Worldwide: Gun-Jumping And Procedural Compliance

The EU and U.S. competition authorities have been and remain active in enforcing gun-jumping cases, while in recent years other competition authorities across the world, including in China, have also become increasingly active. This is a trend we expect to continue.

At the time of writing, the European Commission (EC) is investigating two potential gun-jumping cases– Altice/PT Portugal and Canon/Toshiba Medical Systems (TMS).

These cases are significant because, while the EC has made clear that in each case its approval in respect of the merger will not be affected, they demonstrate that not only is gun-jumping a live risk, but the EC is prepared to pursue potential procedural infringements even if the risk of serious harm is low.

Canon/TMS involves allegations that Canon implemented the merger before both notifying and obtaining approval from the EC. This case involved a two-step acquisition procedure known as 'warehousing.' On signing, Canon acquired a single non-voting share in TMS, for which it paid effectively the full value of TMS. At the same time, an interim buyer acquired voting shares in TMS for a nominal amount. Canon also took options over these shares. Canon intended to have control of TMS only when it exercised the options following notification and merger approval. The EC cleared the merger in September 2016 but has subsequently opened an investigation into whether these arrangements let Canon effectively acquire TMS before it notified the deal.

The Canon case is particularly significant as the EC has taken issue with the very design of the transaction. Warehousing structures are not uncommon. They can, for example, be used in auctions to enable potential 'strategic' purchasers, whose business may overlap with a target's, to compete on a level playing field with potential private equity purchasers, which are less likely to have competition issues. In the Canon case, the structure was designed to enable the purchase price to change hands as quickly as possible on signing, as Toshiba was in urgent need of cash to balance its books following an accounting scandal. The Canon case highlights the need for businesses to be aware of the risks certain transaction structures may bring, particularly as the reason for breach is irrelevant, whether deliberate, negligent or innocent.

However, it is not just the EC that has taken issue with the arrangements in Canon/TMS. The opening of its investigation followed a public warning by the Japanese competition authority, the Japan Fair Trade Commission (JFTC), in 2016 that the arrangements may be in violation of antitrust law. The JFTC did not impose a fine on Canon, but the public announcement serves as a warning to others contemplating similar structures. The Chinese competition authority, the Ministry of Commerce (MOFCOM), went a step further and, in January 2017, fined Canon RMB300,000 (approx. US$45,166) for failure to notify the transaction at the first step.

In this regard, the Canon case highlights a significant discrepancy in the severity of risk posed by breaching gun-jumping rules across the different regimes, particularly between China and other merger control jurisdictions, such as the EU and the United States.

In the EU, the financial consequences of running afoul of the rules can be severe. The EC can impose a fine of up to 10% of worldwide turnover, should it decide that Canon has broken the rules. The EC has previously fined companies up to €20 million for gun-jumping. Similarly, in the United States, the Department of Justice (DOJ) can impose fines of up to US$41,4841 per day, per company that is out of compliance, for gun-jumping offenses. The DOJ has obtained civil penalties as high as $5.67 million for gun-jumping violations, when it reached a settlement in 2003 with Gemstar-TV Guide, reflecting the then-maximum penalties of $11,000 per day that each company was out of compliance.

In fact, the DOJ continues to monitor potential gun-jumping violations closely. On January 18, 2017, the DOJ obtained a US$600,000 civil penalty from Duke Energy, a seller of wholesale electricity, for gun-jumping violations relating to Duke's acquisition of Osprey, an electricity generating plant in Florida. Duke agreed to purchase Osprey in August 2014. At the same time, the parties entered into a tolling agreement whereby Duke assumed control of operational responsibilities at Osprey and also retained any profit (or loss) from the operation of the plant. While similar tolling arrangements standing alone are not uncommon in the electric power generation industry, and the DOJ did not allege that the tolling agreement standing alone was a violation of the antitrust laws, the DOJ did allege that the use of the tolling agreement in conjunction with the purchase agreement was a gun-jumping violation, because it transferred beneficial control prior to HSR clearance. The DOJ obtained penalties from Duke for the 150-day period that the parties were out compliance: from the effective time of the tolling agreement in October 2014, through the date that Duke received early termination of the HSR waiting period for the acquisition in February 2015.2

By contrast, in China, the maximum financial penalty for gun-jumping is a fine of RMB500,000 (approx. US$75,277). It is certainly true that in recent years China has increased its focus on enforcing gun-jumping rules. As of the end of 2017, the Ministry of Commerce (MOFCOM) of the Government of China has publicly announced 17 gun-jumping cases. However, the average amount of the fine imposed per penalized company is RMB190,000 (approx. US$29,000). This has led to criticism that the fines are too low to act as a sufficient deterrent to prevent companies from taking calculated risk with regard to jumping the gun.

For large-scale transactions, the financial cost for each day of delaying the closing can easily exceed the average fine for gun-jumping. However, gun-jumping may lead to additional and substantive delay of clearance. MOFCOM can request the parties to suspend the implementation during the gun-jumping investigation, and did so in seven out of the 17 cases. On average, the investigation period takes approximately 230 calendar days. So even if the fine is insignificant, gun-jumping may lead to severe loss considering the possible additional delay of the transaction.

For companies with multi-jurisdictional operations engaging in complex M&A transactions, evaluating the risks posed by gun-jumping rules across jurisdictions can be particularly challenging; not only do the rules frequently lack clarity, but the assessment by the regulators takes place on a case-by-case basis and there are often differences in approach between regimes. However, the competition authorities have recently shown that they are likely to enforce the rules rigorously as a deterrent to others. Given the increased enforcement activity in this area 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.

Read the 2018 Antitrust Annual Report.

Footnotes

1. Subject to annual adjustment based on inflation.

2. The DOJ agreed to adjust the penalty downward from the maximum penalty permitted in part because Duke was willing to resolve the matter by consent decree.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions