The General Court of the European Union upholds the fine imposed on Altice for “gun jumping"

The General Court of the European Union (“EGC”) upheld the fine imposed by the European Commission on Altice for having taken control of PT Portugal before receiving authorization from the competition authority. It is a highly significant decision, since it confirms that the mere possibility of exercising decisive influence over a company may give rise to a “gun jumping” infringement.

Background

As we explained in this post, on December 9, 2014, Altice entered into a share purchase agreement (SPA) to take sole control of PT Portugal. As such acquisition had to be authorized by the European Commission, the SPA contained a number of rules regarding PT’s management between the date of signing the SPA and the closing of the transaction once approved by the Commission. Altice notified the transaction to the European Commission in February 2015 and two months later the transaction was authorized subject to certain conditions.

However, in March 2016, after learning of certain information through the press, the European Commission decided to open an investigation to determine whether Altice would have had the possibility to exercise decisive influence over PT Portugal—i.e., whether it would have taken control of that operator prior to the authorization.

The Commission found that certain provisions of the SPA enabled Altice to exercise decisive influence over PT Portugal before the authorization was obtained and even before it was notified. In particular, some of the clauses included in the SPA gave Altice a right to veto the signing or modification of relevant contracts, the appointment of PT Portugal’s officers and directors, its pricing policy and commercial conditions with customers.The Commission also concluded that sensitive information relating to PT Portugal had been exchanged since the date of signing the SPA.

As a consequence, in April 2018, the European Commission imposed a €124.5 million fine on Altice (equivalent to 0.5% of its turnover for 2017). The fine consisted of (i) €62.5 million for breaching the obligation to notify the transaction prior to its implementation (“notification obligation”) under article 4(1) of Regulation No. 139/2004 on the control of concentrations (“Merger Regulation”); and (ii) €62.5 million for breaching the obligation not to implement the concentration prior to its notification and clearance by the Commission (“standstill obligation”) under article 7(1) of the Merger Regulation.

ECG’s Judgment

Altice brought an appeal before the ECG arguing that it had not exercised control over PT Portugal before obtaining the European Commission’s authorization, that the fine infringed the ne bis in idem principle, and that it was excessively high.

Decisive influence

In response to the first allegation, the ECG considered that Altice’s veto right over the signing or modification of relevant contracts and the appointment of PT Portugal’s officers and directors enabled it to exercise decisive influence on the company’s commercial policy. Moreover, the scope of such veto right was extremely broad, which limited PT Portugal’s ability to conduct its business independently. Therefore, the ECG concluded that Altice had been able to exercise (and had actually exercised on several occasions) decisive influence over PT Portugal since the date of signing the SPA (i.e., prior to notification of the transaction).

On the other hand, the ECG acknowledges that the exchange of commercial information between a potential buyer and a seller can be generally justified, but only if the nature and purpose of this exchange is directly related to the potential buyer’s need to assess the actual value of the company. According to the ECG, the exchanges of information between Altice and PT Portugal continued even after the signing of the SPA and concerned highly commercially sensitive information.

Ne bis in idem

Altice argued that the European Commission had infringed the principle of ne bis in idem by imposing two penalties for the same conduct: breach of the obligation to notify the concentration prior to its implementation (article 4(1) of the Merger Regulation) and breach of the obligation not to implement the concentration prior to its notification and clearance (article 7(1) of the Merger Regulation).

According to the EGC, those two provisions pursue autonomous objectives by laying down both a positive obligation to act (to notify an acquisition before it is implemented) and an obligation not to act (not to implement the acquisition before the Commission authorizes it). Therefore, the EGC concluded that both obligations are not redundant and do not violate the ne bis idem principle.

Amount of the penalty

The ECG partially upheld Altice’s third argument and reduced the fine by 10%, considering that Altice had informed the European Commission in good faith of the planned acquisition two and a half months before the signing of the SPA and that, immediately after, it had requested the Commission to allocate a case-team to the case.

Conclusions

In this decision, the ECG has clearly reaffirmed its position regarding “gun-jumping” infringements. They are not limited to the acquisition of shares (as in previous cases such as Marine Harvest), but also concern contractual provisions conferring de facto decisive influence in the interim period.

Therefore, companies should exercise extreme caution when drafting these agreements governing the period between signing and closing a transaction. In particular, they should avoid any restrictions on the target company’s management, especially when it comes to its ordinary course of business. Also, oversight should not exceed what is strictly necessary to preserve the value of the target company.

The judgment of the ECG is available here.