On 12 December 2012, the General Court of the European Union handed down a judgment dismissing an appeal by electricity company Electrabel against a European Commission decision to fine it for acquiring control of Compagnie Nationale du Rhone (CNR) without having received prior approval under the Merger Regulation.
In December 2003, Electrabel acquired all shares in CNR that were previously held by EDF. This made Electrabel CNR's largest shareholder, holding nearly 50% of CNR's shares. Electrabel implemented this transaction without notifying it to the Commission under the Merger Regulation, presumably because Electrabel considered that its minority shareholding was insufficient to confer "control" within the meaning of the Merger Regulation.
In August 2007, Electrabel entered into consultations with the Commission on whether the 2003 acquisition had in fact conferred control over CNR to Electrabel. These consultations resulted in Electrabel formally notifying the acquisition of CNR in March 2008, more than four years after the shares had been acquired.
On 29 April 2008, the Commission unconditionally cleared the transaction, noting that there was only a limited overlap between the parties and that there were strong competitors in each affected market. The Commission subsequently conducted a further investigation, which resulted in a decision imposing an unprecedented € 20 million fine for gun-jumping on Electrabel.
In this decision, the Commission held that Electrabel had acquired de facto control over CNR already in December 2003, citing several reasons (see also VBB on Competition Law, Volume 2009, No. 6, available at www.vbb.com). First, with nearly 50% of shares, Electrabel became CNR's largest shareholder by far. Second, because the remaining shares were widely dispersed and past attendance rates at CNR's shareholders' meetings were low, Electrabel's shareholding gave it a stable majority at these meetings. And third, Electrabel was the sole industrial shareholder of CNR and had taken over the role previously held by EDF in the operational management of the power plants and the marketing of electricity of CNR following commitments given by EDF to obtain clearance of its merger with EnBW in 2001. According to the Commission, this reinforced Electrabel's de facto control over CNR. The Commission therefore concluded that Electrabel had infringed the standstill requirement under the Merger Regulation by implementing the acquisition without having obtained prior Commission approval.
Electrabel subsequently lodged an appeal against this decision before the General Court, which resulted in the judgment of 12 December 2012. In this judgment, the General Court essentially considered that the Commission's finding that Electrabel had acquired de facto control as of December 2003 was correct. According to the Court, a minority shareholder may be considered to hold de facto control of a company within the meaning of the EU merger rules if it is virtually certain of obtaining a majority at future shareholder meetings because the remaining shareholders are widely dispersed. The General Court also held that early implementation of a concentration, in violation of EU law, is liable to bring about significant changes in the competitive structure of the market and is therefore not a mere procedural infringement. The fact that Electrabel's acquisition of control was ultimately found not to raise any competition issues was not a decisive factor for determining the gravity of the infringement, nor was the fact that the infringement was committed through negligence considered sufficient to give rise to a reduction of fine.
The € 20 million fine imposed on Electrabel for gun-jumping is noteworthy, especially considering the Commission's remark in its 2008 decision that the fine would have been considerably higher if the acquisition had raised substantive issues. In previous cases, fines for breach of the standstill requirement were only a fraction of the € 20 million fine imposed on Electrabel. For example, in 1998, the Commission fined Samsung € 33,000 for late notification of a merger and, in 1999, it fined AP Møller € 219,000 for three separate failures to notify a merger. Commission fines for gun-jumping remain rare.
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