On November 9, 2023, the European Court of Justice dismissed, on most grounds, [1] Altice’s appeal against the General Court’s judgment[2] upholding the European Commission’s decision, in 2018,[3] to fine Altice €124.5 million for gun-jumping violations in connection with its acquisition of PT Portugal. The Court of Justice confirmed that Altice breached the EU Merger Regulation’s notification and standstill obligations by acquiring and exercising decisive influence over PT Portugal prior to obtaining Commission approval. The Commission had fined Altice €62.25 million for each of the two infringements. The Court of Justice reduced one of the fines by about €10 million on account of the Commission’s failure to properly state reasons, but the judgment supports the trend toward strict enforcement of EU rules against early implementation of M&A transactions.[4]
Background
Altice is a multinational cable and telecommunications company. On December 9, 2014, Altice entered into a share purchase agreement (“the SPA”) with Brazilian telecommunications operator Oi SA for the acquisition of PT Portugal, a Portuguese telecommunication and multimedia operator. The transaction was notified to the Commission under the EU Merger Regulation, and received approval on April 20, 2015. However, following press reports on contacts that occurred between the companies’ executives before the clearance decision, the Commission launched an investigation on March 11, 2016, resulting in the decision to fine Altice on April 24, 2018.
According to the Commission’s Decision, evidence of Altice’s decisive influence over PT Portugal (prior to clearance, and in some instances prior to notification) was based on three factors. First, the SPA’s pre-closing covenants gave Altice the ability to veto a broad range of PT Portugal’s corporate and commercial decisions, which “went beyond the aim of value preservation of the target.”[5] Second, actions taken following the signing of the SPA, including Altice’s involvement in PT Portugal’s business decisions, showed that Altice actually exercised control over PT Portugal.[6] Third, the “sensitive, granular and up-to-date information” Altice received from PT Portugal “contributed to demonstrating that [it] had exercised decisive influence” because “[Altice] would have only been entitled to [such information] in the capacity of a parent company or controlling shareholder of the Target.”[7] In light of these elements, the Commission fined Altice €62.25 million for implementing the transaction before submitting its notification, and an additional €62.25 million for implementing the transaction before receiving clearance.
On July 5, 2018, Altice brought an action before the General Court seeking to annul the Commission’s Decision. The General Court dismissed the appeal on September 22, 2021.[8] The General Court upheld most of the Commission’s reasoning in relation to Altice’s unlawful exercise of decisive influence over PT Portugal, but ordered a 10% reduction of the €62.25 million fine relating to the breach of the obligation to notify the transaction to the Commission, on the basis of the gravity of the infringement.[9] The General Court found the infringement less serious than the Commission suggested, as Altice had informed the Commission of the transaction before signing the SPA and had taken preliminary steps to notify it shortly thereafter. Altice appealed the judgment to the Court of Justice.
The Court of Justice’s Judgment
The Court of Justice’s judgment largely endorses the General Court’s review of the Commission’s decision and, more broadly, the case-law regarding gun-jumping.
First, contrary to what Altice argued, the Court reaffirmed that the EU Merger Regulation lays down two distinct obligations preventing gun-jumping: (i) the obligation to notify a concentration, provided in Article 4(1); and (ii) the standstill obligation until the Commission’s approval of a concentration, provided in Article 7(1).[10] The former is an obligation to act, and its violation results in an instantaneous infringement; the latter is an obligation not to act, and its violation leads to a continuous infringement.[11] The two provisions are different in nature and “pursue autonomous objectives.”[12] The Commission was thus entitled to fine Altice separately for violating each obligation, and this power is not in itself contrary to the principle of proportionality nor to the prohibition of double jeopardy rooted in the general principles common to the legal systems of the Member States.[13]
Second, the Court of Justice confirmed its previous case-law according to which, under Articles 4(1) and 7(1) of the EU Merger Regulation, the implementation of a concentration “arises as soon as […] operations contributing to a lasting change in the control of the target undertaking” are made.[14] Control exists when there is a “possibility, conferred by rights or any other means to exercise a decisive influence.”[15] Therefore, any operation conferring the “possibility” of exercising decisive influence over the target undertaking falls within the notion of implementation, and hence is prohibited until the Commission has cleared the concentration.[16] This also applies to measures that are limited in duration but lead to a lasting change in control.[17] The Court therefore endorsed the General Court’s conclusion that the Altice/PT Portugal concentration had been at least partially implemented before its notification and approval, based on conduct including: (i) the signing of the pre-closing covenants in the SPA granting Altice broad rights to oversee PT Portugal’s policies, beyond what was necessary to protect the target company’s value; (ii) the actual implementation of such clauses; and (iii) the exchange of sensitive information.[18]
Finally, the Court of Justice found that the General Court erred in law in dismissing Altice’s complaint in relation to the infringement of the obligation to state reasons. According to settled case law,[19] EU institutions are required to state reasons for their decisions in a clear and unequivocal fashion. Only an appropriate and specific argumentation to the measure adopted will meet this requirement, so as to enable the persons concerned by the measure to ascertain the reasons given, and to permit the competent court to exercise its power of review.[20] On this basis, the Court of Justice concluded that the Commission did not fulfil its obligation to state reasons (showing clearly and unequivocally the factors taken into account). The Commission, in particular, failed to explain why it imposed two identical fines for violations that were identical in nature and gravity, but different in terms of their duration (a violation of Article 4(1) being an instantaneous infringement, while a breach of Article 7(1) is a continuous infringement).[21] Accordingly, the Court of Justice reduced the fine for the infringement of Article 4(1) to €52,912,500, having considered: (i) the seriousness of the infringement; (ii) its gravity (and specifically the mitigating circumstance of the early engagement of the Commission on Altice’s initiative)[22]; and (iii) the duration of the infringement.[23]
Takeaways
This judgment continues a trend of stronger enforcement of gun-jumping violations at EU level, confirming that a broad range of acquirer’s rights and actions may be considered as unlawful early implementation of a reportable concentration under EU law. The implementation of a concentration is not limited to the actual exercise of decisive influence over the target company, but extends to the mere possibility of exercising such influence (including through pre-closing veto rights) or other behavior that contributes to the change in control. Acquirors may still obtain pre-clearance rights or take actions that are strictly necessary to protect the value of the target, according to the non-exhaustive criteria provided in the Commission’s Notice on Ancillary Restraints.[24] But parties to M&A transactions need to preserve their independence, limit the purchaser’s pre-closing rights over and involvement in the target’s business, and restrict the exchange of sensitive information between them to what is strictly necessary to protect the target’s commercial integrity until receiving the Commission’s approval of the transaction.
[1] Altice Group Lux v. Commission (Case C-746/21 P) EU:C:2023:836 (the “Court of Justice Judgment”).
[2] Altice Europe v. Commission (Case T-425/18) EU:T:2021:607 (the “General Court’s Judgment”).
[3] Altice/PT Portugal (Case COMP/M.7993), Commission decision of April 24, 2018 (the “Commission’s Decision”). See our July-September 2018 EU Competition Quarterly Report for further information on the Commission’s decision.
[4] See, in particular, Marine Harvest/Morpol (Case COMP/M. 7184), Commission decision of July 23, 2014; Marine Harvest v Commission (Case C-10/18 P) EU:C:2020:149; Ernst & Young (Case C-633/16) EU:C:2018:371; Canon/Toshiba Medical Systems Corporation (Case COMP/M.8179), Commission decision of June 27, 2019; Canon v. EC (T-609/19), EU:T:2022:299; and the Commission’s recent decision to fine Illumina and GRAIL, Commission Press Release IP/23/3773, “Mergers: Commission fines Illumina and GRAIL for implementing their acquisition without prior merger control approval,” July 12, 2023.
[5] The Commission’s Decision, supra, paras. 480–481.
[6] Ibid., para. 482. These actions included, among others: (i) consenting “to the conclusion of contracts”; (ii) giving “instructions on how to negotiate certain contracts”; and (iii) becoming “directly involved in the implementation of one of PT Portugal’s promotional campaigns.”
[7] Ibid., paras. 478 and 482.
[8] The General Court’s Judgment. See our August-September 2021 Competition Law Newsletter and Alert Memorandum, “Gun Jumping in M&A: General Court Judgment Affirms Strict Approach in Altice,” published November 19, 2021, for additional information regarding the General Court’s ruling.
[9] Ibid., paras. 368–369.
[10] The Court of Justice’s Judgment, para. 53. See also Marine Harvest v Commission (Case C-10/18 P) EU:C:2020:149, paras. 104 and 115.
[11] The Court of Justice’s Judgment, para. 53.
[12] Ibid., para. 56.
[13] Ibid., paras. 67–73, and 81–89.
[14] Ibid., paras. 137–139.
[15] Ibid., para. 137.
[16] Ibid., para. 140.
[17] Ibid., paras. 137, and 144–146.
[18] Ibid., paras. 109–114, 140–150, 166–170, 183, and 185.
[19] See, in particular, HeidelbergCement v Commission (C-247/14 P) EU:C:2016:149, para. 16; and Commission v Sytraval and Brink’s France (C-367/95 P) EU:C:1998:154.
[20] The Court of Justice’s Judgment, para. 217.
[21] Ibid., para. 222.
[22] Ibid., para. 244. Altice voluntarily informed the Commission of its plans to takeover PT Portugal before the signing of the SPA and made sure to notify the deal to the Commission.
[23] Ibid., paras. 241–248.
[24] See Commission Notice on restrictions directly related and necessary to concentrations, OJ 2005, C 56/24, para. 13.