On 22 September 2021, the General Court handed down its much anticipated judgment in Case T-425/18 Altice Europe v Commission. This related to an action for annulment brought by Altice Europe (Altice) against the European Commission (Commission) decision fining Altice €124.5m for implementing its 2015 acquisition of PT Portugal prior to notifying the transaction and receiving competition clearance from the Commission – in contravention of requirements under the EU Merger Regulation (EUMR).
In its judgment, the General Court rejected all five of Altice's pleas in law – in particular, confirming that:
- separate fines can be imposed by the Commission for (i) failure to notify a reportable transaction and (ii) implementing a reportable transaction before approval by the Commission; and
- contractual clauses in purchase agreements which restrict the commercial freedom of the target pre-closing can, on their own, cause parties to fall foul of these procedural obligations.
While the General Court did reduce the fine imposed by the Commission on Altice to take into account the fact Altice had not sought to avoid the notification requirement and had proactively contacted the Commission about the transaction, this reduction was only by the relatively nominal amount of €6.2m.
Under the EU merger control regime, Article 4(1) EUMR requires notification of a qualifying merger prior to its implementation. In turn, Article 7(1) EUMR prohibits the parties from putting into effect a reportable deal before it has been notified and approved by the Commission. Taken together, failure to abide by these requirements is commonly known as 'gun-jumping'.
The Article 7(1) EUMR ‘standstill’ obligation safeguards the principle of ex ante review which underpins the mandatory prior notification system operated under the EUMR as well as under the merger control rules in many other jurisdictions. This is in recognition of the fact that the ability of competition authorities to intervene effectively in transactions which harm competition may be compromised were they only able to review matters after the event – avoiding, in particular, the difficulty of 'unscrambling the eggs' where looking to remedy the adverse effects caused by a problematic merger in which the parties have already integrated their businesses.
Altice, a Dutch multinational cable and telecommunications company, notified the Commission on 25 February 2015 of its proposed acquisition of PT Portugal, a Portuguese telecommunications and multimedia operator. The parties had struck their deal in December 2014 – concluding a sale and purchase agreement (SPA) that set out rules governing how PT Portugal’s business would be managed in the period between the signing of the SPA and the closing of the transaction (once clearance by the Commission had been received). Following commitments given by Altice to the Commission to remedy certain concerns, the Commission gave competition clearance for the merger on 20 April 2015.
However, on 17 May 2017, the Commission issued a statement of objections reaching the preliminary conclusion that Altice had intentionally, or at least negligently, breached the anti-gun-jumping rules under Articles 4(1) and 7(1) EUMR.
In a decision adopted on 24 April 2018, the Commission concluded that Altice had breached both the notification requirement and the standstill obligation. This was on the basis that Altice had acquired control of PT Portugal (defined under the EUMR as having the ability to exercise and/or actually exercising ‘decisive influence’) before the transaction was formally notified to the Commission and prior to receipt of a Commission clearance decision.
In particular, the Commission determined that certain preparatory clauses under the SPA resulted in Altice having the possibility of exercising decisive influence over PT Portugal from the moment the SPA was signed (and therefore before the deal was notified and a number of months before it was ultimately cleared). These involved veto rights concerning PT Portugal’s commercial policy – including in relation to management appointments, pricing policy, commercial terms agreed with clients as well as a veto over PT Portugal entering into, terminating or amending a wide range of contracts.
In addition to finding that Altice gained the ability/possibility to exercise decisive influence on the basis of the SPA provisions applying between signing and completion, the Commission also found that Altice had actually exercised decisive influence over aspects of PT Portugal’s day-to-day business before clearance (and, in some instances, even before notification). For instance, it concluded that Altice had:
- instructed PT Portugal regarding the conduct of a marketing campaign (which included requiring updates on pricing and target thresholds);
- gave instructions to PT Portugal (which were followed) in relation to negotiations with a sports channel;
- provided advice to PT Portugal on a video-on-demand contract and ultimately vetoed a decision regarding that arrangement; and
- obtained commercially sensitive information about the renewal of a distribution agreement by PT Portugal (including future fees).
The Commission also focused on exchanges of competitively sensitive information that took place between the merging parties between signing and completion – on PT Portugal's commercial objectives, strategy and budget planning. This additional conduct contributed, in the Commission’s view, to the conclusion that Altice inappropriately exercised decisive influence over PT Portugal before the deal was formally cleared.
As a result of these findings, the Commission imposed a fine of €124.5m on Altice – €62.25m for breach of Article 4(1) EUMR and €62.25m for breach of Article 7(1) EUMR.
EU General Court judgment
Altice applied to the General Court to annul the Commission decision or reduce the fines imposed. In particular, Altice argued that:
- the preparatory clauses in the SPA were of an ancillary nature and did not in themselves amount to an early implementation – with implementation also requiring more than the ‘possibility' of exercising decisive influence over the target (i.e. only the actual exercise of decisive influence sufficing for this to be the case); and
- it was inappropriate for it to be fined twice for what it argued was the same underlying conduct insofar as the Article 4(1) EUMR notification obligation becomes “redundant” by virtue of a party having been found liable for breaching the Article 7(1) EUMR standstill obligation.
However, the General Court judgment rejected all of Altice's pleas in law – in particular, fully endorsing the Commission’s approach in relation to these two contentious issues: (i) the finding of premature implementation via contractual clauses that merely entailed the ‘possibility’ of exercising decisive influence; and (ii) recognition that there were two autonomous infringements that justified the imposition of two separate fines.
Implementation & the preparatory/pre-closing clauses
Under the EUMR, a merger is implemented at the point at which there is a change of control on a lasting basis and such can occur where the acquirer gains the possibility of exercising decisive influence over the target. Thus, contrary to the arguments put forth by Altice, the General Court confirmed that implementation of the merger for these purposes does not require the actual exercise of decisive influence, nor does it therefore require full consummation of the transaction.
Altice had argued that the pre-closing covenants contained in the SPA were ancillary/preparatory in nature and that the Commission had been overly restrictive in its interpretation of the Commission’s Notice on Ancillary Restraints (in particular, by stating that such provisions were “only justified if strictly limited to that which is necessary to ensure that the value of the target is maintained”). In this respect, Altice submitted that it was common practice for such clauses to be included in SPAs in order to ensure the ‘integrity’ of the target’s commercial activities between signing and closing (and that preserving the target’s integrity goes beyond, and is a separate consideration from, concerns about maintaining the target’s value). However, the General Court dismissed these arguments based on the following:
- While acknowledging that the Notice on Ancillary Restraints does not necessarily preclude there being considerations other than the maintenance of the target’s value (citing the Notice which states that ”agreements necessary to the implementation of a concentration are typically aimed at protecting the value transferred” (emphasis added)), Altice had not provided any evidence demonstrating a risk of PT Portugal’s commercial integrity being so undermined – thus rendering this particular argument ineffective.
- Having established that there were no criteria other than target value preservation put forth justifying the preparatory clauses, the General Court then considered whether the provisions in question were strictly necessary for maintaining the target’s value in this case. These provisions included (amongst other things) the power to:
- co-determine the structure of PT Portugal’s senior management;
- approve senior management appointments/terminations;
- enter into, terminate or modify certain types of contracts; and
- supervise a wide range of PT Portugal’s decisions relating to pricing policy and contracts.
- In the General Court’s view, the clauses of concern were so numerous and broad (and any value-based materiality thresholds for exercise of the rights were so low) that it had to conclude that they went well beyond what was strictly necessary to preserve the value of Altice’s investment. As such, the Commission was justified in concluding that the preparatory clauses gave Altice the possibility of exercising control over PT Portugal by conferring on it the possibility of exercising decisive influence over the business of PT Portugal.
Finally, the General Court also endorsed the Commission’s conclusion that, as a matter of fact, Altice did actually exercise decisive influence over PT Portugal prior to the Commission’s clearance decision (and, in some instances, prior to notification) through its involvement in the target's ordinary course of business (as described above). This finding was reinforced by the evidence of information exchanges involving confidential and business sensitive information between the parties which contributed to the premature implementation of the transaction.
Autonomous and self-standing breaches
The General Court found that the Commission was justified in imposing two separate fines for breaches of Articles 4(1) and 7(1) EUMR and that this did not breach the principles of proportionality and the prohibition on double punishment. To this end, the General Court reiterated the stance it took on this issue in Case C-10/18 P Marine Harvest – noting (amongst other things) that while an infringement of Article 4(1) EUMR (relating to the notification requirement) automatically results in an infringement of Article 7(1) EUMR (prohibiting premature implementation), the reverse is not true.
The Articles also pursue autonomous objectives: the former lays down an obligation to act and the latter lays down an obligation not to act; the former constitutes an instantaneous infringement and the latter constitutes a continuous infringement. In short, failure to comply with the requirements under each Article justifiably constitutes two separate infringements.
The General Court did, however, reduce the fine for breach of Article 4(1) EUMR by 10% in light of the fact that Altice had informed the Commission of the transaction, sent a case-team allocation request, and submitted a draft notification form (including a copy of the SPA) despite having prematurely implemented the transaction.
The Commission is determined to make compliance with the EUMR's procedural rules a key enforcement priority. The EU courts are endorsing this approach and thus putting parties on notice that they risk significant fines if they fail to observe the EUMR’s strict requirements. Making this a particularly tricky issue for transaction parties to navigate is that the actual exercise of decisive influence over the target is not necessary to breach the Articles 4(1) and 7(1) EUMR requirements – having the ability/possibility to exercise decisive influence, including through provisions agreed at signing, is sufficient (and their breaching effects instantaneous).
There is, therefore, an understandable tension between parties’ compliance with the standstill obligations and their legitimate desire to preserve the value and commercial integrity of the target and prepare (as early and as effectively as possible) for post-merger integration. As such, the following points are worth bearing in mind for transaction parties to ensure any arrangements and pre-closing conduct remain competition law compliant:
- Despite the acquirer typically (and not unreasonably) wanting provisions that preserve the value of the business it has agreed to buy, operational control should always remain with the seller and any activities focused on post-merger integration should be limited to planning. Therefore, proposed restrictive clauses should always be carefully scrutinised before they are included in transaction documents.
- Before required clearances are granted, merging parties should continue to conduct their business independently and in particular the acquirer should not intervene in the target’s day-to-day business decisions – for example through:
- having pre-approval/veto rights on matters that fall within the ordinary course of the target's business;
- involvement in negotiating contracts on behalf of the target;
- taking part in joint marketing campaigns or joint customer communications;
- transferring employees and approving appointments in the target;
- accessing IT systems.
- Disclosure of sensitive information should only occur where it is necessary, strictly limited and carried out with appropriate safeguards in place (for example, channelled through external counsel, or dealt with only by ‘clean’ or ‘black box’ teams). Where such exchanges are found to be unwarranted, they may be taken as additional evidence of gun-jumping. In the case of mergers between parties which are actual or potential competitors, they also risk breaching the general antitrust rules that prohibit coordination of business conduct between independent firms.
- As recommended by the General Court in its judgment, merging parties should consider consulting the Commission ahead of agreement or action that might be construed as implementation of the transaction prior to closing.
Authored by Mark Jones, Matt Giles, and Niharika Parshurampuria.