On 12 February 2019, the UK Competition and Markets Authority (CMA) imposed a fine of £200,000 on Electro Rent for gun-jumping. This is the third occasion on which the CMA has penalised a company for breaching “standstill” or “hold-separate” obligations under the UK merger rules, and comes only one day after the Competition Appeal Tribunal (CAT) upheld the CMA’s first gun-jumping fine (imposed on Electro Rent in June 2018 for a separate infringement). The CMA has shown increased readiness to penalise companies for breaching procedural rules, in particular in relation to merger proceedings, consistent with recent action by the European Commission (EC) and national agencies in the EU. The CAT’s judgment strongly endorses the CMA’s approach: “[i]t is a matter of public importance that the merger control process, and the duties it creates, are strictly and conscientiously, observed.”
Gun-Jumping Under Mandatory vs. Voluntary Merger Control Regimes
Gun-jumping refers to the situation where merging parties close, or take preparatory steps to close, a transaction prior to having secured clearance from the relevant competition authorities (the type of conduct that would be caught varies by jurisdiction). Mandatory merger control regimes impose this so-called “standstill” obligation automatically (e.g., Article 7(1) of the EU Merger Regulation). Under voluntary merger regimes, as in the UK, parties are allowed to close a transaction without receiving
clearance unless the authority imposes an order preventing completion. In addition, under some regimes, including the UK, the authority retains the right to “call in” non-notified transactions for review, even after closing, and may prevent the parties from taking further steps to integrate the businesses (i.e., hold them separate) pending the completion of its investigation. In exceptional circumstances, an authority may even require the parties to unwind a transaction in whole or in part: the CMA recently did so in its review of the completed acquisition by Tobii of Smartbox (discussed in “Merger Developments” below).
Breaching a standstill or hold-separate obligation can lead to separate infringement proceedings and significant fines. Under the EU Merger Regulation, for example, the maximum fine is 10% of the aggregate turnover of the undertaking concerned. Fines are typically significantly lower in practice, though the most recent enforcement action in this area indicates an increased willingness to pursue such infringements and impose significant penalties. For example, in April 2018, the EC fined Altice €124.5 million for implementing its acquisition of PT Portugal before notification or approval. The EC is currently investigating Canon for implementing its acquisition of Toshiba Medical Systems before notification or approval through the use of a two-stage “warehousing” transaction structure.
CMA Practice on Imposing Standstill Obligations
In the UK, the CMA has the power to prevent merging parties from taking any action that might prejudice the outcome of its merger investigation or its ability to impose remedies. This can include steps taken to integrate the relevant businesses and the exchange of commercially sensitive information. The CMA generally exercises this power by imposing an initial enforcement order (IEO) on parties to completed mergers, which will remain in force until the merger is cleared or remedial action is taken (unless varied, revoked, or replaced). If the transaction is referred for an in-depth Phase 2 review, the CMA may replace the IEO with an interim order. If the CMA considers that a party has not complied with an order without reasonable excuse, it may impose a fine of up to 5% of that party’s worldwide turnover.
The CMA has explained that it would “normally expect” to impose IEOs in relation to completed mergers, but would “only exceptionally” do so in relation to anticipated mergers, where the risk of pre-emptive action is much lower. This has been borne out by CMA practice to date: as illustrated in the table below, the CMA has imposed IEOs in relation to anticipated mergers on only three occasions since 2015.
|Phase 1 Decisions||62||57||62|
IEOs in completed
|IEOs in anticipated mergers||1||0||2|
Enforcement of the UK Gun-Jumping Prohibition
The CMA imposed its first gun-jumping penalty on 11 June 2018, fining Electro Rent £100,000 for failing to comply with an interim order by issuing notice to exercise a break option terminating the lease for its premises in the UK. The CAT upheld this fine on 11 February 2019, in a judgment which strongly endorsed strict enforcement of the CMA’s procedural rules. The following day, the CMA fined Electro Rent £200,000 for a separate breach of the same interim order.
The CMA imposed the interim order in the context of its Phase 2 review of Electro Rent’s January 2017 acquisition of Microlease (Transaction), which had not been notified proactively to the CMA. Among other things, the interim order prevented Electro Rent from taking any action that might lead to the integration of the businesses, transfer ownership or control of the businesses, or impair the ability of either of the businesses to compete independently in the affected markets.
On 5 February 2018, the CMA provisionally found that the Transaction had resulted, or may be expected to result, in a substantial lessening of competition in the market for the supply of testing and measurement equipment for electronic devices in the UK. On the same day, the CMA issued a Notice of Possible Remedies which included as a potential remedy the divestment of Electro Rent’s UK branch, including the “ freehold site, or (if leasehold) rights to the lease.” Subsequent Electro Rent submissions and CMA working papers continued to envisage “the transfer of Electro Rent’s lease over its registered place of business in the UK” as an important part of the remedy package. Following this, and before the conclusion of the CMA’s review, Electro Rent served notice to terminate the lease of its UK premises, without notifying or seeking prior consent from the CMA. The CMA concluded that this was a breach of the interim order as it potentially impeded Electro Rent’s ability to compete independently by depriving it of premises from which to operate in the UK.
Electro Rent appealed to the CAT, claiming that it had a reasonable excuse for breaching the interim order because it had consulted with the monitoring trustee before terminating the lease. The CAT rejected this, noting that “[i]n view of the importance of adherence to the Interim Order,” no reasonable person would have terminated the lease without first having consulted the CMA. The CAT also rejected Electro Rent’s argument that terminating the lease promoted the commercial interests of the UK business and therefore might have facilitated divestment, on the basis that this was not Electro Rent’s decision to make. In doing so, the CAT emphasised that “[i]t is a matter of public importance that the merger control process, and the duties that it creates, are strictly, and conscientiously, observed.”
Perhaps empowered by the CAT’s judgment, on the following day, the CMA fined Electro Rent £200,000 for a separate breach of the same interim order, based on the fact that Electro Rent had failed to seek the CMA’s consent before appointing the CFO of Electro Rent as a director of Microlease. The CMA concluded that this appointment “carried a material risk for potential integration and exchange of confidential information” and “it was therefore foreseeable that the consent of the CMA would be required” before such a step were taken. This time, Electro Rent did not argue that it had a reasonable excuse for doing so.
The CMA has imposed one other gun-jumping fine in 2019: on 10 January, Ausurus was fined £300,000 for breaching an IEO by failing “to take adequate steps to procure that the [target’s] business was carried on separately.” Among other things, Ausurus received payments from the target’s customers and made payments to the target’s suppliers, which according to the CMA “clearly constituted a step towards integration” and “prejudiced the ability of the [target] business to compete independently.”
These fines are consistent with the stricter approach the CMA has recently taken to enforcing its procedural rules in both merger and antitrust cases. For example, on 28 February 2019, the CMA issued its first unwinding order, requiring the parties to a completed merger—Tobii and Smartbox—to unwind agreements they had entered on completion for Smartbox to sell Tobii products in the UK, and to discontinue certain of its own products. In the last three years, the CMA has also issued two fines for failure to provide information. First, the CMA fined Pfizer £10,000 in April 2016 for failing to provide evidence to support statements it had made at oral hearing during the CMA’s investigation into excessive pricing of anti-epilepsy drugs. The CMA then fined Hungryhouse £20,000 in November 2017 for failing to provide internal emails and strategic documents in response to a request from the CMA during the investigation of Just Eat’s acquisition of Hungryhouse. 
Implications for Future UK Mergers
The CMA’s decisions serve as an important reminder that the standstill obligation can apply to mergers over which the CMA has jurisdiction, despite the voluntary and non-suspensory nature of the UK regime. The CMA will continue to closely scrutinize compliance with its procedural rules, given the “public importance of a clear and enforced merger control process.” The decisions also suggest that the threshold for breach in the UK may be lower than in the EU. In May 2018, the European Court of Justice held that steps taken by merging parties to implement or close a transaction prior to receiving clearance will only amount to gun-jumping under the EU Merger Regulation if they can be viewed as “contributing to a lasting change of control of the target undertaking.” Neither the termination of Electro Rent’s lease, nor the appointment of Electro Rent’s CFO as a director of Microlease, would appear to meet this standard. In addition, the willingness of the CMA and the CAT to penalise Electro Rent for steps taken in relation to its own business rather than the target’s suggests that the scope of the standstill obligation in the UK is wider than in the EU, where it only applies to the target’s activities.
 Electro Rent Corporation v CMA, para. 206.
 Article 14(2)(a) EU Merger Regulation.
 Commission Press Release IP/18/3522, available here. The French Competition Authority fined Altice €80 million in November 2016 for similar conduct: see Decision no 16-D-24 of 8 November 2016, available here.
 Electro Rent v CMA  CAT 4, para. 200.
 Judgment of 21 May 2018, Ernst & Young, C-633/16, ECLI:EU:C:2018:371, para. 49.