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Large(r) transactions may require merger filings with competition authorities in one or several jurisdictions1. In that case, the parties to the transaction are generally required to notify it to the competition authorities (“notification obligation”) and/or to wait with its implementation until the authorities have cleared it (“standstill obligation”).2 The overall aim of these obligations is to prevent the market and its participants from negative impacts resulting from the transaction. If the parties disregard the notification and/or standstill obligation3 by prematurely implementing the transaction before receiving clearance, this qualifies as so-called “gun jumping”.
It may expose the parties to several severe risks, including considerable fines or ultimately the invalidity of the transaction as a whole under civil law. However, while it is obvious that, for example, the premature acquisition of 100% of the shares subject to the transaction qualifies as gun jumping, the qualification of particular actions (adopted by the parties in view of the future implementation of the transaction) as gun jumping can be quite delicate.
Recent examples of competition authorities starting investigations against companies based on the grounds of gun jumping demonstrate vividly, that the topic is not merely of an academic nature but has significant practical relevance. Overall enforcement levels seem to have increased in the past few years.
The majority of the cases focuses on “blatant” violations of the standstill obligations. In other words, the parties to the transaction failed entirely to notify a transaction to the relevant competition authorities despite there being no doubt on a filing obligation.
Recent examples include:
Even though the gun jumping fines imposed on companies by the European and national competition authorities appear to be increasing, they have not yet reached their absolute limit. In Germany, for example, gun jumping could result in a fine of up to 10% of the total turnover achieved by the group during the previous business year. In the past, the German Federal Cartel Office (FCO) has – on some occasions – imposed rather moderate fines on companies for gun jumping: Mars Inc. (€4.5 million, B 6-026/04); Druck- und Verlagshaus Frankfurt am Main GmbH/Stadtanzeiger (€4.13 million, B6-50/08); ZG Raiffeisen eG (€414.000, B2-80/09); Interseroh/fm (€206.000, B4-87/10). So far, the FCO seems to be focussing only on blatant violations of the standstill obligation.
Even though national and international authorities do not hesitate to impose significant fines for gun jumping, the criteria and thus the overall scope of the standstill obligation have not yet been subject to many decisions. One of the key questions that remain mostly unanswered is whether the transaction itself has to be (partly) implemented or whether other actions between signing and closing (also) qualify as gun jumping. The case law in this area is partly divergent.
On a separate note, it should be borne in mind that the various national merger control laws, as well as EU merger control law each, stipulate slightly varying criteria for what qualifies as a notifiable transaction. Most jurisdictions, including the EU Merger Regulation, focus on changes of control (including, for example, acquisitions of sole, joint, de facto or de jure control). A couple of other jurisdictions, however, also cover other “types” of transactions. For example, Germany (and to some extent Austria) also regard acquisitions of certain amounts of shares or voting rights (25%, 50%) or of a competitively significant influence as notifiable transactions.5 The fact that the various jurisdictions set up (partly) different criteria on the “type of notifiable transaction” in question (see above), adds another layer of complexity to the topic.
Excessive information flow between the acquirer and the target company:
Depending on the circumstances of the case, the Acquirer has a significant interest in gaining detailed information on the Target’s activities.
This is true in particular if the Acquirer and the Target are actual or potential competitors. While competition law generally acknowledges the Acquirer’s need to establish the Target’s value (and to therefore gain information on the Target), it does not generally permit an exchange of strategically relevant information between competitors (or the unilateral passing-on of strategically relevant information) simply because the Acquirer considers the Target’s purchase. For this reason, the parties are well advised to establish Clean Teams (as well as NDAs) and to avoid an unfiltered information flow during the transaction, e.g. via a data room. Violations of this general rule regarding the “ban on cartels” are often also qualified as “gun jumping”. It is common understanding that in a transactional context this ban applies more or less rigidly depending on the transactional phase: At an early negotiation stage, only few indispensable information should be shared whereas shortly before or after signing more sensitive information can be exchanged.
Moreover, after signing, the Acquirer will often wish to ensure that measures adopted by the Target (between signing and closing) are still within its “ordinary course of business” and do not financially harm the Target business. However, actions going beyond that (either in the form of a premature de jure acquisition or in the form of an undue, excessive exchange on sensitive information to execute decisive influence over the Target) can also amount to gun jumping.
de jure implement the transaction, e.g. via
de facto (full or partially) implement the transaction, e.g. via
Critical situations/Check in each case:
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1. In many jurisdictions the existence of a merger filing obligation depends on the fulfilment of two sets of criteria: (1) The parties involved need to meet certain turnover thresholds and (2) the acquisition in question needs to qualify as a „notifiable“ transaction. In Germany (pursuant to Art. 35 – 38 of the German Act against restraints on competition), for example, a merger filing obligation is triggered, if (1) the parties in their last business year (i) jointly generated a worldwide turnover of EUR 500 million, (ii) one undertaking concerned generated a domestic (i.e. German) turnover of more than EUR 25 million and (iii) another undertaking generated a domestic turnover of more than EUR 5 million [turnover thresholds]. Moreover, (2) the acquisition needs to comprise – among other things – (i) a change of control or an acquisition of (ii) 25% or more or (iii) of 50% or more of the shares or voting rights in another company or (iv), it may comprise the acquisition of a competitively significant influence.
2. (a) Please refer, for example, to Art. 4 and 7 of the EU Merger Regulation or Sec. 41 German Act against Restraints of Competition (GWB). (b) A few jurisdictions, such as the United Kingdom, have no standstill obligation in place; merger filings are voluntary. However, in some cases, it is advisable to submit a filing on a voluntary basis since the competition authorities may unwind a transaction after closing if it the authorities find it to be harmful to competition.
3. Some jurisdictions, e.g. Germany, only set up a standstill obligation (the violation of which qualifies as gun jumping), but no notification obligation.
4. The last fine for a similar breach in Bulgaria was imposed on a company in 2012.
5. We do not elaborate here on the different turnover thresholds applicable in the various jurisdictions.