Transaction tips from our competition team: Gun-Jumping
When businesses decide to pursue a transaction they are understandably keen to complete and implement the deal as soon as possible in order to realise the anticipated synergies. However, when a deal requires clearance from one or more competition authority, there is often a prohibition on implementation pending receipt of the necessary clearances. Taking implementing steps in breach of this prohibition is called 'gun-jumping'.
Gun-jumping, and the consequences of gun-jumping, have been in the spotlight recently as a result of the fine imposed by the European Commission on Altice for implementing some of the terms of its purchase agreement with Portugal Telecom before notification or approval of the deal. In that case Altice was fined €125 million for exercising 'decisive influence' over Portugal Telecom through, for example, giving it instructions on how to carry out a marketing campaign and for having access to confidential information (outside the scope of the confidentiality agreement between the parties for the purposes of doing the deal).
It is of course acceptable for purchasers to ensure that a target company continues to operate in a way that is in its best interests and in a way that means it continues to be an attractive investment.
As a result, exactly what constitutes the buyer's right to protect the value of its acquisition versus a breach of its legal obligation not to interfere in the ordinary course of business of the target prior to clearance is something that comes up in every transaction. This issue can become particularly tricky in public takeovers where shares are acquired pursuant to a public offer, but the rights over those shares cannot be exercised prior to clearance without it constituting gun-jumping.
An extra layer of difficultly comes from the potential for an inconsistent approach to gun-jumping from different authorities. In May this year the European Court of Justice ruled that gun-jumping can only occur where a business decision taken in the context of a transaction contributes to a "lasting change of control" over one of the parties. This can be contrasted to a decision of a Danish court in the same case, which had found that interference by the purchaser with the "potential for market effects" could be considered gun-jumping. In multi-jurisdictional merger control, where parties might require clearance from a number of different authorities, care needs to be taken to be sure that the parties comply with the rules of the lowest common denominator.
As a final word of comfort, however, we would say that at a recent conference in Brussels a case-handler in the merger division of the Directorate-General for Competition of the European Commission did say that "for the most part gun-jumping decisions have targeted egregious behaviour…Existing precedents do not concern companies that have just missed a step, they concerned full or blatant disregard for merger control obligations". As such, with the right guidance, companies should be able to navigate their way through transactions without a gun-jumping risk.
At Wikborg Rein our competition team is used to handling large and complex transactions that require clearances from the Norwegian competition authority, the European Commission and other authorities across the globe. Please contact us should you have any queries on the content of this article or any other topic.