During the negotiation or due diligence process of a potential merger or acquisition; parties usually exchange competitively sensitive information. It is a must since the acquirer or merging parties need to ensure that this investment is going to be a profitable one and the business can be successfully run. Therefore, the parties may legitimately exchange a certain degree of competitively sensitive information before closing. That's why premerger processes are carefully managed by well-known law firms and specialized lawyers. On the other side of the coin, the "legitimate" business requirements may push the parties to engage in coordination before the closing more than it should be. Yet, the antitrust laws limit such behaviours. The sharing of competitively sensitive information between parties and premature combining are called "gun-jumping" by legal practitioners.
But how can companies avoid any kind of illegal concerted action while negotiating on a potential merger or acquisition? Where does the line between pre-closing information exchange and "gun-jumping" stand?
After explaining the gun-jumping issues in the USA and in Europe, it seems pertinent to mention the current situation in Turkey.
In the United States, gun-jumping charges typically include allegations that undertakings have failed to respect the mandatory waiting periods imposed by the U.S. Hart-Scott-Rodino Act (HSR Act). This is what is commonly called "procedural gun-jumping". Besides, if companies are competitors in a given market, gun jumping may also include charges under Section 1 of the Sherman Act which prohibits anticompetitive agreements between independent firms as the companies illegally combined their businesses when they were still required to be competitors. In this case, it is possible to qualify the situation as a "substantive gun-jumping".
The Antitrust Division has interpreted the HSR Act as prohibiting an acquirer from exercising "substantial operational control" over an acquired firm before the expiration of the HSR Act waiting period. To that end, the Antitrust Division considers that the term "control" means directing (even partially) the affairs of the company that is planned to be acquired.
One of the most famous decisions on the matter is indisputably United States v. Gemstar-TV Guide International. Gemstar and TV Guide were believed to have signed a merger agreement and consummated their transaction prematurely. Allegations figuring in the complaint included pre-consummation agreements, market allocations, price-fixing and information sharing. The Department stated that Gemstar and TV Guide had actually acquired each other's assets and eliminated competition between their two companies. The importance of the sanctions, including $5.67 million in civil penalties, illustrates the attention with which gun-jumping is handled in the USA.
While the gun-jumping occupations have a long history in the United States, the European Commission and EU Member State authorities are now also concerned with this issue.
As mentioned above, the most commonly recognized form of gun jumping is the procedural one. In the European Union, this violation is the result of the premature exercise of control by the acquiring company over the target prior to the reception of clearance from the Commission under the European Merger Control Regulation (ECMR). This acquiring firm is exposed to potential sanctions under the ECMR, regardless of whether the transaction represents any threat to competition. In 2009, the Commission imposed a 20 million € fine to Electrabel for having committed procedural gun-jumping. It justified this astronomic fine by arguing that even if Electrabel held less than 50 percent of the target company, it had actually gained de facto control over it.
The European Union is also concerned by substantive gun jumping. Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits competing firms from coordinating their competitive conduct. In this regard, the competition authorities expect the parties to a potential transaction to operate independently until the deal is effectively closed. By conducting dawn raids at the offices of Ineos and Norsk in December 2007, the Commission had suggested for the first time that it may attack information exchanges occurring in the premerger period under Article 101 of the TFEU.
Just like in the USA and in the EU, certain concentrations are also prohibited under the Turkish law. Article 7/2 of the Act no: 4054 enounces that the types of concentrations for which an authorization is required will be determined by a communique. In this regard, the Communique no: 1997/1 has been published.
Concerning procedural gun-jumping, according to Article 11 of the Act no: 4054, a concentration operation which has not been notified is ex officio examined by the Competition Board (Board). If it does not fall under the scope of Article 7, the concentration is authorized but a sanction is imposed because of the violation of the notification requirement. The amount of this sanction is determined according to Article 16/1. On the other hand, if the Board judges that Article 7 is violated, an order to stop the violation is given as well as other measures to suppress the unlawful situation, in addition to the above mentioned sanctions. There is a difference here with the EU law which treats these two situations in the same way. This example should probably be followed since reducing the sanctions when Article 7 is not violated is opposite to the role of prevention that has to be played by the Competition Law. It is argued that even if the relatively negligible fixed monetary costs have been replaced by a more reprehensive turn-over based fine regime following the amendment of Article 16 by Law 5728, the costs related to the permission process can still sometimes exceed the sanctions in question. Hence, the ex-ante inspection which is essential to antitrust law is ruined.
Moreover, substantive gun-jumping issues need to be taken into account as well. In fact, some of the behaviors of the parties preceding the authorization may fall under the scope of Article 4. Therefore, they should be careful to avoid actions like price-fixing, market or client sharing, demand or supply control etc. Still, there is no decision of the Board in this regard for now.
As mentioned above, it is prohibited under the Turkish law to realize unauthorized concentrations. Yet, there is a substantial controversy about the moment when the concentration is going to be considered as "realized". The Board believes that the realization of the concentration occurs when the contract is signed. This interpretation of the Board can be seen through the Comsat and Horoz Investment Holding decisions. The case-law has been widely criticized. One of the suggestions was for the concentration to be regarded as realized, when the "main activity" of the new entity has begun. However, this proposition has its own disadvantages. Another argument follows that the realization should be considered as the beginning of legal or material acts which create a concentration effect. This vision seems to be more appropriate. Indeed, Article 10/9 of the Board's communique draft about "Mergers and Acquisitions Requiring a Preliminary Authorization" enounces that the realization date of a merger or acquisition is the date when the control changes hands legally or de facto. Nonetheless, the Board should explain the exact meaning of the handover in question, through informative documents to avoid any misunderstanding.
To deal with gun-jumping more efficiently, the Board should show a more preventive attitude and start to consider this issue under the scope of Article 4.
 United States v. Gemstar-TV Guide Int'l Inc., No. 03-CV-000198, Competitive Impact Statement (D.D.C. Mar. 19, 2003)
 Liebeskind, Gun Jumping: Antitrust Issues Before Closing the Merger, p.3
 File no: 2003-2-68, Decision no: 03-69/831-361, Decision date: 23.10.2003
 File no: 2004-4-49, Decision no: 04-36/408-101, Decision date: 20.5.2004
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.