Gun-jumping triggers trouble | White & Case LLP International Law Firm, Global Law Practice

Gun-jumping triggers trouble

In merger control, gun-jumping refers to two distinct types of prohibited practices: failure to notify authorities of a transaction triggering merger thresholds, and implementing a notified transaction before receiving merger clearance from the relevant merger authority. Both behaviours can result in hefty fines.

 

Gun-jumping for failure to notify a transaction

EC

In July 2014, the European Commission found that Norway- based Marine Harvest, the largest salmon farmer and processor in the European economic area, had implemented an acquisition of a 48.5 percent shareholding in local rival, Morpol, in December 2012 without prior notification. According to the Commission, this acquisition gave Marine Harvest de facto sole control of Morpol since it enjoyed a stable majority at the shareholders' meetings as a result of the wide dispersion of the remaining shares and previous attendance rates at these meetings.

Marine Harvest only notified the transaction eight months later in August 2013 following its acquisition of the remaining 51.5 percent shareholding in Morpol as part of a mandatory public offer. In its response to the Commission's decision, Marine Harvest stated that the takeover of Morpol was clearly structured as an acquisition of an initial shareholding followed by an immediate mandatory offer and that its decision to notify only after full takeover was in accordance with the exception applying to public takeovers under Article 7(2) of the EU merger regulation. In addition, it said it made clear that no control would be exercised over Morpol until the Commission had cleared the transaction. Marine Harvest's appeal against its €20 million fine is ongoing in the General Court. The European commission first showed that failure to notify can be a costly process in 2009 when it fined Belgian electricity producer Electrabel €20 million for allegedly failing to alert the merger watchdog about the acquisition of a minority stake that it argued gave it control of Compagnie Nationale du Rhone until 2007—four years after the initial transaction.

Electrabel appealed but the fine was upheld in the General Court, which in 2012 found that it was highly likely that Electrabel "would obtain a majority at the shareholders' general meeting, even without holding a majority of the voting rights’,' and would have required shareholder attendance of 95.84 percent or greater and for all other shareholders in attendance to adopt a common position against the applicant. The judgment of the General Court was eventually upheld by the Court of Justice in 2014.

China

In December 2014, MOFCOM, the Chinese competition regulator, issued its first ever fine for a failure to notify, imposing a penalty of CNY 300,000 (approximately €45,600) on Unigroup for failing to notify its acquisition of RDA Microelectronics after MOFCOM concluded that this transaction constituted a business operators' concentration and met the filing threshold. Under Chinese competition law, MOFCOM is able to impose a maximum fine of CNY 500,000 (approximately €76,000). The decision followed the Chinese regulator's announcement in March 2014 that it will make public decisions sanctioning companies for failing to notify mergers that meet filing thresholds in China. In late October 2015, MOFCOM announced that 52 investigations into deals that were not notified for merger review have been opened. According to its antitrust chief, the regulator has so far imposed penalties in 15 of these cases

Portugal

On 28 December 2012, the Portuguese competition authority considered that the National Pharmacy Association (NPA), Farminveste 3 and Farminveste failed to notify the acquisition of control of ParaRede/Glintt. The concentration was eventually approved but failure to notify lead to fines of €150,000—the first time that the Portuguese competition authority had taken such a step.

France

French national merger regulators are also getting tough on companies that jump the gun.

The French Competition Authority (FCA) can impose a fine of up to 5 percent of the annual turnover of the acquiring company for failure to obtain prior clearance of a notifiable merger.

In December 2013, the FCA imposed a €4 million fine (est. at 0.15 percent) on Bordeaux- based wine-maker Castel Frères group for failing to obtain pre-closing clearance for its acquisition of six companies that were part of the rival Patriarche group in 2011. The €4 million fine is the highest that the FCA has imposed to date, and in setting the fine the FCA said that the Castel group should have known that the deal was reportable and that it deliberately chose not to notify the deal to ensure speedy clearance.

The FCA has imposed smaller fines where companies have shown a greater willingess to cooperate. In May 2012, it fined supermarket chain Colruyt €392,000 for falling to notify acquisitions it made in 2003, 2004 and 2009. The fine, which represented only about 0.05 percent of Colruyt's turnover, took into account the fact that Colruyt denounced spontaneously the infringement and cooperated actively during the investigation. In February 2013, the FCA levied a similar fine of €400,000 (0.1 percent of turnover) on pension and health insurance fund Réunica for failing to notify its acquisition of Arpège. Réunica informed the FCA itself of its failure to notify.

 

Gun-jumping for implementing the transaction prior to obtaining merger clearance

USA

In the US, Department of Justice (DOJ) has prosecuted companies for illegal pre-closing activities on numerous occasions. In November 2014, the DOJ announced a U$5 million (€4.7 million) settlement with two companies for illegal pre-merger coordination. According to the complaint, Flakeboard America Limited and SierraPine had executed an asset purchase agreement, and while the transaction was under review, SierraPine had closed one of its mills producing medium-density fibreboard, which competed with Flakeboard's mill. Flakeboard was ordered by the DOJ to disgorge the profits it earned (US$1.15 million) as a result of the parties' arrangement, and the DOJ issued a fine of US$3.8 million for coordinating their actions prior to clearance, a violation under the US's Hart-Scott-Rodino Antitrust Improvements Act.

Norway

In February 2014, Norway's competition regulator Konkurransetilsynet issued a fine of approximately €2.9 million on NorgesGruppen for acting too fast in its acquisition of ICA Maxi grocery stores. NorgesGruppen bought the stores from rival ICA Maxi in April 2012 and began operating 22 of 24 of the stores without having received approval from the regulatory body.

France

At a national level, Article L. 430-8 II of the French Commercial Code expressly prohibits companies from implementing a notified transaction until it has been cleared by the French Competition Authority (FCA). Convicted companies expose themselves to the same penalty that they would encounter for failing to notify—a fine of up to 5 percent of the annual turnover of the acquiring party. Although the FCA has not enforced a fine since the article was introduced into law in 2001, that may be changing. During a practitioners' conference held in Paris in April 2015, the Head of the FCAs Merger Service indicated that it intends to start applying this aspect of the Commercial code, both for illustrative and educational purposes. In April 2015, the FCA conducted a dawn raid in the premises of the newly merged telecommunication provider Numericable-SFR. The merger between Numericable and SFR was first announced in Spring 2014 and approved by the FCA on 27 October 2014. According to press reports, following the merger clearance decision, several competitors informed the FCA that the two companies had begun to deal commercially prior to the transaction receiving competition clearance. Reportedly, the particular concern was that Numericable was already in charge of commercial and strategic decision-making at SFR.

 

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