17 May 2018

Gun jumping: don’t get up close and personal

The European Commission recently imposed its highest fine for gun jumping so far. Telecom company Altice has to pay a fine of EUR 124.5 million for implementing its acquisition of PT Portugal prior to notifying the Commission and receiving clearance. Apparently, the purchasing agreement enabled Altice to veto decisions on PT Portugal’s ordinary course of business, and Altice in fact made use of its decision-making influence over PT Portugal on a number of occasions.

Most merger control regimes worldwide have gun-jumping rules similar to those of the Commission. The record-breaking fine for Altice should act as a warning to all buyers of companies to keep their distance – in practice and writing – from day-to-day operational business decisions and strategic information until clearance is obtained.

The EU Merger Regulation requires companies to (i) notify intended concentrations to the Commission for review if the required thresholds are met, and (ii) await the Commission’s clearance of the concentration before implementing it. Little detailed guidance is available on how these gun-jumping provisions need to be interpreted. The Altice decision, once published, is likely to change that. And further guidance may be under way, since Altice intends to appeal the gun-jumping fine. In addition, the Commission’s investigation on possible gun jumping by Canon is still ongoing.

For now, however, the clues found in the Commission’s press release and Competition Commissioner Vestager’s speech will have to do. According to the Commission, Altice had trampled on the EU merger control requirements because (a) “certain provisions of the purchase agreement resulted in Altice acquiring the legal right to exercise decisive influence over PT Portugal, for example by granting Altice veto rights over decisions concerning PT Portugal’s ordinary business” and (b) “in certain cases, Altice actually exercised decisive influence over aspects of PT Portugal’s business, for example, by giving PT Portugal instructions on how to carry out a marketing campaign and by seeking and receiving detailed commercially sensitive information about PT Portugal outside the framework of any confidentiality agreement”.

Competition Commissioner Vestager has noted in a speech that, prior to clearance by the Commission, Altice already had control over many of PT Portugal’s decisions: “[…] it had a veto over the contracts the company signed, and the staff it employed. It got to decide on pricing and on marketing campaigns. It even got hold of very detailed information about the financial performance of PT Portugal’s business”. The Commissioner did, however, clarify that it is permissible for purchasing companies to veto decisions that would affect the value of their purchase.

To steer clear of gun-jumping fines, it is advisable for companies to:

  • carefully draft their purchase agreements to avoid even the possibility of exercising control over the target’s ordinary business prior to obtaining merger clearance
  • only exchange current or future strategic or commercial information if there is a transaction-related justification to do so
  • limit the extent and impact of such information exchange by (i) setting up clean teams and (ii) concluding confidentiality and non-disclosure agreements
  • ensure they continue operating as separate, independent companies and thus refrain from influencing any decision affecting the day-to-day business, such as on personnel, pricing, marketing, customers or suppliers.