The concept of gun-jumping is not defined in EU competition Law. It refers to two related infringements of the EUMR: (i) the obligation to notify to the European Commission concentrations having an EU dimension prior to their implementation (Article 4(1)); and (ii) the obligation not to implement such concentrations until they have been approved (Article 7(1)); the Commission has granted a derogation from the standstill obligation (Article 7(3)); or the prescribed time limits have expired, and no decision has been issued (Article 10(6)).
While most jurisdictions have adopted mandatory pre-notification and standstill obligations, some have mandatory pre-merger notification but no standstill obligations (Italy, Latvia) and others have systems of purely voluntary notification (UK, Australia and New Zealand). In these jurisdictions, no sanctions for closing can apply, unless the authorities have previously issued a hold-separate interim order.
Gun-jumping has become a hot topic in the EU, as the Commission has adopted an increasingly stringent and formalistic interpretation of the EUMR, and fines that were not imposed in early cases and then were initially relatively low (€33,000 in Samsung/AST (1998) and €229,000 in A.P. Møller (1999), skyrocketed to €20 million in Electrabel (2009) and Marine Harvest (2014); €28 million in Canon (2019) and €124.5 million in Altice (2018). NCAs normally impose substantially lower fines, although the French Competition Authority slapped Altice with an €80 million fine (2016), and the Slovenian authority fined Agrokor with €54 million (2019).
Procedural gun-jumping may occur primarily in three scenarios. First, it may result from an erroneous application of the notification thresholds. The risk of such infringements is greater in jurisdictions that use thresholds requiring subjective evaluation by the merging firms, as is the case in Spain with the market share threshold. But it may also occur with more objective thresholds such as turnover, as in A.P. Møller (1999). Second, when there are disputes on whether there is a “concentration”. Such disputes can occur as most jurisdictions, instead of defining mergers based on objective facts such as requiring a minimum stockholding, apply a definition leaving ample room for interpretation: the “change of control on a lasting basis” (Article 3(1) EUMR) which occurs when an undertaking can influence strategic decisions of another undertaking. The risk of gun-jumping has significantly increased as competition authorities have interpreted that change of control may occur on a purely de facto basis and that it does not require the acquirer to exercise such control; the mere “possibility” of exercising decisive influence suffices (Electrabel; Marine Harvest; Marine Harvest, T-704/14, para. 58). Thirdly, lack of notification may be intentional, to avoid delaying the implementation of the merger, as could have occurred in Canon (2019), where the parties agreed to a “warehousing” two-step transaction structure to ensure that the seller could secure full consideration for its subsidiary by a certain date, while Canon would not formally acquire it before obtaining clearance. The Commission, however, concluded the merger occurred already with the first step. The parties may also want to avoid competition scrutiny; a risky strategy as, even though the infringement for not notifying is instantaneous and has a three-year limitation period, the standstill obligations is continuous and lasts until the transaction is cleared (Marine Harvest, T-704/14, paras. 304 and 355) or control is abandoned (Electrabel T-332/09, para. 212). For instance, even though its infringement for not notifying was time barred, Electrabel was nevertheless fined €20 million for breaching its standstill obligation.
Substantive gun-jumping can occur as the scope of the standstill obligation remains nebulous. There is no legal definition of “implementation” and the Court had never addressed this question until its EY ruling. The Court concluded that Article 7 only prohibits transactions “which, in whole or in part, in fact or in law, contribute[s] to the change in control of the target undertaking”, whereas transactions that do not present “a direct functional link” with the implementation of a concentration, even if they are ancillary or preparatory to the merger, do not fall within the scope of that provision (paras. 49 and 59). The Court added that having effects on the market is in itself insufficient to apply Article 7, but measures having no effect might nevertheless contribute to the change in control (paras. 50-51). Finally, the Court rejected the Commission’s view that Article 7 and Article 101 TFEU apply in parallel; the former should not apply to measures that give rise to coordination between undertakings if they do not contribute to the implementation of a concentration, as it would unduly extend the scope of Article 7 and reduce that of Regulation 1/2003 and Article 101 TFEU.
The risk of incurring fines in substantive gun-jumping has significantly increased following the Commission’s Altice decision. This decision has created great turmoil amongst practitioners, as practices that so far were common in M&A, such as including pre-closing covenants in the SPAs requiring the seller to obtain the buyer’s consent on certain transactions, and post-merger implementation planning discussions and information exchange, were deemed contrary to Article 7. The appeal that is pending should clarify how to distinguish practices ancillary or preparatory to the concentration form its implementation.
The eye-watering fines totalling €124.5 million imposed on Altice also highlight a singularity in the Commission’s gun-jumping fining policy, which is reflected in the table of decisions attached hereunder: except in Electrabel, where the infringement of Article 4 was time-barred, the Commission imposes in each case not one but two fines, in most cases identical, for one and the same infringement: implementing the concentration before it has been notified and cleared. Since the current EUMR removed the obligation to notify within a specific deadline, any infringement of Article 4 automatically results in an infringement of Article 7. In Marine Harvest, the AG concluded that the latter infringement subsumes the former and proposed to annul the Article 4 fine. The CJEU however confirmed both fines based on a formalistic interpretation of the principle of ne bis in idem and arguing that the obligation to notify is positive, whereas the standstill obligation is negative. The appellant had not raised the validity of Article 4 EUMR in those proceedings. The legality of such “unusual” legal framework (Marine Harvest T-704/14, p. 306) will again be examined by the General Court in the pending appeal against the Altice Decision. It will have to rule on an objection of illegality and on the proportionality of two fines that are identical notwithstanding the duration of the alleged infringements being radically different: the infringement of Article 4 is instantaneous and lasts the day the transaction is closed, whereas the infringement of Article 7 is continuous and lasts until the concentration is cleared.
In the US, Section 7A of the Hart-Scott-Rodino Act (HSR Act) requires parties to mergers exceeding certain thresholds to notify the FTC and the DOJ before closing. The acquirer must not exercise "substantial operational control" over the target prior to the expiration of the waiting period, which is typically 30 days but can be extended if the agencies issue a “Second Request”.
Gun-jumping infringements can be brought under both Section 7A HSR and Section 1 of the Sherman Act, and may result in civil fines, injunctive relief, and disgorgement of illegally obtained profits. Cases are often settled.