On September 22, 2021, the EU General Court (GC) upheld a decision from the European Commission (Commission) by which it fined telecommunications operator Altice for gun jumping (T-425/18, Altice Europe v Commission). In particular, the GC affirmed that the Commission could impose two separate fines: (i) a fine for implementing a concentration prior to its clearance by the Commission, and (ii) a fine for implementing a concentration prior to its notification. In coming to those findings, the GC also clarified the appropriateness of certain pre-closing covenants and information exchanges.
- In December 2014, Altice signed a share purchase agreement (SPA) with telecommunications operator Oi to acquire PT Portugal. The deal was subject to EU merger control.
- Prior to signing, Altice began communications with the Commission to inform it of its intention to acquire PT Portugal. Shortly after signing, Altice sent a case-team allocation request to the Commission and commenced pre-notification discussions with the Commission. Altice formally notified the transaction in February 2015; in April 2015, the Commission cleared the acquisition subject to commitments.
- A gun-jumping investigation arose following press reports of contacts between Altice and PT Portugal, which took place before the adoption of the Commission’s clearance decision.
- Three years after clearing the acquisition, the Commission concluded that Altice infringed both the notification obligation and the standstill obligation under the EU Merger Regulation and imposed two separate fines with a total amount of EUR 124.5 million.
- The Commission found that Altice had the possibility of exercising decisive influence or had exercised decisive influence over PT Portugal before the adoption of the clearance decision and, in some instances, before notification:
- Certain pre-closing provisions included in the SPA gave Altice the right to veto decisions regarding PT Portugal’s commercial policy.
- Based on these provisions, Altice had been involved in the day-to-day running of PT Portugal in several instances.
- Altice brought an action for annulment before the GC, which was dismissed in part. The GC sided with the Commission, but reduced the fine relating to the infringement of the notification obligation by 10% (from EUR 62.25 million to EUR 56.025 million). The GC considered it appropriate to lower the fine because Altice had informed the Commission of the concentration before the signing of the SPA, and it had sent a case-team allocation request to the Commission shortly after signing.
- The notification obligation and standstill obligation can be subject to separate fines. The GC held that the notification obligation (obligation to act) and standstill obligation (obligation not to act) are separate obligations. Because each obligation was violated, the Commission was entitled to impose two fines.
- Pre-closing provisions included in a SPA cannot afford a purchaser the possibility to exercise decisive influence over the target. EU merger rules do not preclude pre-closing provisions in a SPA aimed at protecting the value of the target between signing and closing. However, such provisions can only be reasonably justified if they are strictly limited to what is necessary to ensure the maintenance of the target’s value and do not afford a purchaser the possibility to exercise decisive influence over the target. In this matter, the GC determined that three types of pre-closing provisions included in the SPA were problematic:
- (i) Appointment, dismissal or changes to the contracts of senior management: the GC stated that the possibility to co-determine the structure of the senior management usually confers the power to exercise decisive influence on the commercial policy of an undertaking.
- (ii) Pricing policies and standard terms and conditions: the GC stated that the wording of the pre-closing provision was extremely broad and resulted in an obligation for PT Portugal to obtain Altice’s consent to any change in prices and gave Altice the possibility to object to any change in PT Portugal’s customer contracts.
- (iii) Entering into, termination or modification of certain types of contracts: the GC stated that the limitations in these types of pre-closing covenants were numerous and broad, and the monetary thresholds were so low that they went beyond what is necessary to preserve the value of Altice’s investment.
- The GC held that the powers afforded to Altice based on these pre-closing provisions constituted veto rights that went beyond what was necessary to preserve the target’s value until the closing of the transaction and gave Altice the ability to exercise decisive influence over the target after signing the SPA.
- The GC also found that Altice had exercised decisive influence over PT Portugal before the adoption of the clearance decision and, in some instances, before notification.
- Importantly, the GC determined that the mere possibility of exercising decisive influence is sufficient to constitute an infringement of the notification obligation and/or standstill obligation.
- Information exchanges may contribute to the exercise of decisive influence. The GC confirmed that exchanges of business-related information between a potential acquirer and a vendor can be considered a normal part of the acquisition process if the nature and purpose of such exchanges directly relate to the potential acquirer’s need to assess the value of the business. In the present case, the information exchanges between the parties continued after the signing of the SPA and related to commercially and competitively sensitive information (Note: the Commission had also found that the information exchange took place in the absence of any type of confidentiality or clean team arrangement, but the GC did not discuss this point). The GC held that such information exchanges were not justified by the aim to maintain the target’s value. As such, the Commission could conclude that the information exchanges contributed to the exercise of decisive influence by Altice over certain aspects of PT Portugal’s business.
- In light of the Altice judgment, parties to an M&A transaction should diligently draft pre-closing provisions and consult their antitrust counsel as to the permissibility of such provisions.