15 September 2022

Gun Jumping Under The Merger Control Regime

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‘Jumping the Gun' in the context of the merger control regime refers to the varied actions that merging parties might undertake in order to facilitate a de facto merger...
India Corporate/Commercial Law
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‘Jumping the Gun' in the context of the merger control regime refers to the varied actions that merging parties might undertake in order to facilitate a de facto merger, or to expedite the integration of the parties' business activities, prior to a merger (also known as a combination) receiving the approval of Competition Law authorities.

Gun Jumping may occur in two forms:

Procedural Gun Jumping – Failure to Notify

The most common form of gun jumping occurs when parties to a combination, as defined under Section 5 of the Competition Act, 2002 (“Act”), meeting the applicable monetary and jurisdictional thresholds for notification to the competition authorities, do not notify such transaction to the authorities.

Substantive Gun Jumping – Violations of Standstill Obligations

The second and more difficult assessment relates to either (i) actions that parties may agree to, or (ii) contractual restrictions between the parties, which have the effect of putting a combination “into effect” prematurely (i.e., prior to approval), or where such actions or restrictions have the effect of prohibiting competitive behaviour between the merging parties. The Act imposes a standstill obligation of 210 days, or until the approval by the Competition Commission of India (“CCI”) (whichever is earlier), on the parties to a proposed combination, from the date of notification of the proposed combination to the CCI. During this period, such parties are required to continue to operate their businesses as independent entities.


The rationale behind introducing standstill obligations is to ensure that parties to a proposed combination continue to compete with each other in the interim period, i.e., before the combination is given approval by the CCI. In this way, regulators can be sure there is no adverse effect on competition within that sector or industry even if, based on their review, they either do not approve the proposed combination, or decide to approve it, subject to certain modifications in the arrangement between the parties.

Hence, given standstill obligations, determining which actions or restrictions, do or do not qualify as gun jumping assumes special significance. What is important to ascertain is (i) whether the parties have ceased to compete the way they were competing, or (ii) whether they have ceased to act independently as regards their ordinary course of activities, prior to the approval of the CCI.


The term gun-jumping has not been defined anywhere in the Act. A transaction may be viewed to have been ‘consummated' where steps have been taken by the Parties for prospective and future integration prior to obtaining approval of the CCI.

Some instances which have been viewed as gun jumping by the CCI are described below:

  1. In the Jet-Etihad case1, Etihad had sought approval for acquisition of 24 per cent equity interest in While approving the transaction, CCI noted that certain provisions of the commercial cooperation agreement had already been implemented and the sale of certain landing and take-off slots of Jet at London Heathrow airport had not been notified for approval of the CCI before consummation of the acquisition transaction. This sale was held to be a consummation of the transaction and a penalty was imposed on Etihad for having violated their standstill obligations.
  2. In the Hindustan Colas Private Limited case2, part-payment of the consideration, made in the form of a refundable deposit, paid on the date of signing of the share purchase agreement, was held to have resulted in part-consummation of the combination. The CCI held that such pre- payment of consideration could have the impact of creating tacit collusion between the parties, as it might (i) lead to a strategic advantage for the acquirer; (ii) reduce the incentive and will of the target company to compete; and (iii) become the rationale for the acquirer to be provided access to confidential information of the
  3. In the UltraTech Cement Limited case3, the provision of a corporate guarantee by the acquirer on behalf of the target, to a lending institution, for securing a loan to the target company, was held to be consummation by the CCI. Of significance is the fact that the loan amount was repayable irrespective of whether the proposed combination ultimately received CCI approval or
  4. In the Adani Transmission Limited case4, advancement of a loan to the seller of the target enterprise, by the acquiring company, done prior to the approval of CCI was held to be
  5. In the case of LT Foods Limited5, the existence of certain interim covenants that were placed upon the sellers, such as (i) requiring the handover of certain inventories to the acquirers, (ii) requiring the acquirer's introduction and interaction with suppliers of the seller, (iii) placing a restriction on promotional spending by the seller, and (iv) placing a restriction on the seller in relation to entry into or exit from territories, were all considered to be giving effect to the transaction, and thereby, jumping the gun.

The case of Bharti Airtel Limited6 provides much clarity on the approach taken by the CCI while evaluating what qualifies as “gun-jumping”. In this case, the CCI recognised that certain clauses in transaction documentation were necessary to ensure that the value of the target business was preserved. Hence, the transacting parties in this case were permitted to impose customary interim restrictions on the target. The CCI made the observation that it is imperative for parties to ensure that the form and scope of such interim covenants and arrangements are inherent and proportionate to the objective of preserving the target company's value, and not implemented as a roundabout violation of standstill obligations.

In the course of developing its jurisprudence, the CCI has often resorted to the decisional practices or statutory guidance issued by jurisdictions that have more mature merger control regimes. A brief analysis of such observations from a range of jurisdictions is given below.


In the 2018 landmark case of Altice and PT Portugal7, the European Commission (“EC”) concluded that certain provisions of the agreement between the parties had resulted in Altice acquiring the legal right to exercise decisive influence over PT Portugal prior to the EC's clearance, for example, granting Altice veto rights over decisions concerning PT Portugal's ordinary business. The EC also found that, in certain cases, Altice had not only acquired the right, but actually exercised decisive influence over aspects of PT Portugal's business, for example, giving PT Portugal instructions on how to carry out a marketing campaign, and receiving detailed and commercially sensitive information, outside the bounds of any confidentiality agreement.

In contrast, in Ernst & Young's acquisition of KPMG Denmark8 in 2018, the ruling of the EC's Court of Justice clarified that parties to a transaction can, without infringing the standstill obligation, take certain preparatory steps to implement the transaction, so long as these steps do not contribute to a change in control of the target.


Federal Trade Commission (“FTC”) Advisory - On March 20, 2018, the FTC published a note on its blog about gun jumping and information sharing obligations during merger negotiations and due diligence. It emphasised that care must be taken by actual and potential competitors alike and highlighted examples of conduct that occurred in some of its prior enforcement actions that were objectionable:

  1. CEOs repeatedly exchanging company-specific information about future product offerings, price floors, discounting practices, expansion plans, operations, and performance;
  2. Parties sharing non-aggregated customer-specific information about current and future pricing; and
  3. Contractual agreements where the buyer had the right to approve seller's customer discounts when greater than 20

In the case of United States v. Flakeboard America Ltd;9, the U.S. Department of Justice also imposed behavioural restrictions requiring conformance with gun jumping and information sharing limits in future transactions by the parties, as a part of the settlement. This imposition was in addition to a requirement that the parties provide annual compliance reports and implement antitrust compliance programmes for the 10-year long duration of the settlement term.

These actions highlight the US agencies' view that, parties to a transaction, which may not be an anti- competitive merger, are not exempt from complying with anti-trust laws, prior to the closing of the said transaction. Further, enforcement of restrictions under ant-trust laws by the US Department of Justice can occur, notwithstanding whether the underlying transaction proceeds, or is abandoned.


The Administrative Council for Economic Defence (CADE) in Brazil issued guidelines in 2015 (“CADE Guidelines”), amongst others, on the types of business activities relating to merger transactions that may be construed as gun jumping. Activities indicated in the CADE Guidelines can be divided into three major groups:

  1. Exchange of competitively sensitive information amongst parties to a merger, as such exchange could harm competition between them, if the merger is not yet consummated;
  2. Contractual clauses governing the relationship between economic agents which can result in a premature integration of the activities of merging parties, such as:
    1. anteriority clauses that brings any integration among parties;
    2. pre-merger non-compete clauses; pre-merger full or partial payments which are not reimbursable (except typical down payments), deposits in escrow accounts, or break fees;
    3. clauses permitting direct interference in a party's business strategies and other sensitive decisions that do not constitute a mere protection against deviation from the ordinary course of business and protection of the value of the business being sold;
    4. in general terms, any clause providing for activities that cannot be reversed at a later time or which implies the expenditure of a significant amount of resources by the parties involved; and
  3. Activities of the parties before and during the implementation of a merger, which could be, or may seem to be, effective consummation of at least part of the


Strictly Not Allowed

Before closing, the buyer cannot exercise control over the target's business. The target should continue to operate its business in the ordinary course and consistent with past practices. The buyer should not approve either the target's ordinary course of business contracts or routine business activities and business decisions.

Merging parties should not act jointly before approval of the merger control authorities, by providing services to customers or by agreeing to do any of the following:

  1. Fixing prices or terms of customer contracts;
  2. Allocating particular customers or sales territories;
  3. Slow rolling - stopping or suspending sales efforts for customer contracts that are up for renewal;
  4. Engaging in joint research and development, joint marketing, joint advertising, or joint sales;
  5. Entering into joint purchasing agreements; or
  6. Entering into any type of agreement with a

What Is Permissible?

The starting point is that the parties must remain independent until the transaction has been cleared and should not act as though the deal is already complete. That said, a certain degree of transition planning is permitted before clearance. The buyer will want to ensure that the value of the target is not adversely affected through conduct by the target, outside the ordinary course of business. Veto rights over decisions outside the ordinary course of business may therefore be acceptable, but care should be taken that this will not result in decisive influence of the acquirer over the target before clearance. However, as mentioned in the Altice case above, veto rights over the target's day-to-day business decisions will not be permitted.

Merging parties are free to share information that is publicly available. Other forms of information exchange may be permissible if:

  1. There is a pro-competitive reason for sharing the information, for conducting due diligence, or for valuing the target company; and
  2. The information is:
    1. historical (and has no value in predicting future behaviour);
    2. redacted or aggregated or provided in another way that prevents the identification of specific customers' current or future cost and price information;
    3. exchanged only on a need-to-know basis and not circulated generally to the company's commercial staff; and
    4. exchanged under a non-disclosure agreement that limits its use to conducting diligence only, and prohibits disclosure to any employee involved in the marketing, pricing, or sales of any competing product or

Even where information is exchanged for the purposes of due diligence or valuation, it is imperative that an information sharing protocol is followed. The parties should establish firewalls to ensure that the merger planning process does not intertwine with ongoing business decisions. For example:

  1. Competitively sensitive information obtained from the other party should be disclosed on a need-to-know basis only and not circulated generally to the company's commercial staff or more broadly within the company;
  2. If possible, the staff dealing with merger transition issues and those carrying on the company's day-to-day business should be different; and
  3. The Parties should consider sharing competitively sensitive information through the use of clean teams. The use of a clean team is vital if the merging parties are competitors, or even potential

The Compliance Manual for Enterprises, issued by the CCI dated May 2, 2017 has provided similar recommendations, including that parties to a proposed combination constitute clean teams – which should be limited to a team of individuals of the acquirer and sellers (who are not involved in any regular or routine processes of the business such as price determination, or strategising on action plans, sales, marketing, etc.) along with external advisors; and all commercially sensitive data should only be accessible to such identified persons.


In order to enforce the provisions discussed above, including the ex-ante obligation of the parties, Section 43A was inserted in the Act, by way of an amendment in 2007, to empower the CCI to impose penalty in cases where parties fail to give notice of a merger/combination in terms of Section 6(2) of the Act. It may not be out of place to highlight that mens rea (or dishonest intent) is not relevant in this case, as the imposition of penalty under section 43A is on account of the breach of a civil obligation, and the proceedings are neither criminal nor quasi-criminal.

Failure to notify a reportable combination as required under Section 6(2) of the Act, or a de facto consummation of the deal during the standstill period could expose the parties to a penalty, which may extend up to 1% of the total turnover or 1% of the assets, whichever is higher, of the combination. The CCI is increasingly using this power in order to levy penalties under Section 43A of the Act.


As a general rule, parties can plan for integration before approval from the authorities, but they cannot:

  1. Prematurely combine or integrate operations;
  2. Share competitively sensitive information, including but not limited to current and future pricing or cost information; customers and suppliers; sales, profits and profit margins; production and capacity; or strategic, marketing and new product plans - other than with the identified clean teams and for the specific purposes of diligence or valuation;
  3. Exercise control over the target's assets or its routine business, management, or operations;
  4. Engage in impermissible joint conduct, such as fixing prices, terms, and conditions;
  5. Hold themselves out to the public as having merged into one entity or giving the appearance of having combined their operations;
  6. Acquire or exercise control over the equity or assets of each other;
  7. Post employees at the other party's offices;
  8. Allow representatives of one party to negotiate contracts or settle legal disputes on behalf of the other; or
  9. Provide one party with access to the other party's computer systems.

While the intent of the authorities is clear and unambiguous, there is a fair amount of complexity that parties and their advisors have to deal with when it comes to: (i) creating and managing clean teams, where the relevant senior management teams involved in sales and marketing are often necessary for evaluation of the acquisition; (ii) determining which aspects would be within (or outside) the purview of ‘ordinary course of business'; and (iii) preserving value of the target without anti-competitive restrictive covenants.


1 Combination Registration No. C-2013/05/122

2 Combination Registration No. C-2015/08/299

3 Combination Registration No. C-2015/02/246

4 Combination Registration No. C-2018/01/547

5 Combination Registration No. C-2016/04/387

6 Combination Registration No. C-2017/10/531

7 Commission Decision of 24.4.2018

8 Case C-633/16, Decision of 31.5.2018

9 Case No. 3:14-cv-4949, Decision of 02.02.2015

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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