Short Reads

No parking! Canon fined EUR 28 million for warehousing transaction structure

No parking! Canon fined EUR 28 million for warehousing transaction st

No parking! Canon fined EUR 28 million for warehousing transaction structure

04.07.2019 NL law

The European Commission has landed a third strike against gun-jumping, the prohibition to implement a transaction before notification to and clearance by the Commission.

After the record fine issued to Altice for being able to use its veto rights to prematurely interfere with the target company's ordinary business decisions (see our May 2018 newsletter) and the European Court of Justice ruling in the Ernst & Young case, allowing certain preparatory measures which are not necessary to achieve a change of control (see our June 2018 newsletter), the most recent decision makes clear that Canon's temporary 'parking' of the target company with an interim buyer is not permitted under the gun-jumping rules. Companies should therefore be careful when considering these types of 'parking systems' as the Commission is clearly targeting gun-jumping violations in all forms.

The Commission's gun-jumping rules require companies (i) to notify an intended concentration to the Commission if the EU Merger Regulation's thresholds are met and (ii) to await the Commission's clearance of the concentration before implementing it.

Canon had notified the Commission of its plan to acquire Toshiba Medical Systems Corporation ("TMSC") from Toshiba on 12 August 2016. The Commission cleared the transaction unconditionally on 19 September 2019. Canon had used a 'warehousing' two-step structure involving an interim buyer to acquire TMSC. As a first step, the interim buyer acquired 95% of TMSC for EUR 800 and Canon acquired the remainder 5% for EUR 5.28 billion and share options over the interim buyer's stake. This first step was carried out prior to the notification to the Commission. Following clearance by the Commission, Canon proceeded with the second step of the transaction, exercised its share option and acquired 100% of the shares in TMSC.  

In July 2017, the Commission sent a Statement of Objections to Canon, expressing concerns that, through the use of this 'warehousing' structure, Canon had implemented the transaction prior to notification to and clearance from the Commission. In November 2018, the Commission sent a Supplementary Statement of Objections to complement its initial concerns on the basis of recent developments in case law.

Although the details of the Commission's reasoning will only be fully revealed after the publication of its decision, the recent press release confirms that the Commission indeed considers Canon to have violated gun-jumping rules. According to the Commission, the first and second steps of the 'warehousing' transaction structure, taken together, formed a single merger. As a result, by carrying out the first step, which was necessary for Canon to ultimately acquire control of TMSC, Canon partially implemented its acquisition of TMSC before either notifying to or obtaining approval from the Commission.

In the Ernst & Young case, the European Court of Justice clarified that preparatory measures carried out in the context of a concentration but not necessary to achieve a change of control will not be regarded as a partial implementation of a concentration. The Commission's Jurisdictional Notice explains that a temporary 'parking system', according to which a target undertaking is 'parked' with an interim buyer acquiring shares 'on behalf' of the ultimate acquirer (who often bears the major part of the economic risks and may have specific rights) can be regarded as a partial implementation. The interpretation of "partial implementation" therefore seems the decisive factor in determining whether preparatory measures can lead to gun-jumping. Something Canon intends to explore in more detail in its announced appeal of the Commission's decision to the General Court.

Maybe when the full Canon decision is publicly available, it will become clear whether it is possible to conclude 'warehousing' structures which can be considered purely preparatory. For now, companies should be careful when considering measures that may result in the partial implementation of a concentration. As discussed in our May 2019 newsletter, the Commission has its eyes on procedural breaches of its merger control rules. The Canon decision confirms this trend, and clarifies that in order to remain compliant, most two-step 'warehousing' structures will need to be notified to the Commission immediately at the first step, and not afterwards.

 

This article was published in the Competition Law Newsletter of July 2019. Other articles in this newsletter:

Team

Related news

24.09.2020 BE law
Stibbe hosts a webinar on dawn raids organised by IBJ/IJE

Seminar - On 24 September 2020, several Stibbe lawyers ​​​​​explain the rights and obligations of companies when confronted with announced or unannounced raids. What do to when, for example, tax authorities, the competition authorities, police services or a bailiff are at your doorstep?

Read more

03.09.2020 NL law
Home, but not alone: Commission may complete dawn raids from home

Short Reads - The European Court of Justice (ECJ) has rejected Nexans’ appeal in the power cables cartel case. The Commission started the dawn raid at Nexans’ premises, but due to lack of time finished the raid at the Commission’s premises in Brussels. The ECJ found that the Commission can copy data and assess its relevance to the investigation at its own premises, while safeguarding companies’ rights of defence.

Read more

03.09.2020 NL law
COVID-19 impacts level and payment of antitrust fines

Short Reads - As well as granting companies leeway on certain COVID-19 initiated collaborations (see our May 2020 newsletter), the coronavirus outbreak has also led competition authorities to take a more lenient stance towards fine calculations and payments. The European Commission has extended the due date for fine payments by an additional three months in response to potential short-term liquidity issues brought about by the pandemic. Similar reasons led the Dutch Trade and Industry Appeal Tribunal to reduce a EUR 1 million cartel fine to just EUR 10,000.

Read more

03.09.2020 NL law
The ACM’s Green Deal: achieving sustainability via competition law?

Short Reads - The ACM has issued draft guidelines on the application of competition law to sustainability agreements. Companies entering into agreements that restrict competition but contribute to governmental sustainability objectives – i.e. lower CO2 emissions – may expect more room for collaboration. The proposed framework would allow these types of agreements if their anti-competitive effects are outweighed by their environmental benefits to society as a whole (rather than to in-market consumers only, as under the existing framework).

Read more

02.07.2020 NL law
European Commission to pull the strings of foreign subsidies

Short Reads - The European Commission is adding powers to its toolbox to ensure a level playing field between European and foreign(-backed) companies active on the EU market. On top of merger control and Foreign Direct Investment screening obligations, companies may also need to account for future rules allowing scrutiny of subsidies granted by non-EU governments if those subsidies might distort the EU Single Market.

Read more