On 9 November 2023, the European Court of Justice (ECJ) considered an appeal by Altice - a multinational telecommunications and media company - but upheld the Commission’s decision fining Altice for “gun jumping”.

Competition authorities do not consider merger control obligations as mere formalities. Failing to comply with the EU merger control rules can result in severe financial consequences for parties to M&A transactions.

That is not limited to the EU merger control rules. In principle, fines can be imposed by each national competition law authority that did not approve the M&A transaction when the national merger control rules required parties to the transaction to seek prior notification and approval.

One transaction, two violations

The Commission had imposed two fines on Altice: 62.25 million euros for breaching the standstill obligation (Art. 7(1) of the Merger Regulation), and 62.25 million euros for not notifying its acquisition of PT Portugal (Art. 4(1) Merger Regulation). The General Court (GC) upheld the Commission’s decision but reduced the second fine by 10%. The ECJ further reduced the second fine by another EUR 3.1 million. 

In effect, Altice faces total fines of 115.15 million euros for gun-jumping.

The ECJ confirmed that the Commission did not breach the principles of proportionality or the prohibition on double punishment by imposing two separate fines on Altice for failing to notify the acquisition of PT Portugal and failing to obtain clearance before going ahead with the transaction.

Reserved matters only to ensure the value of the target 

The Commission concluded that Altice was unjustifiably able to exercise decisive influence over PT Portugal before the merger notification and the adoption of the Commission’s clearance decision. Although both situations breach competition law, their classification differs. The former constitutes the implementation of the transaction before it had been notified and the latter is a breach of the standstill obligation.

The ability to exercise decisive influence over a target before obtaining merger clearance is only justified if it is limited to that which is necessary to preserve the value of the target. There are no other justified grounds for granting the acquirer the possibility of exercising decisive influence over the target company.

For instance, clauses restricting the seller from acting in a manner inconsistent with the outcome of the transaction, or from making major changes to the business, can be justified to ensure that the value of the target is preserved. Such clauses may include veto rights on certain actions, or a positive obligation to continue to run the target business in a certain manner.

The same rules apply to the exchange of information, as the disclosure of sensitive information during M&A transactions should only take place when necessary, and when conducted taking appropriate safeguards. Otherwise, such information exchange may be proof of gun-jumping, or even of an anticompetitive agreement (if the parties to the transaction are competitors).

Veto right over commercial decisions based on the Altice case

Altice had veto rights over the following matters regarding the conduct of PT Portugal: the appointment of PT Portugal’s senior management staff, PT Portugal’s pricing policy and commercial terms and conditions, and the ability to enter, terminate or modify a wide range of PT Portugal’s contracts.

We review these groups of veto rights below.

1. Senior staff appointment

Based on the transaction agreement, without Altice’s consent, PT Portugal could not appoint any new director or officer - including board members – or terminate or amend the terms of any contracts concluded with senior staff.

The Commission stated that the veto right related to appointments of senior managers went far beyond what was necessary and provided Altice with the power to exercise decisive influence over PT Portugal.

2. Influencing the target’s pricing policies

Without Altice’s consent, PT Portugal could not modify its pricing policies or standard offer prices applicable to PT Portugal’s products and services offered or rendered to its customers. In addition, PT Portugal had to obtain Altice’s consent to amend any existing standard terms and conditions.

Pricing decisions are a crucial part of a company’s commercial policy, and companies should be free to set prices as they wish to compete on the market. The Commission did not classify these rights as permitted to protect the value of the target.

3. Influencing the target’s contracts

PT Portugal had to seek Altice’s approval for material contracts (as defined by the parties) and for contracts that exceeded certain monetary thresholds.

The Commission checked whether such rights were legitimate and determined that, typically, an acquirer may have some degree of control over the contracts the target can enter into between signing and closing. Nevertheless, in the Altice case, Altice had a veto right over almost all of PT Portugal’s commercial contracts, covering:

• a very broad range of commercial operations;
• contracts within the ordinary course of business;
• value thresholds that were low in the context of PT Portugal’s business.

The Commission determined that more than a quarter of all issues discussed at board meetings could require Altice’s consent.

The Commission pointed to the low value of the thresholds related to reserved matters (such as procurement contracts for network equipment or maintenance), which were unlikely to have an impact on PT Portugal’s value. The GC found that the monetary threshold for some reserved matters was one million euros, whereas PT Portugal's turnover in 2014 was EUR 2 533 million. The purchase price was EUR 7 400 million at the time of the Transaction (2014).

Mere possibility can jump the gun

For the Commission, it was relevant to establish whether Altice was able to exercise decisive influence, not necessarily whether it exercised its veto right in a particular circumstance.

The Commission concluded that Altice’s ability to influence the target’s contracts went beyond protecting the target’s value and amounted to exercising decisive influence over it.

Useful takeaways to avoid the risk of gun-jumping

To avoid the risk of gun-jumping, these takeaways can help design acquirer rights during the transition period.

1. Pre-closing covenants infringing competition law can result in large fines. Competition authorities can impose fines for a failure to notify an intended concentration, for a breach of the standstill obligation, and even for an exchange of competitively sensitive information (if the parties are competitors).
2. Competition law allows an acquirer to exercise decisive influence over a target before merger clearance only if that influence is limited to matters necessary to preserve the value of the target. If this condition is not fulfilled, even the mere existence of veto rights over a target’s matters may be considered unlawful.
3. The acquirer’s rights related to the ordinary course of the target’s business operations or the target’s commercial policy will not be considered justified.
4. The more matters depend on the acquirer’s consent, and the lower the monetary threshold is set in the contractual provisions providing the acquirer with veto rights, the more likely these are to be found unlawful.

If you need more information or further guidance in this area, please contact Marcin Alberski and Stanislaw Szymanek, or your local competition law expert.

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