The Court of Justice of the EU (“CJEU”) has clarified which pre-closing veto rights and conduct should be avoided by parties to an M&A transaction prior to Commission approval of the transaction. In addition, the CJEU has made it clear that a single instance of misconduct can lead to the imposition of more than one (hefty) fine for violations of the EUMR.
Altice, a Dutch cable and telecommunications company, violated EU merger control rules by “gun jumping” when it (partly) implemented its acquisition of PT Portugal prematurely, i.e. before the transaction had been notified to the Commission and before it had received clearance from the Commission. In 2018, the Commission imposed a combined fine of EUR 124.5 million. Altice unsuccessfully challenged the Commission’s decision before the General Court in 2021 and subsequently before the CJEU in 2023. The General Court and the CJEU did, however, reduce the fine by a small amount.
Both appeals confirmed the Commission’s approach and now provide clarity for dealmakers regarding what to avoid. On the one hand, the sale and purchase agreement (“SPA”) had granted Altice the right to exercise decisive influence over PT Portugal before closing. On the other hand, Altice’s conduct between the signing and the closing of the transaction constituted actual exercise of decisive influence. The CJEU also agreed with the Commission’s imposition of a double fine. As some of Altice’s actions had taken place even before notification of the transaction, the Commission had rightly found an infringement of both the standstill obligation prior to clearance (Article 7(1) of the EU Merger Regulation – “EUMR”) and the notification obligation (Article 4(1) EUMR). Each infringement gave rise to its own fine.
The two appeals allow lessons to be learned regarding specific veto rights which are considered as conferring decisive influence over the acquisition target. The CJEU sided with the Commission and found that veto rights on the following matters, taken independently and together, constitute gun jumping: (a) the appointment and dismissal of the target’s senior management, (b) the target’s pricing policies, and (c) day-by-day commercial matters of the target (the conclusion, termination, and modification of contracts above a certain, relatively low monetary threshold). Certain veto rights may be necessary to preserve the value of the target’s business pending closing of the transaction and may therefore be justified. In the present case, however, the Commission had correctly found that the veto rights granted to Altice went considerably beyond what was necessary to ensure PT Portugal’s value pending closing of the transaction.
In addition, the Commission found that Altice exercised actual operational control over the activities of PT Portugal between signing and closing. In its decision, the Commission identified several instances where, prior to the notification and clearance, the target had requested Altice’s instructions regarding commercial decisions and had subsequently (agreed to) implement those instructions. According to the Commission, none of these actions were necessary for the preservation of PT Portugal’s value. The CJEU endorsed this position, except in relation to one identified practice: it ruled that Altice’s opposition to the launch of a TV channel aimed at dogs protected the reputation, and hence the value, of PT Portugal.
Finally, the CJEU concurred with the Commission that the exchange of commercially sensitive information between Altice and PT Portugal contributed to gun jumping in breach of the EUMR. Parties to a transaction should be careful when exchanging commercially sensitive and granular information prior to closing, and especially after signing. They could, for example, ensure that exchanges are limited to the due diligence phase. Exchanges after signing should be minimal and only to the extent necessary for planning the proposed implementation that would take place after the Commission’s expected green light. In any case, all exchanges should take place in the context of sufficiently robust arrangements for clean teams.
In short, dealmakers should exercise appropriate caution when drafting provisions which, in one way or another, impact the target’s commercial policy prior to notification of the transaction and the Commission’s clearance. In the same vein, the acquirer should steer clear of prematurely exercising actual operational control over the activities of the target company.
