Belgian and European Fines for Non-Compliance with Standstill Obligation (“gun -jumping”)
In two recent decisions, fines for breach of the standstill obligation in merger notification procedures have come in the spotlight.
Gun-jumping and standstill obligation
Closing or otherwise implementing a transaction which must be notified to the Belgian Competition Authority or the European Commission, without obtaining prior approval by that authority, is referred to as “gun-jumping” and constitutes an infringement of the standstill obligation under Belgian or European merger control law.
In December 2015, the Belgian Competition Authority published its decision on the acquisition by Cordeel, a general contractor, of the Belgian activities of the Imtech Group, a Dutch technical services company. The latter had filed for bankruptcy earlier that year. More recently, on 26 October 2017, the Court of Justice of the European Union published its judgment in Marine Harvest v European Commission. In that judgment, the Court upheld the decision of the European Commission in which the latter imposed a € 20,000,000 fine on Marine Harvest for jumping the gun.
Belgian Competition Authority is actively monitoring the market for gun-jumping cases
On 13 August 2015, several companies of the Imtech group, including the ultimate parent company, Royal Imtech N.V., were declared bankrupt. Imtech’s Belgian activities however remained in business and were acquired by Cordeel on 19 August 2015 in an effort to save the companies as a going concern.
That acquisition however qualified as a concentration which had to be notified to the Belgian Competition Authority under Belgian merger control law. The Belgian Competition Authority contacted Cordeel to inform the latter of the applicable merger control procedure, the standstill obligation and the risk of a fine in case of gun-jumping.
Subsequent to the Belgian Competition Authority’s warning, Cordeel notified the concentration on 10 November 2015. The authority unconditionally approved the transaction later that year. The Belgian Competition Authority did however not refrain from imposing a € 5,000 fine on Cordeel for infringement of the standstill obligation.
It is remarkable that the Belgian Competition Authority contacted the acquiring party on its own initiative. It shows that the authority is actively monitoring the market and does not shy away from acting of its own motion in merger control cases. The Belgian Competition Authority leaves no doubt that the standstill obligation constitutes a cornerstone of the merger control regime and must be respected even in cases where there is absolute urgency from a business perspective.
The Belgian Competition Authority was nonetheless also notably lenient in this case, taking into consideration several attenuating factors, such as the parent companies’ bankruptcy, the value of the transaction, the limited duration of the infringement and the lack of negative consequences on competition. The authority noted that imposing a financially “really deterrent fine” would be disproportional and unjustified under such circumstances and limited the fine to € 5,000. A sum which could be described as symbolic.
The acquisition of a minority shareholding may also trigger a notification and standstill obligation
More recently, the European Court of Justice confirmed the importance of the standstill obligation in Marine Harvest v Commission.
In December 2012, Marine Harvest, a salmon farming company, acquired 48.5% of the shares in Morpol, a competitor. In January 2013, Marine Harvest submitted a mandatory public offer for the remaining shares of Morpol, following which Marine Harvest acquired 87.1% of the company’s share capital in March 2013. Marine Harvest later acquired all of Morpol’s remaining shares.
Marine Harvest had first contacted the Commission on 21 December 2012. As from December 2012, it had entered into pre-notification discussions and it formally notified the transaction on 9 August 2013. The transaction was cleared by the Commission on 30 September 2013, subject to divestment commitments from Marine Harvest.
The Commission considered however that Marine Harvest had already acquired de facto sole control of Morpol following closing of the private acquisition in December 2012. As Marine Harvest had closed that transaction eight months before formally notifying it to the Commission and over nine months before getting clearance, the Commission found that Marine Harvest had breached the standstill obligation and imposed a € 20,000,000 fine.
The Commission posited that, following the private acquisition, it was highly likely that Marine Harvest would achieve a majority at Morpol’s shareholders’ meetings, taking into account the size of its stake (48.5%) and the attendance level of other shareholders at previous shareholders’ meetings. Marine Harvest did not contest that finding.
As a consequence, Marine Harvest acquired de facto sole control over Morpol after the private acquisition and was therefore obliged to notify the transaction to the Commission and to refrain from closing the same before getting the Commission’s green light.
The Court of Justice confirmed the Commission’s findings.
Three things to keep in mind
- Make sure you know whether and when a transaction triggers an obligation to notify to competition authorities. If necessary, parties should include a condition precedent in the transaction agreements allowing for merger control.It is important in that regard to keep in mind that even acquisition of a minority shareholding can in specific circumstances lead to an acquisition of de facto control which triggers a merger control notification and which may not be implemented before obtaining clearance.
- The authorities actively monitor the market for transactions which must be notified and will not shy away from acting on infringements against the standstill obligation.
- Not respecting the standstill obligation or “gun-jumping” may lead to fines, even for relatively straightforward concentrations.
It is clear that the Court supports the European Commission’s staunch stance against gun-jumping. High fines can be and are imposed, regardless of whether the transaction is ultimately cleared under the merger control procedure.