[OPEN ACCESS] Companies left in the dark over gun-jumping rules

Author: Olly Jackson | Published: 11 May 2018
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The European Commission’s €125 million ($147 million approximately) fine to Altice signals a fiercer gun-jumping enforcement regime. Companies need to exercise more caution in the actions they take between signing the contract and the completion of the deal. But the rules are unclear and enforcement will be largely taken on a case-by-case basis, meaning companies are left in state of confusion as to what actions to take.

ECThe Commission fined Dutch telecoms company Altice €124.5 million ($148.4 million) in April for taking control of PT Portugal before it gained approval from relevant authorities, which it said had undermined the functions of the EU merger control system. Altice plans to appeal the decision, saying in a statement that the case differs entirely from the SFR/Virgin case, in which Altice was fined €80 million in 2016 for taking control of the businesses before approval, a case it decided not to challenge. The Commission’s move is believed to signal a further step-up in enforcement, after Canon’s acquisition of Toshiba, and EY and KPMG’s planned merger.


"There does seem to have been a step-up in enforcement, even where transactions do not necessarily give rise to competition concerns"


Herbert Smith Freehills competition partner André Pretorius said there has certainly been an increase in enforcement and a number of recent cases have addressed issues that had not been the subject of infringement decisions before.

"There does seem to have been a step-up in enforcement of the procedural rules, even where transactions do not necessarily give rise to substantive competition concerns," he said.

Four years ago, the Financial Conduct Authority said there had been an excessive amount of strategic information shared before the transaction was properly cleared. It also said Altice interfered in SFR’s pricing policy; its prior approval of SFR’s involvement in a tender offer; interfered in SFR’s offer using Numericable’s box, TV channel network and requested approval to renegotiate a prior agreement with Bouygues Telecom.

The decision this year seems to broaden the regulators’ scope, so much so that some of the reasons for the penalty did not amount to Altice clearly acting in an uncompetitive manner. The Commission noted that provisions of the purchase agreement resulted in Altice acquiring the legal right to exercise decisive influence over PT Portugal; this without reference to an explicit act of decisive influence. The Commission also said Altice provided PT Portugal with instructions on how to conduct a marketing campaign and received commercially sensitive information outside the framework of any confidentiality agreement.

Pretorius believes companies do not need to do anything new after this case, only pay closer attention to existing rules. "Recent cases have highlighted these issues, but they have not changed the law," he said. "Parties will always need to assess carefully whether to notify and ensure that transaction documents deal appropriately with conduct of business between signing and completion". 

KEY TAKEAWAYS

  • The European Commission’s recent Altice gun-jumping decision signals stricter enforcement of the rules;
  • Companies do not necessarily need to do anything differently from before, but they need to exercise more caution and be wary that actions that do not amount to uncompetitive action could be penalised;
  • Because the rules are currently unclear and require more guidance, companies must provide very clear guidelines that indicate what is acceptable between signing the contract and completion.

The Advocate General’s opinion in the EY/KPMG case revealed actions that would not breach the stand-still obligation, the requirement for merging companies to suspend a concentration and wait until clearance is obtained. In the case, KPMG DK terminated its membership agreement with KPMG when the merger with EY was announced in November 2013, before it had gained clearance from the Danish Competition and Consumer Authority. Advocate general Nils Wahl said the obligation does not affect measures which, although taken in connection with the process leading to a concentration, precede and are severable from measures actually leading to the acquisition of the target undertaking. 

Pretorius said one of the most significant challenges is in facilitating the appropriate sharing of information between the target and buyer before completion.

"You may need to have proper clean team arrangements to regulate the information passed to the buyer and the use of that information during pre-completion integration planning," he said.

If two competing trade players want to merge and information is sensitive, they create a clean team to minimise the information passed on. But for smaller companies, this could be problematic.

Philippe Chappatte, partner and head of the competition group at Slaughter and May said that the rules are unclear and people in the Commission are reluctant to provide publishing guidelines until they have experience in dealing with specific cases.

"Companies need to establish very clear guidelines that communicate internally what actions are allowed between signing the contract and completion," he said.

Buyers want to gain maximum confidence in the deal and as much information that they can get about the target company. The target does not want to disclose confidential information until the deal goes through. Marrying these two desires is, according to Chappatte, the major challenge and complimenting these while complying with unclear gun-jumping rules is not easy.

"Implementing the rules requires many judgement calls and these can alter as you get closer to completion," he said.

But the main areas of focus remain the same as before the latest Altice case. Companies must prepare for a merger but cannot implement it and must not share confidential information, other than to clean teams. But companies must be wary that actions not giving rise to uncompetitive action could still be penalised.

See also

The pros and cons of merger break fee reintroduction

GDPR will impact US M&A

Brazil steps in to prevent gun-jumping

 


 

 

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