Before the starting gunshot is given, no one is allowed to jump. This athletic principle applies in a figurative sense to the "OK" of competition authorities to execute transactions subject to notification. As the decision of the General Court (European Union) in Altice Europe v Commission (T-425/18) shows, takeovers can be costly if the acquirer already exercises decisive influence over the target before the merger has been approved or even notified (gun-jumping). The Court dismissed the action brought by Luxembourg-based telecommunications company Altice Europe against the Commission's decision, which had previously imposed fines totalling €124.5 million. Applying the principle of unlimited jurisdiction, the Court reduced the amount of the fine imposed for the breach of the notification obligation by 10% because Altice had at least informed the Commission of the merger.

Background

Altice Europe NV (Altice) acquired Portuguese telecoms and multimedia operator PT Portugal SGPS SA (PT Portugal) in a share deal in 2014 without notifying the merger. The European Commission declared the acquisition compatible with the internal market in 2015, but opened an investigation the following year after information about possible antitrust violations became public, which eventually proved to be true.

Under the EC Merger Regulation, companies are obliged, under penalty of fines, to notify significant mergers throughout the Community prior to their implementation and to refrain from implementing them before the Commission declares them compatible with the internal market (Art 4 (1), 7 (1) and 14 of Regulation (EC) No 139/2004). The acquirer failed to notify the merger and violated the prohibition of implementation by exercising a controlling influence on the target company in various ways. The Commission imposed fines based on both types of conduct, which, according to the Court, does not constitute a violation of the double jeopardy prohibition and is not disproportionate either.

Ancillary consent and veto rights (so-called covenants) enabled Altice to intervene in PT Portugal's day-to-day business operations, influence pricing and co-determine the composition of the company's management in the period between the signing and the closing. In addition, the acquirer exchanged sensitive competitively information with the target company during this period, including weekly updates on key performance indicators and future pricing strategies. According to the Court, all of this conduct constituted illegal decisive influence under antitrust law. The EU institutions generally recognise the exchange of information of commercial nature between acquirer and seller as part of the regular acquisition process. However, the continuation of the exchange of information after the signing of the SPA through the exchange of competitively sensitive information constitutes an impermissible pre-execution (gun-jumping).

Practical Consequences

In the period between signing and closing, purchasers have a legitimate interest in securing their investment as much as possible. But buyers and their advisors must not be tempted to use too far-reaching hedging instruments in purchase agreements, as this may constitute a controlling influence.

Again and again investors, but also lawyers, underestimate the importance of the antitrust facet of a transaction, often with fatal consequences. This applies by far not only to mergers of EU-wide significance, but also to transaction that only require national notification. Only recently, the Austrian Federal Competition Authority filed a fine application with the Cartel Court in the Facebook/GIPHY case - also due to gun-jumping.