European Union: European Court Upholds Fine Against Electrabel For ‘Gun-Jumping’

On July 3, 2014, the Court of Justice of the European Union (CJEU) upheld the decision of the European Commission (Commission) to impose a €20 million fine (about U.S.$27 million) on Electrabel SA for implementing its acquisition of Compagnie Nationale du Rhone (CNR) without prior approval.

Electrabel acquired 17.68 percent of the shares and 16.88 percent of the voting rights in CNR in June 2003 and increased its shareholding to 49.95 percent of shares and 47.92 percent of the voting rights on Dec. 23, 2003. In August 2007, Electrabel commenced discussions with the Commission as to whether it had acquired control of CNR, and formally notified the Commission of its acquisition of CNR from Electricité de France (EDF) on March 26, 2008.

In April 2008, the Commission approved the acquisition but left open the question as to the date on which Electrabel acquired control of CNR. The Commission, a year later, concluded that Electrabel acquired control when it increased its shareholding in CNR in December 2003, and was therefore in breach of its obligation to notify the Commission before the acquisition was implemented. The Commission levied a €20 million fine on Electrabel, and its decision was upheld by the General Court in December 2012. The General Court agreed with the Commission's finding that Electrabel had acquired de facto sole control as of December 2003 and held that, by virtue of the wide dispersal of other shareholders, Electrabel, despite being a minority shareholder, was almost certain of obtaining a majority at future shareholder meetings.

The General Court took the opportunity to highlight the seriousness of breaches of notification obligations, and found that the early implementation of a concentration was likely to bring about significant changes in the relevant competitive environment, and was therefore not a mere procedural breach.

Electrabel appealed against the decision of the General Court to the CJEU which, in its judgment dated July 3, 2014, dismissed the appeal in its entirety and upheld the €20 million fine imposed by the Commission.

This CJEU decision cements the serious stance taken by the Commission and the European courts against early implementation of a transaction, or "gun jumping," and further highlights their willingness to impose and uphold severe fines on companies that fail to notify the Commission in advance of implementation. The Commission is clearly adhering to this position and has, subsequent to the Electrabel CJEU decision, fined Marine Harvest €20 million for closing its purchase of rival Morpol without first obtaining merger approval.

The full CJEU decision is available here.

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