ACM fines for failure to notify acquisitions in time

Fines for gun jumping no longer seem to be an exception in the Netherlands: in the past months, the Dutch Authority for Consumers and Markets (ACM) imposed no less than two fines, in separate cases, for failure to notify acquisitions in time. In one case the relevant turnover was miscalculated causing a late notification. The other case concerns the acquisition of four pharmacies, of which a part would be resold as a consequence of which the turnover thresholds would not have been exceeded. Since the resale did not take place, the acquisition should have been notified beforehand.

If a transaction falls under Dutch merger control rules, the parties are required to notify it to the ACM before its implementation. Until the transaction is cleared by the ACM, it may not be implemented (standstill obligation). A violation of this obligations – gun jumping – may lead to hefty fines.

Case 1

Miscalculation of relevant turnover

The most recent fine was announced last week, a €1.85m fine was imposed on Modulaire for having failed to notify the acquisition of a competitor in accordance with Article 34 of the Dutch Competition Act (Mededingingswet).

One of the subsidiaries of Modulaire, Algeco Holdings B.V., had acquired all shares in BUKO HV Holding B.V. on 31 October 2019. At the time, it examined whether the transaction was subject to merger control. However, this examination mistakenly disregarded the group turnover of Modulaire, including the turnover of other parts of the undertaking of which it was part. The combined group turnover met the notification thresholds for concentrations in the Netherlands. So, the transaction should have been notified to the ACM before 31 October 2019 and the standstill obligation should have been complied with.

After Algeco Holdings acquired sole control of BUKO, an internal audit revealed that a notification had wrongly been omitted. The takeover was then notified on 7 May 2021 and was cleared by the ACM in June 2021.

Serious infringement

Since Modulaire had not disputed the violation of the merger control rules, the ACM could easily establish a violation.

Nevertheless, this violation has been labelled as serious. In its decision the ACM stresses that merger control is intended to prevent that irreparable and lasting damage to competition is caused by a change in the market structure. For the proper functioning of merger control, it is essential that a concentration that falls within the scope of those rules is not implemented until it has been notified to ACM and that ACM has been able to assess its effects on competition. The ACM also points out that if a concentration is implemented earlier, this seriously undermines the effectiveness of merger control. According to the ACM, the premature implementation of a concentration constitutes a serious infringement of Article 34 of the Competition Act.

In determining the fine, ACM took into account the seriousness of the infringement and the fact that late notification of the acquisition had not led to a significant impediment to competition. This set the starting point for the basic fine at 7.5‰ of Modulaires Dutch turnover. However, the ACM did not consider this to be an appropriate fine with sufficient deterrent effect given the size of Modulaire, in particular due to the fact that the worldwide turnover was approximately 13 times larger than the Dutch turnover. Therefore, the basic fine was set at €2,846,190 without a more precise explanation.

It is also interesting in this case that Modulaire’s cooperation with the ACM consisting of i) the fact that it notified the acquisition on its own initiative after it had discovered that it had failed to do so, ii) providing more information to the ACM than required by law and iii) agreeing with a simplified procedure, leads to a fine reduction of 35%.

This resulted in a final fine for Modulaire of €1,850,000. The fine was imposed on Modulaire Investments 2 S.à.r.l., having its registered office in Luxembourg, Modulaire Investments B.V., and Algeco Holdings B.V. All companies are jointly and severally liable.

Case 2

Acquisition and resale – temporary control?

This decision follows another recent decision of the ACM in which the Dutch trade association for pharmacies (VNA) was also fined for gun jumping. In that case, VNA acquired four pharmacies whose combined turnover exceeded the specific turnover thresholds for notification in the healthcare sector.

In May 2019, VNA informed the ACM of its intention to acquire four pharmacies (first acquisition). VNA announced that a part of the activities of one of the four pharmacies would be split up, and would be sold to a third party within twelve months after the acquisition. According to VNA, the relevant turnover thresholds would not be exceeded since. According to VNA, that resale would give VNA only temporary and not permanent control over that part of the pharmacy, as a result of which its turnover was not included in determining whether the turnover thresholds in relation to the first acquisition were exceeded. However, the resale had not been agreed on, only a letter of intent in broad outline was signed. In June 2020, VNA informed the ACM that the resale had not taken place. VNA then notified the first acquisition, which had already taken place, to the ACM in 2021.

The ACM found that the acquisition would only constitute a temporary change in control – to which merger control is not applicable, if two condition were met:

1. the resale had been laid down in a legally binding document; and

2. there was no uncertainty whatsoever that the resale would take place within one year after the acquisition.

As this was not the case, the notification thresholds were exceeded and VNA should have notified the acquisition before it had taken place in July 2019.

Fine calculation

The basic fine was set at €1,518,000 but was reduced by 35%, due to the cooperation of VNA with the ACM consisting of, among other things, informing the ACM in advance about the takeover, the notification of the acquisition after it appeared that a notification was required, and agreeing to a simplified procedure in the handling of this case. These are in principle the same circumstances that the ACM refers to in the Modulaire case. In addition, the fine was reduced on a proportionality basis, because of, inter alia, the value of the transaction and the total turnover of the pharmacies acquired. This resulted in a fine of €350,000 imposed on VNA and its subsidiary Farmaceutisch Beheer B.V., which acquired the pharmacies.

Conclusion

It is clear that ACM does not condone failure to notify an acquisition – or more broadly, a merger - at all or in time. These cases also show that prior to implementing a acquisition, it is important to examine whether a notification is necessary by, among other things:

1. involving all parts and steps of a transaction, even if it takes place in several phases, including documentation;

2. determining which undertakings are relevant under the merger control rules;

3. properly determining which turnover should be taken into account, which may become more complicated when several companies are part of a group.

When these checks are not done in time or without sufficient thoroughness, they may lead to substantial fines, even if a merger does not raise competition concerns. This also applies to mergers that may have to be notified to the European Commission. In this context, on 18 May 2022, the General Court upheld a fine of €28m imposed on Canon for failure to comply with EU merger control rules by implementing its acquisition of Toshiba Medical Systems Corporation using a two-step warehousing structure.