Is a wind of change blowing through the European merger control enforcement landscape?
The response is yes, certainly.
Very recent cases or investigations launched by the European Commission alleging potential violations of merger control procedural rules by notifying parties have sent a clear signal to companies: you’d now better think twice before breaking the merger control procedural rules.
It is even truer when one considers that this may well be a trend throughout Europe. These cases have echoed back to recent similar cases, pending or closed, at the member state level (the Altice case in France, the CEE Holding Group limited/ Olympic International Holdings Limited case in Hungary, the AB Kauno Grudai / AB Vievio Paukstynas case in Lithuania, and a very recent bakery case in Slovakia).
It is not that the European competition authorities never pursued such violations, but rather that the magnitude of the recent fines is unprecedented and the investigated conduct is new. In that regard, previous gun-jumping cases mostly related to failure to notify, not to the early implementation of combinations.
What Are These Procedural Obligations?
Schematically, notifying parties have two main obligations in most European merger control regimes: the duty to provide correct and comprehensive information to the competent competition authority–which admittedly seems obvious on paper, but the compliance with which, even in good faith, can sometimes prove tricky–and the obligation to notify and not to close prior to obtaining merger clearance (the so-called ban on “gun-jumping”).
Violating these obligations can result in heavy fines, which is a deterrent although the amount of available fines vary from one country to another. For example, the Commission may impose a fine of up to a maximum of 10% of the infringing party group’s worldwide turnover for gun-jumping and up to 1% for intentionally or negligently providing incorrect or misleading information. However, in the Facebook case, for instance, the fine imposed by the Commission for incorrect and misleading information, though significant, represented less than 0.5% of its 2016 turnover.
Gun-Jumping: Altice and Canon cases
In May 2017, the Commission accused the telecommunication group Altice of implementing its acquisition of telecommunications operator PT Portugal before notification or approval by the Commission. This case, which is ongoing, comes after Altice group previously had been fined EUR 80 million for early implementation of two acquisitions (SFR and Virgin Mobile) by the French competition authority at the end of 2016 (this decision is the first of its kind in France).
In July 2017, the Commission made public an investigation into Canon/Toshiba medical systems corporation. The Commission is concerned that Canon may have used a so-called “warehousing” two-step transaction structure involving an interim buyer, which allowed it to acquire Toshiba medical systems prior to obtaining merger clearance. More specifically, prior to obtaining merger clearance, the interim buyer acquired 95% in the share capital of Toshiba medical systems for €800, whereas Canon paid €5.28 billion for both the remaining 5% and share options over the interim buyer’s stake. Following approval of the merger, the share options were exercised by Canon, acquiring 100% of the shares of Toshiba medical systems.
Incorrect or Misleading Information: Facebook, Merck and GE cases
In May 18, 2017, the Commission fined Facebook €110 million for providing the Commission with misleading information about the possibility of linking WhatsApp users’ phone numbers with Facebook users’ identities in the context of the merger review of its WhatsApp takeover.
With this decision, which is a first since the entry into force of the 2004 EU merger regulation, the Commission was clearly willing to make a point. Indeed, this fine can be regarded as quite severe as not only had this alleged misleading information no bearing on the merger decision but Apple fully cooperated with the Commission.
In July 2017, two more cases of alleged incorrect and misleading information were announced by the Commission: Merck KGaA /Sigma-Aldrich and General Electric/LM Wind.
In the Merck/Sigma-Aldrich case, Merck KGaA and Sigma-Aldrich allegedly failed to provide the Commission with important information about an innovation project that was relevant to the Commission’s analysis. According to the Commission, had it known about this project it would have been included in the remedy package. Interestingly, Merck KGaA subsequently offered to license the relevant technology to the buyer of the divested business, but allegedly only after a one-year delay and only because the Commission had been tipped off by a third party about the project.
As for the GE/LM Wind case, GE is said to have failed to provide information to the Commission concerning its research and development activities and the development of a specific product. The missing information would have had consequences not only for the Commission’s assessment of GE’s acquisition of LM Wind but also for the assessment of a separate transaction in the same wind turbine market (Siemens/Gamesa) which the Commission was reviewing at the same time. GE’s initial notification was withdrawn and a new notification was filed shortly after.
What Does the Future Hold for Notifying Parties?
What is notable is that in all these cases, merger clearance was granted. This is because either the alleged incorrect or missing information became known to the Commission only afterwards or because the Commission probably suspected that it would have no bearing on the final decision. However, the Commission has, in its toolbox, the power to withdraw merger clearance. It has not done so in recent cases, but that possibility is looming.
As a silver lining, these cases open a useful debate between the European competition authorities and the companies and their advisers as to where the balance should be struck between stringent procedural rules and business constraints. A pending preliminary ruling before the European court of justice regarding gun-jumping in the implementation of a concentration (EY/KPMG Denmark) could (if referral is granted) also potentially shed some light and help the European competition authorities to align their approaches.
One may only hope that these developments will ultimately result in reasonable guidelines that will help companies navigate this complex legal landscape.