Gun-jumping: European Commission Fines Canon (€ 28 million) after Two-stage Acquisition (so-called 'warehousing')
On 27 June 2019, the European Commission imposed a €28 million fine on Canon (the Japanese camera manufacturer). According to Commissioner for Competition, Margrethe Vestager, the reason for the fine was the fact that "Canon structured a transaction to circumvent these [merger review] obligations when they acquired TMSC". EU merger rules require that merging companies notify planned mergers of Union dimension for review by the Commission prior to their implementation and do not implement them until notified to and cleared by the Commission (the so-called " standstill obligation"). A failure to do this would constitute a breach of said obligation. Nevertheless, the standstill obligation does not only include the mere act of implementation, such as the transfer of shares, but also certain acts in preparation of this implementation.
The Warehousing Structure
The background to the decision was Canon's acquisition of Toshiba Medical Systems Corporation (TMSC). Canon notified the European Commission about the acquisition on August 12, 2016 (it was cleared on September 19, 2016). However, the acquisition of TMSC took place using the so-called 'warehousing' process:
The first step involves an intermediate buyer who acquires 95% of the shares in TMSC for € 800, while Canon acquires the remaining 5% and purchase options for € 5.28 billion.
After notification to and approval by the Commission, Canon exercised these share options and subsequently acquired all the TSMC shares.
The Commission views these two steps as a single transaction, which is subject to notification. This belief follows from the fact that with the first step, in effect, Canon acquired control of TMSC. Nonetheless, the concrete reasons for the decision will only be discernible upon publication.
The amount of the fine was determined by, on one hand, the breach of the obligation to notify, and on the other hand, the fact that a breach of the implementation prohibition constitutes – in the view of the Commission - a serious infringement as the act undermines the merger control system. The commission also considered that it had subsequently cleared the merger without any additional conditions.
Parties must exercise the utmost caution when implementing preparatory measures in preparing for a merger before the relevant antitrust authorities approve it. In 2017, the German Federal Court of Justice (2017) found that a preparatory measure taken in connection with the intended merger, where it is possible to anticipate its effects, falls within the prohibition of implementation (Edeka/Tengelmann case).