The correct functioning of a market economy necessitates the putting into practice of mechanisms that guarantee that unfettered competition is not disrupted. On a community level, this demand, amongst others, translates into the ex ante control performed by the European Commission (hereinafter, the “Commission”) over the concentration transactions of companies that are likely to hinder the effective competition of the common market. This control is exercised through the obligation to declare ex ante the nature of the concentration transaction and to suspend its execution until obtaining the appropriate authorisation from the Commission (put simply, a “standstill obligation”). The infraction of this obligation of suspension is commonly referred to as “gun jumping” and may carry with it the imposition of considerable economic sanctions.
As a matter of fact, in recent years we have witnessed a growing interest on behalf of the Commission in investigating and sanctioning “gun jumping”. In 2009, the Commission sanctioned Electrabel with a fine of 20 million Euros, the same sanction that was imposed in 2014 on Marine Harvest. In 2018, Altice was fined 124.5 million Euros and, more recently, Canon Inc. (hereinafter, “Canon”) took a hit of 28 million Euros. Canon impugned the decision of the Commission, but on the 18th of May of this year, 2022, the European General Court (“EGC”) rejected the appeal and confirmed the imposed sanction. This judgment is relevant in that it analyses the infraction of the suspension obligation on a concentration transaction executed through phases, in which the parties used a holding company to carry out the change in control of the target company.
The judgment analysed the acquisition by Canon of the company Toshiba Medical Systems Corporation (“TMSC”), a subsidiary belonging to the multinational Toshiba Corporation (“Toshiba”). In order to carry out the operation, Toshiba and Canon agreed a transactional structure that allowed for the transfer of the entire cost of the sale of TMSC not to remain subject to the appropriate authorisations.
In this way, it was agreed that the sale of TMSC would be carried out in two phases. In the first, on the 17th of March 2016, Toshiba sold to MS Holding (a holding company created especially for this operation) 95% of TMSC, for around 800 Euros. Simultaneously, Canon acquired 5% of the remaining shares of TMSC and a purchase option for the shares held by MS Holdings, for a price of 5,280,000 Euros. Both operations were jointly called the “provisional transaction”.
In the second phase, on the 19th of December 2016, once the concentration transaction was authorised, Canon exercised its purchase option on the shares sold to MS Holding, thereby becoming the sole shareholder of TMSC (the “definitive transaction”).
After receiving an anonymous tip-off, on the 27th of July 2019, the Commission launched an investigation that led to the imposition of a fine against Canon for having failed to meet the obligation of notifying prior to the concentration transaction and for having executed it before being authorised to do so, thereby constituting an infraction of Article 4, Paragraph 1, and of Article 7, Paragraph 1, respectively, of Council Regulation (EC) on concentration transactions.
In the eyes of the EGC, the provisional transaction constituted a partial execution of the concentration transaction, despite the fact that this transaction alone did not lead to acquiring control of TMSC. Likewise, the EGC viewed both the provisional and definitive transactions as constituting, jointly, one single transaction, since they were both closely linked. This understanding implies that the mere execution of the provisional transaction without the pertinent authorisation of the Commission presupposed an infraction of the suspension obligation.
According to the EGC, one must distinguish between the concepts of “concentration transaction” and “execution of the concentration transaction.” So long as the concentration transaction is made when a permanent change in the ownership of the target company takes place, the execution of the concentration transaction shall comprise any act that contributes to this change in control. In this sense, the criterion to determine if the suspension obligation has been infringed, is not to check if the control of the target company has been acquired, but rather if the operation in question contributed to the change in control. Thus, in view of the fact that the provisional transaction was a necessary phase for the implementation of the concentration transaction and that it had a direct relation to the change in control of TMSC, the EGC considered that Canon executed the concentration in the moment in which the company carried out the provisional transaction.
Furthermore, the court considered that the provisional transaction allowed Canon to acquire a certain degree of influence over TMSC, albeit insufficient to acquire control of said company, since once the provisional transaction was concluded, even given the possible case that the Commission had not authorised the concentration transaction, Canon was the only party capable of determining the identity of the definitive buyer of TMSC.
To conclude, with this sentence, the EGC has made it clear that in the case of operations subject to authorisation that are executed through phases, the mere carrying out of said operations that contribute directly to a change in control when the concentration has not been authorised, shall presuppose an infraction of the suspension obligation.
Joan Lluís Rubio
Vilá Abogados
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23rd of June 2022
