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€80 million imposed on French Telecoms Company for gun-jumping activity

  • United Kingdom
  • Competition, EU and Trade - Competition e-briefings

09-11-2016

On 8 November 2016, the French Competition Authority, l’Autorité de la concurrence (the “Autorité”) imposed a fine of €80 million on telecommunications company SFR and its parent company Altice Luxembourg (“Altice”), in relation to ‘gun-jumping’ activity in respect of two separate mergers.

Gun jumping refers to an unlawful pre-merger coordination between parties involved in a merger or acquisition. It may occur where the parties fail to observe mandatory pre-merger notification and clearance requirements, but may also cover a situation where the parties coordinate their competitive conduct prior to the completion of a transaction, which has been notified but not yet cleared. Parties to a merger are expected to continue to operate as independent competitors until clearance is given, so as not to compromise the competition authority’s decision.

This decision, the first to be handed down on the issue of gun-jumping during the merger control procedure in France and the largest fine imposed by a European regulator, is a stark reminder to companies that they may not implement mergers prematurely in contravention of merger control rules. While the UK operates a voluntary system of notification, most jurisdictions (including the European Commission’s ‘one-stop-shop’) operate a mandatory notification system which prohibits integration of the parties’ activities prior to clearance. These regimes often carry significant fines for gun-jumping activities. The Commission has imposed fines of €20 million for failure to notify, and the German FCO has also imposed significant fines.

Careful consideration must be given as to the need for merger filings, and the steps taken to integrate merging businesses before clearance has been received.

Background of the Case

Altice, through its subsidiary Numericable, received approval from the Autorité of its acquisition of mobile operator SFR for €17 billion on 30 October 2014, subject to commitments, after an in-depth Phase II review. Altice subsequently received approval from the Autorité for its acquisition of Omer Telecom (“OTL”), which operates under the Virgin Mobile brand, on 27 November 2014.

Following these acquisitions, in April 2015, the Autorité conducted unannounced raids at the merged entity’s offices, after concerns were raised by competitors that they had been involved in unlawful commercial integration of their activities prior to each transaction receiving clearance.

Judgment

The Autorité found significant evidence of gun-jumping activity in both cases.

In relation to the acquisition of SFR, the Autorité found that Altice and SFR had exchanged a large amount of strategic information in order to prepare for the integration of the two groups prior to clearance being granted. The exchanges involved the most senior leaders of the two groups, and included confidential, individualised data concerning the recent trade performance of SFR and forecasts for future months. Altice also interfered in strategic decisions made by SFR regarding certain commercial offers or projects on the market.

For example, both parties worked together to negotiate and operationally prepare for the launch of a new range of broadband offerings, which marked a significant change in the existing SFR strategy. This involved several months of intensive preparation for the launch on 18 November 2014 of the ‘Fibre Box TV’, just weeks after the Autorité’s clearance decision on 30 October 2014.

As regards OTL, Altice had made strategic decisions on the OTL’s behalf prior to clearance and had set up a weekly information feedback mechanism, involving OTL’s commercially sensitive information, to monitor OTL’s performance. The CEO (directeur général) of OTL had also started to perform his duties under his new role within SFR, including being granted access to new commercial projects involving commercially sensitive information.

Altice have been fined €80 million as a result of these practices. The level of fine (which is unprecedented in Europe) reflects the scale and number of infringements involved, some of which had a direct link with the competitive risks specifically identified by the Autorité in its clearance decision. The level of the fine also reflects the duration of the behaviour; it began even before notifications were made to the Autorité and extended throughout the entire merger control procedure. As a reminder, under French law, gun jumping practices may lead to fines of up to 5% of the turnover of the companies concerned.

The Autorité said in a statement that it has sent a “strong message” to companies that they should not implement mergers prematurely, in the face of “severe penalties”.

According to Altice, these denounced practices were performed in good faith, in the midst of legal uncertainty. Altice agreed to settle the matter in order to limit its exposure to higher levels of fines and according to a company statement, to demonstrate its eagerness to restore constructive dialogue with the regulator. Therefore, it is not expected that Altice will lodge an appeal against the decision imposing the fine.

Comment

Information on a target entity will always be provided as part of any due diligence exercise, and not all pre-clearance planning activity will be considered problematic. However, there is little published guidance in this area, and the degree and extent of information which can be exchanged should be considered on a case-by-case basis.

The key point is that the merging parties should continue to act as independent competitors prior to clearance. The target should continue to make its decisions independently and businesses should avoid transfers of personal or new management appointments. Integration of customer-facing conduct (e.g. a joint marketing strategy) or exchanges of detailed information on individual clients or suppliers will be particularly problematic (and visible) to a competition authority.

In order to manage the risk, advice should be sought as to what is permissible in terms of planning activities, and companies should consider putting in place ‘information sharing’ guidelines to avoid the unlawful exchange of commercially sensitive information. Advice should be sought at an early stage in a transaction, as it can have a significant impact on the timing of deals and there may well be financial implications associated with holding the businesses separate pending clearance.

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