On 6 July 2017, the European Commission (the “Commission”) announced that it had sent three separate Statements of Objection to companies alleging breaches of the EU merger control procedural rules.
General Electric (“GE”) and Merck (and Merck’s recently-acquired subsidiary, Sigma-Aldrich) are each alleged to have provided incorrect or misleading information to the Commission in the context of recent merger control notifications. Canon is alleged to have implemented its acquisition of Toshiba Medical Systems Corporation before both notifying the transaction to, and obtaining approval for it from, the Commission.
If found to be true, the penalties for these procedural breaches could run to the millions or billions of euros. The Commission can fine a company up to 1% of its annual group turnover if it provides incorrect or misleading information in an EU merger filing or related submission. It can fine a company up to 10% of its annual group turnover for “gun-jumping” (i.e. implementing a transaction which is required to be notified under the EU merger control rules before Commission clearance is obtained).
This string of new investigations follows the €110 million fine the Commission imposed on Facebook in May 2017 for providing incorrect or misleading information in relation to its 2014 acquisition of Whatsapp (see our previous article "Competition agencies crack down on merger control procedure globally"). It also follows the May 2017 announcement that the Commission had sent Altice a Statement of Objections alleging that the company breached the EU rules against gun-jumping in relation to its acquisition of telecommunications operator PT Portugal. That investigation is ongoing. The largest fines ever imposed by the Commission for gun-jumping are the €20 million penalties imposed on Marine Harvest and Electrabel in 2014 and 2009 respectively.
These recent actions highlight the importance of providing accurate information to competition authorities and avoiding gun-jumping in relation to notifiable transactions.
The Commission received the notification for Merck’s acquisition of Sigma-Aldrich on 21 April 2015 and cleared the deal on 15 June 2015, on condition that the parties divest certain Sigma-Aldrich assets to address concerns in relation to specific laboratory chemicals.
The Commission's preliminary conclusion is that Merck and Sigma-Aldrich failed to provide the Commission with important information about an innovation project with relevance for certain laboratory chemicals at the core of the Commission's analysis.
Had this project been correctly disclosed to the Commission, the Commission states that it would have had to be included in the remedy package. This is because the innovation at stake was closely linked to the divested business and had the potential to substantially increase its sales. By not including it, the viability and competitiveness of the divested business was impaired.
Merck has in the meantime agreed to license the relevant technology to Honeywell - the buyer of the divested business. As a result, Honeywell now has the technology the Commission says it should have received with the divested business. However, this happened with a delay of almost one year and only because the Commission was subsequently made aware of the issue by a third party.
GE notified its planned acquisition of LM Wind to the Commission on 11 January 2017. In its Statement of Objections, the Commission takes the preliminary view that GE failed to provide relevant information concerning its research and development activities and the development of a specific product.
The missing information had consequences not only for the Commission's assessment of GE's acquisition of LM Wind but also for the assessment of Siemens' acquisition of Gamesa. This was a separate transaction in the wind turbine market, which was investigated by the Commission at the same time. The information was necessary to properly assess, in both cases, the future position of GE and the competitive landscape on the markets for wind turbines.
On 2 February 2017, GE withdrew its notification of its proposed acquisition of LM Wind and on 13 February 2017, re-notified the same transaction. This second notification included the information on the future project, which had not been in the original one. This allowed the Commission to have a full picture of the wind turbines market.
The Commission cleared the re-notified GE/LM Wind transaction on 20 March 2017 and the Siemens/Gamesa transaction on 13 March 2017, in both cases without requiring commitments.
The Commission’s Statement of Objections to Canon details its preliminary conclusion that the company breached the EU Merger Regulation by implementing its acquisition of Toshiba Medical Systems before both notifying it to, and obtaining approval for it from, the Commission. The Commission received the notification for the transaction on 12 August 2016 and cleared it on 19 September 2016.
The Commission's preliminary view is that Canon used a so-called "warehousing" two-step transaction structure involving an interim buyer, which essentially allowed it to acquire Toshiba Medical Systems prior to obtaining the relevant merger approvals.
As a first step, the interim buyer acquired 95% in the share capital of Toshiba Medical Systems for €800, whereas Canon paid €5.28 billion for both the remaining 5% and share options over the interim buyer's stake. This first step was carried out prior to notification to or approval by the Commission. As a second step, following approval of the merger by the Commission, the share options were exercised by Canon, acquiring 100% of the shares of Toshiba Medical Systems.
Conclusion – extra care required
The investigations into Merck and GE, along with the significant fine imposed on Facebook earlier this year, suggest a concerted drive by the Commission to crack down in particular on companies which provide inaccurate information to the Commission in a merger control context. Prior to the Facebook fine, the Commission had not sanctioned a company for this form of procedural breach since the current merger control rules came into force in 2004.
Margrethe Vestager, the EU’s Competition Commissioner, told The Wall Street Journal in March of this year that her department is reviewing a handful of recent merger clearances on suspicion that the merging parties misled investigators in securing approval. Further announcements may therefore be in the pipeline, and companies should be aware of a heightened risk environment, both when notifying deals to the Commission and to other regulators who may follow its lead.