed for breach of the EUMR rules. In May 2017 the Commission imposed a fine of €110 million on Facebook for providing incorrect/misleading information to the Commission during its review of Facebook's acquisition of Whatsapp (see our e-bulleting here).

3. The French Altice case

This is not the first fine imposed on Altice for gun-jumping. In November 2016 the French competition authority (FCA) imposed a fine of €80million on telecoms companies Altice and on SFR for gun-jumping in the context of two telecoms mergers concluded in 2014. In October 2014 Altice received approval from the FCA for its acquisition of SFR from Vivendi, and shortly thereafter it received approval to take over OTL, the company operating Virgin Mobile in France. The FCA held that in both transactions the parties had started to integrate and share competitively sensitive information before they received merger clearance. Under the French merger control rules (Article 430-8 of the French Commercial Code) companies are not permitted to implement a qualifying transaction until it has been cleared by the FCA. Failure to comply with this standstill requirement may result in fines being imposed of up to 5% of the annual turnover of the acquiring party (see our e-bulletin here for more detail).

4. Other gun-jumping cases

  • Most gun-jumping infringement cases in the EU to date have dealt with failure to notify. In July 2014 the Commission imposed a fine of €20 million on Marine Harvest for acquiring a 48.5% stake in its competitor Morpol prior to notifying the transaction and receiving clearance, in breach of the notification and standstill obligations of the EUMR (see our e-bulletin here). An appeal against the General Court's ruling which upheld the Commission's decision is currently pending before the CJEU. In June 2009 the Commission imposed a fine of €20 million on Electrabel for having completed a deal without prior authorisation. 
  • The EU Commission has also taken enforcement action in relation to early implementation but has not imposed fines for breach of the standstill obligation to date. In the context of the creation of Premiere, a joint digital platform by Bertelsmann and Kirch, the Commission warned the parties that various marketing activities being carried out in relation to Kirch's digital box by Premiere amounted to a partial implementation of the transaction in breach of the standstill obligation. The parties gave a formal undertaking to suspend the various operations with immediate effect and no fine was imposed. 
  • In July 2017 the Commission issued a statement of objections to Canon which provisionally concludes that it breached the EUMR by implementing its acquisition of Toshiba Medical Systems Corporation before both notifying to, and obtaining approval by the Commission. The Commission's preliminary view is that Canon used a "warehousing" two-step transaction structure involving an interim buyer, which allowed it to acquire Toshiba Medical Systems before obtaining the relevant merger approvals. 
  • A preliminary reference case requiring clarification of the standstill obligation in Article 7(1) EUMR is currently pending before the CJEU. In January 2015 the Danish Competition Council concluded that KPMG DK infringed the standstill obligation under Danish merger control by terminating its cooperation with the international KPMG network before final approval of the merger between Ernst & Young Europe and KPMG DK. Termination of the cooperation was seen as a provisional step to carrying out the merger. Ernst & Young appealed the decision before the Danish Commercial Court, which made a preliminary reference on the interpretation of Article 7(1) EUMR (as the Danish provisions were based on the EUMR). The CJEU's ruling is still awaited, but in his opinion in January 2018 Advocate General Wahl took the view that the termination of the cooperation agreement was a preparatory measure that was not in breach of the standstill obligation. 

Outside the EU we are seeing similar procedural toughness in other merger control regimes, with competition authorities worldwide pursuing merging parties for failing to file and other violations of the merger control rules. In China for example, MOFCOM has fined over 20 companies for a failure to notify since 2014.

5. Time for further guidance?

The distinction between permissible planning activities and prohibited implementation activities pending merger clearance under a suspensory regime is not always easy to make, yet getting it wrong can have serious consequences. The starting point is that, until merger clearance has been obtained, the parties to a transaction should remain independent and should not act as though their deal were already complete.

A certain degree of transition planning will be permitted and the purchaser will also want to ensure that the value of the target is not adversely affected through conduct outside the ordinary course of business. Veto rights over decisions outside the ordinary course of business may therefore be acceptable, but care should be taken that any such control will not result in decisive influence over the target prior to clearance. The Altice case confirms that veto rights over the target's day-to-day business decisions will not be permitted. The key issue here is of course what constitutes the "ordinary course" of business and what amounts to acceptable protection to preserve the value of the target pre-completion.

There is no legal definition or guidance on the meaning of early implementation under the EUMR, although experience in previous merger cases can be very helpful in determining where the dividing line sits. In his opinion in the KPMG/E&Y case AG Wahl is critical of the lack of guidance on early implementation under Article 7(1) EUMR:

"To my knowledge, the Court has to date not specifically ruled on the scope of the standstill obligation in Article 7(1)… That is noteworthy, as the fines imposed by the Commission have, as of late, in no way been insignificant. That lack of judicial review seems to have allowed the Commission to continue its regulatory activities unchecked".

AG Wahl agrees with the Commission's position that it would not be effective to compile a general and exhaustive list of measures that could potentially be caught by the standstill obligation. Instead, he calls on the Court to provide a definition of those measures that will fall outside the scope of Article 7(1), which should improve legal certainty for businesses while at the same time retaining the flexibility necessary for effective merger control. The AG's opinion is not binding on the Court, but it is hoped that the case will result in clearer guidance on the issue.

6. Implications for businesses

Recent action by the Commission and other competition authorities around the world for procedural breaches of the merger control rules should remind merging parties of their obligations and the need to ensure antitrust legal oversight during the deal process. In particular:

  • Parties should carefully assess their merger filing obligations and ensure they obtain clearance from the relevant regulators before completing their transactions
  • Prior to obtaining clearance and prior to completion of the deal, the parties must continue to act independently on the market and limit any cooperation between them to permissible pre-merger planning 
  • Provisions of the sale agreement on conduct of business prior to completion must be scrutinised very carefully for competition compliance and clear practical guidance on what is and is not permissible should be given to the teams involved 
  • Procedures must be put in place to ensure that competitively sensitive information (such as current and future prices, marketing plans or strategies) is only shared between the merging parties where strictly necessary and subject to appropriate clean team arrangements being in place 

Key contacts

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Stephen Wisking

Partner, London

Stephen Wisking
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Veronica Roberts

Partner, UK Regional Head of Practice, Competition, Regulation and Trade, London

Veronica Roberts
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Kyriakos Fountoukakos

Managing Partner, Competition Regulation and Trade, Brussels

Kyriakos Fountoukakos