Gun-jumping – The French Competition Authority fines COFEPP for failure to notify and completing the transaction before clearance
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The French Competition Authority ("FCA") fines a company for gun-jumping in a case relating to a progressive takeover and de facto control
On 12 April 2022, the FCA fined the Compagnie Financière Européenne de Prises de Participation1 ("COFEPP") EUR 7 million for both (i) failure to notify its merger with Marie Brizard Wine & Spirits ("MBWS") and (ii) completion of the merger prior to the FCA's approval. The FCA launched the gun-jumping procedure shortly after clearing the merger (approx. one month after clearance).
Dawn raids conducted by the FCA following the merger control review on suspicion of de facto control over the target prior to clearance
COFEPP undertook a progressive takeover of MBWS. Similar to the Electrabel case,3 COFEPP gradually increased its equity stake in MBWS4 from approx. 5% in 2015 to more than 29% in 2017, and progressively increased its position at MBWS' general meeting, representing up to 45% of the votes casted in 2017. COFEPP also became MBWS' main shareholder.
Further, COFEPP acquired a growing position on MBWS' board of directors and was represented by:
- One director out of ten between 2015 and 2016,
- Two out of eleven directors between 2016 and 2017, and
- Three directors out of eleven between 2017 and 2019. The latter were respectively the chairman of COFEPP's management board, the vice chairman of COFEPP's supervisory board, and the executive director and director of COFEPP's international marketing.
However, COFEPP only notified the FCA of its intention to acquire sole control of MBWS on 3 January 2019, following the execution of a memorandum of understanding dated 21 December 2018 pursuant to which COFEPP would hold more than 45% of MBWS' capital and voting rights.
Subsequently, the FCA cleared the merger on 28 February 2019,5 subject to structural remedies relating to port wine and tequila markets. Closing took place shortly thereafter on 1 March 2019.
Only a few weeks later, the FCA conducted dawn raids on 9 April 2019 (as in the Altice case6) at the parties' premises as it suspected that COFEPP was already exercising a de facto control over MBWS prior to the merger control proceedings.
COFEPP exerted a de facto control over MBWS prior to notification and clearance
The body of evidence on which the FCA relied to conclude that COFEPP exercised decisive influence over MBWS prior to notification and clearance is based on unlawful exchange of commercially sensitive information and interference of COFEPP in the strategic and commercial decisions of the target.
Unlawful exchange of commercially sensitive information
Prior to proceeding to any notification to the FCA, COFEPP gradually acquired a significant position on MBWS' board of directors. This also led to COFEPP receiving access to MBWS' commercially sensitive information, as the parties did not set up any protective safeguards in this respect.
The FCA found evidence that since 2015, COFEPP's representatives were receiving MBWS' budgets, which included inter alia projected volumes, sales and profits. MBWS' board members also received monthly commercial and marketing reports as well as information on one competitor's future business behavior.
In addition, the FCA also found that, during the pre-notification period in the second half of 2018, COFEPP's representatives did not comply with the confidentiality agreement concluded between the parties.7 Although a clean team agreement specified that MBWS' commercially sensitive information could only be shared between clean team members, COFEPP board members received access to MBWS' commercially sensitive information.
According to the FCA, these unlawful exchanges of information allowed COFEPP to closely monitor the commercial policy of MBWS and constitute indicia of the exercise of decisive influence by COFEPP over MBWS.
Interference with MBWS' strategic and commercial decisions
The FCA also found that COFEPP interfered with various MBWS's strategic and commercial decisions before notification of the operation to the FCA (and even after), in particular:
- The chairman of COFEPP's management board initiated direct negotiations with MBWS' whisky supplier in 2018;
- COFEPP intervened in the marketing and budgetary orientations of MBWS from November 2018;
- COFEPP also interfered on several occasions with MBWS' operational management and provided advice to MBWS' chairman on the position to adopt regarding marketing of a beverage;
- COFEPP played a decisive role in the appointment of MBWS' chief executive officer ("CEO") in April 2018;
- Early 2019, and after the notification of the operation to the FCA, COFEPP instructed the general manager of MBWS to put on hold an investment in a plant Poland and interfered with the terms of engagement of a strategy consultant.
Overall, the FCA found COFEPP exercised decisive influence over MBWS since 13 April 2018 (date of the appointment of MBWS' CEO), and therefore de facto control over MBWS since then, i.e. prior to the notification dated 3 January 2019 and to the FCA clearance decision dated 28 February 2019.
In line with the European Commission's decisional practice, the FCA confirms that undertakings can be sanctioned for both failure to notify and completion prior to clearance
This case is interesting in several respects.
First, it is a useful reminder that a company which progressively acquires an important shareholding in another company must be wary of not exercising decisive influence, or de facto control, prior to obtaining clearance from competition authorities. Interference with key elements of the life of a subsidiary, such as the appointment of a new CEO, can be what tips the balance from the exercise of minority shareholding rights to de facto control.
Second, the case shows that the exchange of information between the acquirer and the target, in particular access to information at board level, will be a key part of the demonstration of a gun jumping offense, as it was in the Altice case decided by the European Commission. Companies should thus be careful about the information they have access to as a shareholder.
Third, it is also the first time the FCA sanctioned two gun-jumping breaches,8 i.e. failure to notify and completion prior to clearance, in line with the European Commission's decisional practice and EU case law.9
As shown by the FCA decision, both breaches may lead to significant fines for the party responsible for the filing. Pursuant to article L.430-8 of the French Commercial Code, the FCA may impose, for either types of breach, a fine up to 5% of turnover generated in France by the notifying party, increased by the target's local turnover.
In this case, these the two infringements could have – in theory – led to the imposition of two distinct fines.10 However, the FCA decided to impose a single fine, without distinguishing between the two offenses.
Fourth, when determining the amount of the fine, the FCA also took into account the gravity of the infringement, in particular:
- The fact that the FCA cleared the transaction subject to structural remedies shows that the implementation of the merger without any notification, nor clearance decision could have affected competition on the relevant markets;
- COFEPP deliberately took control over MBWS in breach of the standstill obligation as it was fully aware of its obligation to notify the merger prior to interfering with MBWS' business.
However, COFEPP, which did not contest the FCA's findings, requested and obtained the benefit of the settlement procedure. Following this, the FCA imposed a single EUR 7 million fine, which represents less than 1% of COFEPP and MBWS's local turnovers.
1 Active in the market of spirit production, i.e. it markets several brands such as Poliakov (vodka), Label 5 and Sir Edward's (whiskey), Cruz (port), Gibson's (gin), Tiscaz and Jose Cuervo (tequila) and Saint James and Old Nick (rum).
2 Also active in the spirits market and operating Marie Brizard (liquor), Maison Gautier (brandy), San José (tequila), William Peel (whiskey) and Sobieski (vodka) brands among others.
3 Progressive takeover of the Compagnie nationale du Rhône by Electrabel, see. European Commission's decision M.4994 dated 16 June 2009 Electrabel / Compagnie nationale du Rhône.
4 cf. paras. 14-15 of the FCA's decision No. 22-D-10 dated 12 April 2022 regarding the situation of COFEPP with regard to Article L. 430-8 of the French Commercial Code.
5 FCA's decision No. 19-DCC-36 dated 28 February 2019 regarding the takeover of MBWS by COFEPP.
6 FCA's decision No. 16-D-24 dated 8 November 2016 regarding the situation of the Altice group with regard to Section II of Article L.430-8 of the French Commercial Code.
7 The confidentiality agreement was part of the pre-notification submitted to the FCA in July 2018.
8 cf. article L.430-8 I and II of the French Commercial Code for the FCA and articles 4(1) and 7(1) of the Regulation No. 139 / 2004 of 20 January 2004 on the control of concentrations between undertakings (the EU Merger Regulation) for the European Commission.
9 CJEU, case C-10/18 P dated 4 March 2020, Mowi AASA (formerly Marine Harvest) v. European Commission.
10 Both up to EUR 40 million (cf. paras. 87-90 of FCA's decision No. 22-D-10).
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