| What you need to know - key takeaways |
- Gun-jumping (i.e. failure to notify a transaction or implementation a transaction in breach of the standstill obligation) can take many forms, but requires a change of control of the target company.
- Ancillary or preparatory transactions that do not present a direct functional link with implementation of a concentration do not, in principle, fall under the scope of gun jumping prohibition.
- Parties to a merger/takeover should carefully consider these principles before taking any pre-clearance steps which may be viewed as exercising control over the target.
- Gun-jumping can result in a fine up to 10% of aggregate worldwide turnover.
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The Danish Competition Council's view
This case (Case C-633/16 Ernst & Young P/S v Koncurrencerådet) relates to a decision of 17 December 2014 by the Danish Competition Council ("DCC") which declared that EY and KPMG DK, a member of the KPMG International network at the time, had breached the standstill obligation under the Danish law by KPMG DK giving notice to terminate its cooperation agreement with KPMG International before the DCC had approved the merger between KPMG DK and EY. The merger was notified to the Danish competition authority on 13 December 2013, and was approved by the DCC on 28 May 2014, subject to commitments.
However, immediately after the signing of the merger agreement on 18 November 2013, and prior to the approval by the DCC, KPMG DK announced that, in accordance with the merger agreement, they were withdrawing from the KPMG International network from 30 September 2014 at the latest. The DCC considered this a breach of the Danish standstill obligation on the basis that the termination of the cooperation agreement was, inter alia, merger-specific, irreversible and likely to have market effects in the period between the notice of termination itself and the approval of the merger.
EY appealed the DCC's decision before the Danish Commercial Court, which, in turn, referred the matter to the ECJ for a preliminary ruling on the approach under the EUMR (on the basis that Danish merger control law is based on the EU regime).
The ECJ's view
The ECJ took a more purposive approach by taking into account of the objective and general scheme of the EUMR, and interpreted the scope of the standstill obligation by referring to the definition of the concept of concentration as set out in Article 3 of the EUMR.
The ECJ held that:
- the standstill obligation under Article 7(1) of the EUMR prohibits the implementation of any transaction which, in whole or in part, in fact or in law, contributes to the change of control of the target company;
- transactions that are not necessary to achieve a change of control, although they may be ancillary or preparatory to it, do not fall within the scope of Article 7(1). This is the case even if the transaction may have effects on the market; and
- even though KPMG DK's termination of a cooperation agreement was conditional on completion of, and was likely to be ancillary and preparatory in nature to, the overall concentration, it did not contribute to a change of control of the target undertaking. In other words, EY had not acquired the possibility of exercising any influence on KPMG DK as a result of the termination of the cooperation agreement, and thus did not breach the standstill obligation under the EUMR.
The ECJ's EY judgment provides helpful clarification on the scope of the EUMR's standstill obligations, and provides welcome guidance on what companies can and should not do prior to clearance by competition authorities which follow the principles of the EUMR.
The latest in a number of EUMR gun-jumping cases
In the past few years, there have been a number of cases/decisions relating to the EU merger procedural rules, including standstill obligation. For example:
- a €125 million fine imposed on a Dutch telecom company, Altice in May 2018;
- in July 2014, the ECJ upheld a €20 million fine on Electrabel for failing to notify to the Commission its acquisition of a minority shareholding and completing the deal without prior clearance from the Commission (C-84/13 P Electrabel v Commission);
- an ongoing European Commission investigations into the allegations that Merck and SigmaAldrich, General Electric and Canon provided incorrect or misleading information to the Commission as part of the EUMR review process or implemented a merger before notification to and clearance by the Commission; and
- in October 2017, the General Court has handed down its judgment to reject an appeal by Marine Harvest against fine for gun-jumping (Case T-704/14 Marine Harvest ASA v Commission).
With thanks to Akihiro Kudo and Michal Truszczynski of Ashurst for their contributions.
