CN02 - EU General Court upholds double punishment for gun-jumping

On 22 September 2021, the EU General Court upheld the European Commission's decision to impose two separate fines for breaching gun-jumping rules contrary to the EU Merger Regulation (the "EUMR") by: (i) failing to notify a transaction to the European Commission; and (ii) implementing a transaction prior to obtaining a clearance decision.

Key takeaways

• The notification obligation under Article 4(1) of the EUMR and the standstill obligation under Article 7(1) of the EUMR pursue different objectives and can lead to distinct fines.
• Provisions in share purchase agreements should be carefully reviewed to ensure that they do not confer decisive influence beyond what is necessary to preserve the value of the target business.
• Parties to an M&A transaction must continue to conduct themselves separately and independently pending a clearance decision by the European Commission.

Background

On 24 April 2018, Altice Europe NV ("Altice"), a multinational cable and telecommunications company, was fined a total of EUR 124.5 million by the European Commission for breaching the EUMR by implementing its 2015 acquisition of PT Portugal, a telecommunications and multimedia operator, prior to its notification to the European Commission and prior to obtaining a clearance decision (the "Decision").

The Decision imposed fines of EUR 62.25 million for failing to notify the transaction to the European Commission under Article 4(1) of the EUMR (the "notification obligation"), and an additional fine of EUR 62.25 million for implementing the transaction prior to obtaining a clearance decision contrary to Article 7(1) of the EUMR (the "standstill obligation").

Altice challenged the Decision before the General Court on the basis of, among other pleas, the following arguments:

• the notification obligation is "redundant" in light of the standstill obligation. Accordingly, imposing fines for infringements of both provisions of the EUMR is contrary to the prohibition of "double punishment" rooted in the general principle common to the legal systems of EU Member States; and
• the 'preparatory clauses' in the share purchase agreement relating to the acquisition of PT Portugal played a key role in ensuring the integrity of the commercial activities of the acquired business between signing and closing, and did not result in early implementation of the transaction.

The General Court upheld the Decision and rejected Altice's arguments.

Judgment of the General Court

The notification and standstill obligations

The General Court found that the notification obligation and the standstill obligation pursue autonomous objectives within the context of the "one stop shop" system under the EUMR, as an infringement of the notification obligation automatically results in an infringement of the standstill obligation, whereas the converse is not true.

In addition, according to the General Court, whilst the notification obligation is an obligation to act (i.e. to notify a transaction to the European Commission) and can result in an instantaneous infringement, the standstill obligation is an obligation not to act (i.e. not to implement the transaction prior to a clearance decision), and can lead to a continuous infringement.

The General Court concluded on this basis that the imposition of two fines, under both Article 4(1) and under Article 7(1) of the EUMR, does not give rise to a situation of "double punishment". 

The preparatory provisions

The General Court concluded that the preparatory clauses in the share purchase agreement gave Altice the possibility of exercising decisive influence over PT Portugal, in so far as, among other things, Altice was able to:

• appoint and terminate the employment of the senior management of PT Portugal or to amend their contracts;
• influence PT Portugal's pricing policy, by requiring PT Portugal to obtain written consent from Altice to change its prices and to amend its terms and conditions; and
• enter into, terminate or amend a wide range of contracts of PT Portugal, which was obliged in turn to request Altice's prior consent to all material contracts, whether or not they were in the ordinary course of business and irrespective of their economic value.

In addition, the General Court found that, in practice, Altice exercised decisive influence over PT Portugal under the provisions of the share purchase agreement, intervened in the day-to-day running of PT Portugal, and received commercially sensitive information from PT Portugal.

Finally, whilst confirming that, in principle, the European Commission may impose two simultaneous fines for breaching the notification obligation and the standstill obligation, the Court nonetheless reduced the amount imposed in relation to the notification obligation by 10%, on account of the fact that Altice had informed the Commission of the transaction it was contemplating by sending the European Commission a case team allocation request.

Comment

The Decision is the highest gun-jumping fine ever imposed by the European Commission (notwithstanding the 10% fine reduction by the General Court in relation to the notification obligation).  The General Court's ruling confirms that the European Commission may apply separate fines for breaching the notification and standstill obligations, and that a subsequent clearance decision of a transaction does not exclude the possibility of fines for gun-jumping. 

It is also important that merging parties not only properly identify the jurisdictions in which to file merger notifications, but also to comply with the standstill obligation between signing and closing, which includes ensuring that:

• preparatory clauses do not confer decisive influence over the target business; and
• merging parties continue to conduct themselves separately and independently pending a clearance decision by the European Commission.