On March 4, 2020, the Court of Justice dismissed Mowi ASA (formerly Marine Harvest ASA)’s appeal against two fines for having acquired control over salmon producer Morpol prior to the European Commission’s (the “Commission”) merger control approval.[1] The judgment clarifies the scope of Article 7(2) of the EU Merger Regulation (the “EUMR”), which allows an acquisition of control to be notified after the fact, if it takes place in the context of a public bid. The judgment explains that the exemption does not apply if the public bid follows an initial, separate, transaction which already gave rise to an acquisition of control. The judgment also confirms that the Commission is allowed to impose two separate fines when a transaction is implemented before the merger notification. This article updates our analysis of the General Court judgment as reported in our European Competition Report of Q 4, 2017.

Factual background

In December 2012, Marine Harvest acquired and paid for 48.5% of Morpol’s shares from two legal entities controlled by Morpol’s founder. As Morpol was listed on the Oslo Stock Exchange, this acquisition triggered a requirement to launch a public tender offer,[2] after which Marine Harvest acquired a further 38.6% of the company in March 2013. In November 2013, Marine Harvest purchased the remaining shares and Morpol was de-listed. The transaction was notified to the Commission in August 2013, and was conditionally cleared the following month.

The Commission found that Marine Harvest had acquired control over Morpol with the first purchase of 48.5% of the shares, since this allowed it to obtain a clear majority at shareholders’ meetings based on historic attendance rates. The Commission issued two EUR 10 million fines against Marine Harvest for violating: (i) Article 4(1) of the EUMR, which requires a concentration to be notified before it is implemented, and (ii) Article 7(1) of the EUMR, which prohibits a concentration from being implemented before it has received Commission approval.[3]

On appeal, the General Court agreed with the Commission and upheld the decision.[4] Marine Harvest appealed to the Court of Justice and challenged both of the grounds considered in the General Court’s judgment.

Public bid exception does not apply if there was already an acquisition of control

Concentrations cannot be implemented until the Commission has given its approval or the administrative deadlines have expired. This mandatory obligation enables the Commission to maintain effective control, since mergers can be difficult to unwind and can impact competition before they are reversed.

Article 7(2) of the EUMR provides a narrow exception to this rule for public bids or securities. It is intended to cover acquisitions involving multiple sellers, where it can be challenging to determine which individual share or block of shares will put the acquirer in a position of control over the target company. In this respect, Article 7(2) seeks to provide legal certainty, by exempting such multistage transactions from the obligation to notify before the conclusion of the entire transaction (and is subject to a standstill obligation not to vote the shares until clearance).

In Mowi, the Court of Justice emphasized that the Article 7(2) exception must be interpreted narrowly, and could not be used to cover any earlier transaction that had already given rise to a change of control. Only transactions which are “necessary to achieve a change of control” will be viewed as part of a single concentration that could qualify for exemption under Article 7(2).

In this case, Marine Harvest did not notify its initial acquisition of 48.5% of the shares in December 2012 and only notified the transaction after the public bid was completed in March 2013. Marine Harvest claimed that the December 2012 acquisition did not constitute a separate transaction but was the triggering event of the public bid, and as an integral part of the creeping and public takeover of Morpol, fell within the exception of Article 7(2) of the EUMR.

The Court of Justice rejected Marine Harvest’s arguments that there was a single concentration. The subsequent public bid had “no direct functional link” with the private acquisition of shares in December 2012. Since this initial acquisition conferred control over Morpol, this triggered the notification requirement. The fact that the transaction was followed by a mandatory public bid, and that Marine Harvest had not exercised its voting rights in accordance with Article 7(2), was irrelevant.

Gun-jumping can result in two separate violations and two fines

Mowi argued that the Commission was wrong to impose two separate fines: the first for failure to file and the second for failure to wait for approval, for the same unlawful act—its failure to notify the December 2012 acquisition of control. Mowi claimed that this conflicted with several principles of EU law, including: (i) ne bis in idem, that nobody should be punished twice for the same conduct, (ii) the set-off principle, that the first penalty must be taken into account when determining the second penalty, and (iii) ‘concurrent offences,’ that a company should not be penalized for committing two offences which have the same objective (in criminal law, for example, an offender committing both theft and burglary will only be sanctioned once since theft is part of the definition of burglary).

The Court of Justice clarified that Article 4(1) and Article 7(1) of the EUMR establish two distinct obligations which pursue different objectives. Article 4(1) obliges an undertaking to notify a concentration prior to implementation (a ‘notification obligation’), whereas Article 7(1) prohibits an undertaking from implementing a transaction before it has been approved (a ‘standstill obligation’). A company can infringe Article 7(1) without infringing Article 4(1), by notifying the transaction at the appropriate time, but then proceeding to implement it before the Commission has issued its decision.[5]

The Commission must be able to impose penalties that distinguish between these situations, as is also reflected in Article 14(2) of the EUMR on fines. Thus, the Court of Justice held that, even assuming the principle of concurrent offences applied, there was no infringement that is “primarily applicable”[6] and should “subsume”[7] the other. In reaching this conclusion, the Court of Justice disagreed with Advocate General Tanchev’s opinion. The Advocate General took the view that Article 4(1) and Article 7(1) define the same offence, and in any event that Article 7(1) subsumes the former since any damage to competition arises from the early implementation of a transaction, rather than the failure to notify.

As regards ne bis in idem, the Court of Justice held that the principle did not apply in this case, because it protects an entity from being held liable in fresh proceedings, whereas Mowi had received the two fines in the same decision.[8] As to the set-off principle, the Court of Justice found that Mowi had failed to demonstrate that the Commission had not adequately taken the first fine into account when setting the second.

The Court of Justice confirms the Commission’s strict approach to gun-jumping

This judgment is significant and will have implications for other gun-jumping cases currently before the General Court (Altice[9] and Canon/Toshiba[10]). It confirms the Commission’s competence to impose two fines for a failure to notify prior to implementation, which is also a subject of challenge in the two pending appeals.

The Mowi judgment illustrates that companies should exercise caution before seeking to rely on the Article 7(2) exemption. When planning a transaction, companies should map out the trajectory of the deal and assess if the various steps are truly connected or if there could be a distinct stage that is capable of conferring control. A company may even consider providing the Commission with advance notice of its intentions, before seeking to launch and complete a multistage acquisition of securities.

[1]      Mowi v. Commission (Case C-10/18 P) EU:C:2020:149 (“Mowi”).

[2]      Under the Norwegian Securities Trading Act, a person who acquires more than one third of the shares in a listed company must make a mandatory bid for the remaining shares in the company.

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

[4]      Marine Harvest v. Commission (Case T-704/14) EU:T:2017:753.

[5]      At the same time, the Court of Justice acknowledged that an infringement of Article 4(1) automatically results in an infringement of Article 7(1).

[6]      Mowi, para. 118.

[7]      Mowi, para. 112.

[8]      This conclusion follows the recent ruling in Powszechny Zakład Ubezpieczeń na Życie (Case C-617/17) EU:C:2019:283, paras. 28 and 29, where the Court of Justice held that ne bis in idem principle does not apply to two fines imposed in a single decision.

[9]      Altice v. Commission (Case T-425/18), decision pending.

[10]    Canon v. Commission (Case T-609/19), decision pending.