United States: Tougher Implementation Of Procedural Rules In Merger Control

Very significant fines have been levied for procedural breaches of the merger rules in the last year or so. Facebook was fined €110 million in 2017 for providing misleading information and Altice was fined €125 million in 2018 for gun-jumping. The European Commission (EC) has gotten much tougher on procedural violations of the merger control rules. But it's not just the EC. The U.S. agencies have also continued to penalize gun-jumping heavily, and several other antitrust authorities across the world are following suit.

Such aggressive enforcement of procedural rules makes merger control more difficult and more risky to manage at a time when foreign investment  control and substantive merger review are also tightening.


Most merger control regimes require parties to await clearance before they execute a notifiable transaction (the standstill obligation). Failure to comply with this obligation is called gun-jumping and can lead to significant fines.

While the EU and U.S. competition authorities have remained active in enforcing gun-jumping cases,1 other competition authorities across the world have started focusing on gun-jumping enforcement. For example, at the time of writing, the Chinese competition authority has published six penalty decisions related to gun-jumping in 2018, and publicly announced 17 gun-jumping cases in 2017. China clearly ramped up its enforcement against non-notifiers, not just imposing fines but also 'naming and shaming' infringing companies. In Japan in 2016, the Japan Fair Trade Commission (JFTC) formally criticized the two-step structure used in Canon/Toshiba Medical Systems (TMS), whereby Canon used a so-called 'warehousing' structure involving an interim buyer, which allowed it to acquire TMS prior to obtaining the relevant merger approvals.2 Even though the JFTC did not impose a penalty on Canon, the public announcement served as a warning to others contemplating similar structures. Other national competition authorities such as Denmark, Austria, Greece, Lithuania, Romania, Hungary, Portugal, Moldova, Philippine, Indonesia, India, Mexico and Brazil have also been active in enforcing gun-jumping in the last year.

Even in jurisdictions without a standstill obligation in their merger control regimes, procedural rules are being more strictly implemented. For example, in July 2018, the Australian competition authority brought proceedings for the first time  for gun-jumping, against Cryosite  Limited in relation to its entry into an asset sale agreement with Cell Care  Australia Pty Ltd.

The majority of gun-jumping cases involve straightforward failure to notify. There have, however, also been more subtle cases where authorities have paid closer attention to whether merging parties, between the signing and closing of the deal, have started to integrate part of the deal too early. This is what happened in the European Commission's Altice case, attracting one of the biggest fines ever for gun-jumping (almost €125 million). The EC concluded that Altice gave instructions on the marketing campaign of the target, benefitted from a sales and purchase agreement with 'ordinary course' business covenants that went beyond what was necessary and were not sufficiently caveated by materiality. Further, Altice had sought detailed commercially sensitive information outside a clean team arrangement. Together these things amounted to an exercising control prior  to clearance and hence gun-jumping.

Similarly, the U.K. Competition and Market Authority (CMA) imposed a £100,000 fine in June 2018 against Electro Rent for the termination of the lease for its U.K. premises in violation of an interim enforcement order — effectively the standstill obligation once an inquiry starts in the U.K.'s merger regime. These examples demonstrate that it is more important than before to take care with 'ordinary course' covenants and that the risks of closing over filing requirements are greater than they were previously.3

There are ways to manage gun-jumping risks. Some agencies, including the EC, have become more receptive to waiver requests from the standstill obligation or working with parties to speed up clearance in unproblematic cases. The EC has granted standstill derogations in almost all cases where the purpose is preserving the financial or competitive viability of the target business. Comparable derogations also exist in other jurisdictions such as Portugal, Greece, Norway, Romania, Brazil, Switzerland, etc.


The tougher implementation of procedural rules can also be seen in the increasing use of powers to request internal documents. In Australia, for example, the new merger review process recently broadened the competition authority's powers to obtain information, documents and evidence to improve evidence gathering. The CMA is also not afraid to aggressively pursue information on high-profile mergers.

In the EU, the amount of documentation that must be provided in difficult cases has increased dramatically. The Bayer/ Monsanto review in 2018 involved a disclosure of more than a million documents. This massive disclosure obligation sits in addition to the enormous amount of information required in the 'Form CO.'

Disclosure of such a large volume of internal documents creates a challenge for parties' to ensure consistency with their antitrust defense — as well as difficulties managing the review timetable. Requesting documents allows the EC to suspend the review of a merger ('stop the clock'), which significantly delays the clearance of the deal. In 2017, the EC has suspended the timetable in nearly half of the in-depth reviews initiated or concluded by the EC in 2017 (5 out of 11), and suspensions have ranged from 7 to 96 working days.

Even where authorities demand voluminous data and internal documents within tight time frames, parties need to pay careful attention to the documents provided, given that they can face  heavy penalties for failing to disclose sufficient or correct information during reviews, or if they provide misleading responses to requests for information.  On this basis, the EC has recently imposed €110 million fine on Facebook and is currently investigating against Merck and Sigma-Aldrich, and against General Electric and LM Wind. In each case, the EC alleges that the companies' failure to provide information impacted the ultimate outcome of the merger review. Similarly in Brazil, Conselho Administrativo de Defesa Econômica (CADE) imposed fines of €10.9 million on JBS and Rodopa for providing misleading information during the merger analysis. In November 2017, the CMA fined hungryhouse €23,000 for failing to adequately respond to an information request during the CMA's review of its acquisition by Just Eat.

Document review exercises in complex deals require careful project planning and sufficient resources for preparing and verifying submissions are watertight within the deadlines. Disclosure of facts and evidence must be full and accurate, even for future projects on product development or innovation. Parties should have a good understanding of what their documents say and be prepared to address documents that do not support their arguments and the defense presented during notification.


Finally, parties may well be aware that the scope of legal privilege varies from one jurisdiction to another. This proves particularly challenging in cross-border deals where disclosure in one jurisdiction may lead to disclosure to authorities and courts in other jurisdictions. Records of legally privileged materials excluded from disclosure and the rationale used for claiming privilege can help justify future privilege claims.


For companies with multi-jurisdictional operations engaging in complex transactions, evaluating the risks posed by procedural rules across jurisdictions can be particularly challenging; not only do the rules frequently lack clarity, but assessment by the regulators takes place on a case-by-case basis and there are often stark differences in approach between regimes. Competition authorities have recently shown that they are likely to enforce the rules rigorously as a deterrent to others. Given the increased enforcement activity from competition authorities across the world, businesses must be aware of the risks and take measures to mitigate these based on the individual circumstances of their case

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.

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