On June 27, 2019, the Commission imposed two fines totaling €28 million on Canon in the context of its acquisition of Toshiba Medical Systems Corporation (“TMSC”). The first fine of €14 million was levied for Canon’s failure to notify the Commission prior to the implementation of the transaction in violation of Article 4(1) of the EU Merger Regulation (“EUMR”). The second fine of €14 million, was imposed as a result of Canon implementing the transaction prior to obtaining clearance, breaching Article 7(1) EUMR.

Canon’s acquisition of TMSC

In 2016, Canon acquired TMSC through a so-called “warehousing” two-step transaction:

  • Step 1—Before notification of its proposed transaction to the Commission, Canon paid €5.28 billion for 5% of the share capital of TMSC, with non-controlling voting rights and an option to acquire all of TMSC’s This option was exercisable only upon receipt of antitrust clearance. At the same time, an interim buyer paid €800 for the remaining 95% of TMSC’s share capital, including their voting rights;
  • Step 2—Following antitrust approvals, Canon exercised its option rights and acquired 100% of

Canon notified the Commission of the transaction between the two steps, and the Commission cleared the transaction on September 19, 2016. Subsequently, the Commission issued a statement of objections and a supplementary statement of objections taking issue with Canon having completed the first step of the transaction prior to notification and clearance. In the Commission’s view, Canon only notified the transaction after it had already partially implemented it through the earlier, preliminary step. Because the Commission took the view that both steps together qualified as a single, notifiable transaction, by completing the first step prior to notification and clearance, Canon had failed to respect both the corresponding requirements of the EUMR.[1]

Canon’s deal structure has triggered similar concerns from other antitrust authorities, including in China, where Canon was fined for gun-jumping, and in the U.S., where Canon agreed to pay $5 million for failure to observe the required waiting period.

Previous cases

Although this is the first fine imposed by the Commission for gun-jumping involving a warehousing structure, it is not the first case to highlight the Commission’s attentiveness to breaches of the notification and standstill obligations:

  • Marine Harvest acquired a 48.5% stake in Morpol’s share capital from a single buyer, and later increased its shareholding to 1% through a public bid. The transaction was notified to the Commission prior to conclusion of the public bid, but after the acquisition of the initial stake. The Commission found that the first step was sufficient in itself to grant control and therefore triggered the notification obligation. The Commission fined Marine Harvest €20 million in 2014.[2]
  • In 2018, the Commission fined Altice €124.5 million for implementing the acquisition of PT Portugal before obtaining approval under the [3] The Commission found that, while a buyer may intervene in the management of a target prior to closing to preserve the target’s value, Altice’s involvement in PT Portugal went beyond that, as Altice had control over decisions occurring in the “ordinary course of business.”[4]

The Court of Justice recently clarified some elements of the standstill obligation in the Ernst & Young case.[5] KPMG Denmark publicly announced that it was withdrawing from the KPMG International network due to its acquisition by Ernst & Young. The Danish Competition Authority viewed this announcement as gun- jumping. Ernst & Young appealed and the Danish court referred the case to the Court of Justice. The Court clarified that the standstill obligation only covers transactions which “in whole or in part, in fact or in law, contribute to the change in control of the target,” and it should not apply to measures that “precede and are severable from the measures leading to the control of the target undertaking.”[6]

Practical considerations

A critical question is whether a given transaction “contributes” to a change in control or whether it is a preceding, severable measure or transaction. This is not always a straightforward determination to make. In Canon it was worth €28 million.

Prior practice suggests that the Commission will generally look for whether there is a degree of conditionality between the transactions. This conditionality may be legal, where one transaction is contractually triggered by the other, or it may be factual, where one transaction is linked to the other by a common purpose.

Facts that militate in favor of considering a series of transactions as a single concentration include the timing between the transactions, the objectives pursued by each transaction, and their interdependence from the perspective of the acquirer. As always, internal documents matter. These can evidence that transactions, even though separate in time, are part of an overall strategy to gain control over a target.

The Commission’s broad interpretation of the EUMR’s notification and standstill obligations can therefore have a real impact on how to structure transactions.[7] Under certain circumstances, however, derogations are possible:

  • In Ryanair/LaudaMotion, the Commission granted two derogations from the suspensive period. The first was granted because without it LaudaMotion would have been forced to reduce its scheduled flights and forego access to airport slots, jeopardizing its ability to operate independently. The second, later derogation allowed Ryanair to lease further aircrafts to LaudaMotion and provide operational [8]
  • In Orkla/Elkem, the Commission granted a derogation from the suspensive period in order to respond to a risk of share price The Commission allowed Orkla, which already held approximately 40% of Elkem’s shares, to purchase Elkem’s outstanding shares, which would have granted it control over the whole company. Compliance with the suspensory obligation would have created a risk for the share price to artificially increase in view of limited free float.[9]

Derogations are therefore more likely to be granted when there is evidence that the suspension creates financial difficulties and where competition concerns around the concentration appear limited.

[1]      The Commission’s Jurisdictional Notice explains that, in two-step transactions involving an interim buyer, the first step may trigger the EUMR requirements even if it does not confer control rights to the ultimate buyer during the interim period. See Consolidated Jurisdictional Notice under Council Regulation (EC) No. 139/2004 on the control of concentrations between undertakings (2008/C95/01), para. 35.

[2]      Marine Harvest (Case COMP/M.7184), Commission decision of July 23, 2014.

[3]      Altice/PT Portugal (Case COMP/M.7993), Commission decision of April 24, 2018.

[4]      In both Marine Harvest and Altice, the Commission imposed two equal fines for violating both the notification requirement and standstill obligation. The two companies raised the principle of ne bis in idem in their respective appeals before the Court of Justice. See Marine Harvest v. Commission (Case C-10/18 P), case pending; and Altice v. Commission (Case T-425/18), case pending.

[5]      Ernst & Young P/S v. Konkurrencerådet (Case C-633/16), EU:C:2018:371.

[6]      Ernst & Young P/S v. Konkurrencerådet (Case C-633/16), EU:C:2018:371 para. 62 and para. 78.

[7]      The standstill approach does not prevent shares being transferred in deals involving public bids, provided that the transaction is notified under the EUMR and the buyer does not exercise the voting rights attached to them (or, if it does, only does so to maintain the full value of the investment based on a derogation granted by the Commission).

[8]      Ryanair/LaudaMotion (Case COMP/M.8869), Commission decision of July 12, 2018.

[9]      Orkla/Elkem (Case COMP/M.3709), Commission decision of March 4, 2005.