EU General Court clarifies rules for show jumping | McDermott Will & Emery

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On September 22, 2021, the General Court of the EU (GC) upheld a decision of the European Commission (the Commission) by which it imposed a fine on the telecommunications operator Altice for jump of weapon (T-425/18, Altice Europe v Commission). In particular, the GoC asserted that the Commission could impose two separate fines: (i) a fine for carrying out a concentration before its authorization by the Commission, and (ii) a fine for carrying out a concentration before its authorization. notification. In reaching these conclusions, the CG also clarified the relevance of certain covenants and pre-closing information exchanges.

CASE HISTORY

  • In December 2014, Altice signed a share purchase agreement (SPA) with telecommunications operator Oi to acquire PT Portugal. The transaction was subject to EU merger control.
  • Prior to signing, Altice began communicating with the Commission to inform them of its intention to acquire PT Portugal. Shortly after signing, Altice sent a request for assignment of case teams to the Commission and began pre-notification discussions with the Commission. Altice formally notified the transaction in February 2015; in April 2015, the Commission cleared the acquisition subject to commitments.
  • An investigation into a weapon jump was opened following press articles reporting contacts between Altice and PT Portugal, which took place before the adoption of the Commission’s authorization decision.
  • Three years after the authorization of the acquisition, the Commission concluded that Altice had breached both the notification obligation and the standstill obligation under the EU Merger Regulation and imposed two separate fines totaling 124.5 million euros.
  • The Commission found that Altice was able to exercise decisive influence or had exercised decisive influence over PT Portugal before the adoption of the clearance decision and, in some cases, before the notification:
    • Certain pre-closure provisions included in the SPA gave Altice a right of veto over decisions concerning the commercial policy of PT Portugal.
    • On the basis of these provisions, Altice had participated on several occasions in the day-to-day management of PT Portugal.
  • Altice brought an action for annulment before the GC, which was partially dismissed. The GC sided with the Commission, but reduced the fine for failure to notify by 10% (from EUR 62.25 million to EUR 56.025 million). The CG considered it appropriate to reduce the fine because Altice informed the Commission of the merger before the SPA was signed and sent a case team assignment request to the Commission shortly after signing.

CASE LEARNING

  • The notification obligation and the standstill obligation may be subject to separate fines. The CG considered that the notification obligation (obligation to act) and the standstill obligation (obligation not to act) are separate obligations. Each obligation having been breached, the Commission had the right to impose two fines.
  • The pre-closing provisions included in an SPA cannot allow an acquirer the possibility exert a decisive influence on the target. EU merger rules do not exclude pre-closure provisions of a SPA aimed at protecting the value of the target between signature and closure. However, such provisions can only be reasonably justified if they are strictly limited to what is necessary to ensure the maintenance of the value of the target and do not allow an acquirer to exercise decisive influence over the target. In this case, the GoC determined that three types of pre-closure provisions included in the SPA were problematic:
    • (I) Appointment, revocation or modification of senior management contracts: the GC stated that the possibility of co-determining the structure of the general management generally confers the power to exert a decisive influence on the commercial policy of a company.
    • (ii) Price policies and general conditions: the GC stated that the wording of the pre-close clause was extremely broad and resulted in an obligation for PT Portugal to obtain the consent of Altice for any price changes and gave it the opportunity to oppose any changes customer contracts of PT Portugal.
    • (iii) Conclusion, termination or modification of certain types of contracts: The GoC indicated that the limitations of these types of pre-closing covenants are many and broad, and that the monetary thresholds are so low that they go beyond what is necessary to preserve the value of the investment of Altice.
  • The CG considered that the powers granted to Altice on the basis of these pre-closing provisions constituted veto rights that went beyond what was necessary to preserve the value of the target until the close of the operation and gave Altice the ability to exercise decisive influence over the target after signing the spa.
  • The CG also found that Altice had exercised decisive influence over PT Portugal before the adoption of the authorization decision and, in some cases, before the notification.
  • It is important to note that the CG has determined that the mere possibility of exercising decisive influence is sufficient to constitute a violation of the notification obligation and / or the standstill obligation.
  • Information exchange can contribute to the exercise of decisive influence. The GoC confirmed that the exchange of business information between a potential acquirer and a seller can be considered a normal part of the acquisition process if the nature and purpose of these exchanges are directly related to the need of the potential acquirer. ” assess the value of the company. In the present case, the exchange of information between the parties continued after the signing of the SPA and concerned commercially and competitively sensitive information (Note: the Commission also found that the exchange of information had taken place). take place in the absence of any kind of confidentiality or team arrangement, but the GC did not discuss this point). The CG considered that such information exchanges were not justified by the objective of maintaining the value of the target. As such, the Commission was able to conclude that the exchange of information contributed to the exercise of decisive influence by Altice over certain aspects of PT Portugal’s activities.
  • In light of the Altice decision, parties to a merger and acquisition transaction should diligently draft pre-closing arrangements and consult their antitrust boards as to the admissibility of such arrangements.

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