Gun-Jumping And Procedural Compliance

The EU and U.S. competition authorities have been and remain active in enforcing gun-jumping cases, while in recent years other competition authorities across the world, including in China, have also become increasingly active. This is a trend we expect to continue.

At the time of writing, the European Commission (EC) is investigating two potential gun-jumping cases- Altice/PT Portugal and Canon/Toshiba Medical Systems (TMS).

These cases are significant because, while the EC has made clear that in each case its approval in respect of the merger will not be affected, they demonstrate that not only is gun-jumping a live risk, but the EC is prepared to pursue potential procedural infringements even if the risk of serious harm is low.

Canon/TMS involves allegations that Canon implemented the merger before both notifying and obtaining approval from the EC. This case involved a two-step acquisition procedure known as 'warehousing.' On signing, Canon acquired a single non-voting share in TMS, for which it paid effectively the full value of TMS. At the same time, an interim buyer acquired voting shares in TMS for a nominal amount. Canon also took options over these shares. Canon intended to have control of TMS only when it exercised the options following notification and merger approval. The EC cleared the merger in September 2016 but has subsequently opened an investigation into whether these arrangements let Canon effectively acquire TMS before it notified the deal.

The Canon case is particularly significant as the EC has taken issue with the very design of the transaction. Warehousing structures are not uncommon. They can, for example, be used in auctions to enable potential 'strategic' purchasers, whose business may overlap with a target's, to compete on a level playing field with potential private equity purchasers, which are less likely to have competition issues. In the Canon case, the structure was designed to enable the purchase price to change hands as quickly as possible on signing, as Toshiba was in urgent need of cash to balance its books following an accounting scandal. The Canon case highlights the need for businesses to be aware of the risks certain transaction structures may bring, particularly as the reason for breach is irrelevant, whether deliberate, negligent or innocent.

However, it is not just the EC that has taken issue with the arrangements in Canon/TMS. The opening of its investigation followed a public warning by the...