The case is Case C-633 / 16, Ernst & Young P/S v Konkurrenceradet. The Opinion can be found under the following link: http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:62016CC0633&from=EN.
"Jumping the gun" (also referred to as "breach of the standstill obligation") is a violation of merger control rules contained in the ECMR (Article 7(1) ECMR) and most of the national European jurisdictions (current exceptions being, Italy, Latvia and the UK). It occurs where parties implement, or take steps to implement, a transaction prior to having received clearance from the relevant competition authority. If parties breach the standstill obligation they can be fined and / or ordered to unwind any steps they have prematurely taken to give effect to the merger.
Gun-jumping cases have been increasingly on the enforcement horizon of competition authorities in Europe recently. In 2016 the French competition authority fined Altice € 80 million for illegal gun-jumping relating to its acquisition of SFR (because of its involvement in strategic decisions in the business of merger target SFR prior to clearance). Also, on 26 October 2016 the EU General Court upheld a fine of € 20 million imposed on Harvest Marine, a Norwegian seafood company, by the European Commission in 2014 for breach of the standstill obligation contained in the ECMR.
Facts of the case
The dispute in this case arose after Ernst & Young and KPMG Denmark signed a merger agreement, leading KPMG Denmark to serve notice and terminate its membership agreement with its former parent company KPMG International, prior to clearance by the Danish competition authority.
The Danish competition authority found in December 2014 that this constituted a breach of the standstill obligation because (i) the termination notice was irreversible, (ii) the behaviour was merger-specific, i.e. KPMG Denmark could not have served the notice absent the merger, and (iii) KPMG Denmark's notice had potential effects on the market.
Ernst & Young appealed the competition authority's decision before the Danish Maritime and Commercial Court from where it was referred to the European Court of Justice in Luxembourg (because the relevant Danish law specifically refers to the principles contained in the ECMR, most notably Article 7(1) ECMR).
What the opinion says
AG Wahl is clearly of a different view than the Danish competition authority (as well as the European Commission it must be noted, which sided with the views of the former). He states in his Opinion that
the standstill obligation under the ECMR does not affect measures which, although taken in connection with the transaction, precede and are severable from the measures actually leading to controlling the target undertaking
even if the merger agreement and the termination of the KMPG membership agreement were interrelated, the termination did not contribute to a shift in control, and the merging parties still remained competitors on the market; the termination of the membership agreement is thus simply a preparatory measure; although it might have had some effect on the market, it would not have meant that KMPG Denmark would no longer have been a competitor of Ernst & Young.
What it means for companies
It remains to be seen whether the Opinion will be followed by the Court in the end (this is so in the majority of the cases). Certainly it represents a timely reminder that merging parties have to be alert to the issue and avoid getting it wrong. The full scope of the standstill obligation is still unclear (the European Commission up to this point is known to take a fairly broad view).
As the AG points out, the standstill obligation covers both partial as well as full implementation of a concentration within the meaning of the ECMR. While the standstill obligation cannot apply to merely internal preparatory measures preceding a concentration, measures that are intrinsic to a concentration must be caught. The difficulty will also in the future be to distinguish those legitimate preparatory measures from measures that may constitute partial implementation and, therefore, a breach of the standstill obligation.
Finally, what the Opinion does not deal with is the potential for the application of the general antitrust rules, most notably Article 101 TFEU and their national law equivalents, to the behaviour of merging parties during the pre-closing period. This is frequently an issue when competitors merge and needs to receive careful attention, for example, ensuring that proper mechanisms are in place ("clean team" structures) to handle the exchange of strategic (competitively sensitive) information.
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