The Court of Justice of the EU has ruled that Ernst & Young (“EY”) did not jump the gun in the takeover of KPMG’s Danish unit.
In its May 31 ruling, the Court of Justice reaffirmed an earlier Opinion by Advocate General Nils Wahl, which could impact how “gun jumping” is interpreted in EU merger agreements.
KPMG Denmark was member of the international KPMG network. After signing a merger agreement with EY, KPMG Denmark terminated its cooperation agreement with KPMG International with formal cooperation to end within ten months.
According to the Danish competition authority (the “Competition Council”), this action infringed the EU’s “merger standstill obligation” because KPMG Denmark’s termination of cooperation with KPMG International agreement was merger-specific, the decision was irreversible, and had the potential to have market effects.
EY appealed the Competition Council’s decision before the Commercial court, which, in turn, referred the matter to the ECJ for a preliminary ruling.
Advocate General Wahl did not concur with the Competition Council’s finding, and in a 18 January 2018 opinion, also voiced criticism of the European Commission’s recent focus on gun jumping.
The Advocate General found that the standstill obligation “does not affect measures which, although taken in connection with the process leading to a concentration, precede and are severable from the measures actually leading to the acquisition of the possibility of exercising decisive influence on a target undertaking.” (Opinion of advocate general Wahl in case C-633/16, paragraph 78.)
Wahl argued that even if the merger and the termination of the KPMG cooperation agreement are interrelated, the termination did not contribute to a shift in control between the merging entities. They remained competitors.
By siding with the Advocate General, the Court of Justice found that “[t]he termination of a cooperation agreement, in circumstances such as those in the main proceedings, which it is for the referring court to determine, may not be regarded as bringing about the implementation of a concentration, irrespective of whether that termination has produced market effects” (Judgment of the ECJ in case C-633/16, paragraph 62).
Interest in gun jumping comes in the wake of several high profile cases in European and national case law. In 2016, the French competition authority fined Altice €80 million for involvement in strategic decisions in the business of the merger target SRF. Earlier this year, the European Commission fined Altice €125 million for implementing the PT Portugal takeover before clearance. Several cases are ongoing before the European Commission.
In light of the recent focus on these issues, this judgment may set clearer boundaries between illegal gun jumping, and the legitimate planning and preparation of mergers.
See the opinion here and the judgment here.
Kim Gillade, Associate, Brussels, kim.gillade@cms-db.com
Annabelle Lepièce, Partner, Brussels, annabelle.lepiece@cms-db.com
