Procedural merger control rules breaches high on Commission’s agenda

Introduction

On 4 March 2020, the Court of Justice of the European Union (ECJ) dismissed Mowi - formerly Marine Harvest (Marine) -’s appeal. The ECJ upheld the EU General Court’s ruling that Marine was properly fined by the European Commission (EC) both for failure to notify a transaction on time and for implementing the transaction ahead of approval.

The ECJ’s ruling is a stark reminder that companies need to take the European Union Merger Regulation (EUMR) notification and standstill obligations seriously and put in place appropriate safeguards to prevent non-notification or early implementation of their transaction. More generally, breaches of procedural merger control rules remain high on the EC’s agenda. This is true also for other procedural breaches, such as supplying incomplete or incorrect information to the EC in the context of merger control reviews. The judgement of the ECJ also should serve as a reminder to companies that, depending on the circumstances, minority stake acquisitions are caught under the EUMR.

The EU merger control regime

The EUMR provides for a bright-line jurisdictional test. There are essentially two elements to the jurisdictional test: (i) is the transaction of the type to which the EUMR applies – or, in the words of the EUMR, is it a concentration, and (ii) does the transaction satisfy the relevant revenues thresholds – or, does it have a Community dimension? The concept of concentration is widely defined to cover mergers, acquisitions of control and the creation of full-function joint ventures.

Both elements set out above must be met for a transaction to require notification to the EC. When the test is satisfied, notification to the EC is compulsory (see: Article 4(1) EUMR). The notification requirement is complemented by the standstill obligation set out in Article 7(1) EUMR, which prevents companies from implementing a transaction until it has been declared compatible with the internal market by a EC decision, or in the absence of a decision, by expiry of the legal deadline. On request, a waiver from the standstill obligation pending approval can be granted by the EC (see: Article 7(3) EUMR), although a waiver is rarely obtained.

The EC can impose significant fines – up to 10% of the global revenues of the company groups concerned - in the event of an infringement of the notification requirement or the standstill obligation. A breach of the standstill obligation through early implementation of a transaction is known as “gun jumping”.

Facts of the Marine Harvest matter

On 18 December 2012, Norwegian seafood company Marine acquired from two private limited liability companies 48.5% of the shares of Morpol, a Norwegian producer and processor of salmon listed on the Oslo Stock Exchange. The two sellers were controlled by a single individual. Since Norwegian law obliges an acquirer who holds more than one third of the shares in a listed company to bid for the remaining shares, Marine subsequently made a mandatory public offer for the remaining shares in Morpol, and that deal was closed in 2013. The acquisition of Morpol by Marine was formally notified to the EC in August 2013, or about eight months after Marine had acquired the 48.5% stake in Morpol ¹.The transaction was conditionally cleared (see: Case COMP/M.6850 (2013)).

The EC later fined Marine. In particular, in its Marine Harvest / Morpol decision (Case COMP/M.7184 (2014)), the EC imposed on Marine a fine of € 20m in total for (i) failing to notify an acquisition (a fine of € 10m), and (ii) breaching the standstill obligation (a fine of € 10m). The EC was of the opinion that the acquisition of the initial 48.5% stake had already given Marine de facto sole control ² over Morpol, and that this acquisition should have been notified. Marine on the other hand argued that Article 7(2) EUMR was applicable. This provision exempts public bids from the standstill obligation under certain conditions. Among other things, Article 7(2) EUMR applies only to public bids or series of transactions in securities including those convertible into other securities admitted to trading on a market such as a stock exchange, by which control is acquired from various sellers. In this case, however, it was not contested that control had been acquired from one seller, by means of the single December 2012 acquisition.

The EC decision was appealed and heard by the EU General Court (Case T-704/14, Marine Harvest ASA v EC). In October 2017, the General Court rejected Marine’s appeal. The General Court held that an exception to the standstill obligation was not applicable, and that Marine had been negligent in not notifying to the EC its initial purchase of the shares in Morpol.

The judgement of the EU Court of Justice

Marine appealed the judgement of the General Court before the ECJ. In short, Harvest requested the ECJ to set aside the judgement of the General Court, and to annul the EC’s fining decision.

Marine relied on two grounds in support of its appeal. The first ground alleged an error of law in that the General Court failed to apply Article 7(2) EUMR. The second ground alleged an error in law in that the General Court infringed the principle ne bis in idem, the set-off principle, and the principle governing concurrent offences by ruling that the EC was entitled to impose separate fines, one for breach of Article 4(1) EUMR and the other for breach of the standstill obligation laid down in Article 7(1) EUMR.

In September 2019, Advocate General Tanchev concluded that the EC’s decision should be partially annulled. In his opinion, the Advocate General concluded that the conduct caught by Article 4(1) and Article 7(1) EUMR is one and the same, namely the closing of the December 2012 acquisition. In the Advocate General’s view, the EC erred in finding that, by implementing the December 2012 acquisition before it was notified and declared compatible, Marine infringed Article 4(1) EUMR, and, consequently, in imposing on Marine a fine of € 10m for the infringement of that provision.

However, the ECJ rejected the first ground of appeal, inter alia, stating that Marine cannot rely on a broad interpretation of the EUMR in order to extend the scope of Article 7(2) EUMR. With respect to the second ground of appeal, among other things, the ECJ held that the principle of ne bis in idem does not apply in the present case, on the ground that the penalties for breach of Article 4(1) and Article 7(1) EUMR were imposed by the same authority in a single decision. Accordingly, the ECJ dismissed the appeal.

Conclusion

The ECJ judgement underscores the following:

Minority stake acquisitions are caught under the EU merger control regime:

Control within the meaning of the EUMR is widely defined. Control can be constituted by rights, contracts or any other means that, either separately or in combination, confer the possibility of exercising decisive influence over an undertaking (see: Article 3(2) EUMR). Simply put, decisive influence arises where a party acquires the ability to determine company’s commercial strategy.

There is no defined shareholding level at which decisive influence arises. Depending on the circumstances – including the size of other shareholdings and the existence of veto rights and other powers granted to shareholders –, the acquisition of a minority shareholding in another undertaking may confer the possibility of exercising decisive influence, in particular if the minority shareholder acquires the ability to block strategic commercial decisions (eg, the adoption of annual budgets or business plans) or the appointment of key management.

Competition law enforcement interest regarding notification and standstill obligations at the EU-level:

The EC has been in active pursuit of companies deemed to have breached the notification or standstill obligations in recent years ³.

In April 2018, Altice was fined € 124.5m by the EC in 2018 after it implemented its acquisition of PT Portugal before notification and approval (see: Case M.7993 – Altice / PT Portugal).

And in June 2019, Canon was fined € 28m (see: Case M.8179 – Canon / Toshiba Medical Systems Corporation). Canon used a so-called warehousing two-step transaction structure involving an interim buyer, but which nonetheless resulted in Canon effectively acquiring TMSC prior to obtaining the relevant merger approvals.

The ruling of the ECJ in Marine Harvest is likely to further empower the EC to take enforcement action in gun jumping cases in the future.

¹ For reference, the pre-notification phase with the EC started by way of sending to the EC a standard case team allocation request on 21 December 2012, three days after the closing of the December 2012 acquisition.

² Within the framework of the EUMR, sole control can be acquired on a de jure and/or de facto basis. De jure sole control is normally acquired on a legal basis where a company acquires a majority of the voting rights of another company. A minority shareholder may also be deemed to have sole control on a de jure or a de facto basis. This latter is in particular the case where the shareholder is highly likely to achieve a majority at the shareholders’ meetings, given the level of its shareholding and the evidence resulting from the presence of shareholders in the shareholders’ meetings in previous years.

³ National competition authorities (eg, in France, Germany and the UK) have equally taken enforcement action in relation to gun jumping cases over the last several years.