European Court of Justice rules EY did not violate stand-still obligation in Danish merger
On 31 May 2018, the European Court of Justice ruled that Ernst & Young (EY) did not illegally implement the acquisition of KPMG Denmark (KPMG DK) before obtaining antitrust clearance. Following the announcement of the transaction, KPMG DK terminated a cooperation agreement. According to the Court, that act cannot be regarded as a violation of the stand-still obligation since it did not contribute to the change of control of the target undertaking.
This case falls within a broader trend of procedural merger control enforcement by the European Commission and national competition authorities. Indeed, competition authorities have been cracking down on merger control infringements, levying hefty fines for the submission of inaccurate information and for 'gun-jumping' [see our May 2018 Newsletter]. Gun-jumping, a broadly used term, refers to three different types of conduct: violations of the duty to notify, illicit information sharing in the context of a contemplated concentration and the violation of the standstill obligation. However, the criteria to assess what constitutes the various forms of gun-jumping are not entirely clear and vary per jurisdiction.
In this case, at the time of the announcement of the transaction, but before receiving antitrust clearance, KPMG DK gave notice to terminate its membership agreement with KPMG International. The Danish competition authority (DCCA) found that the transaction was implemented prematurely as a result of the termination of KPMG DK's membership. According to the DCCA the notice violated the stand-still obligation as it was merger-specific, irreversible and likely to have market effects. EY appealed the case before the Danish Maritime and Commercial Court, which in turn referred the case to the Court of Justice, requesting a clarification of the scope of the standstill obligation in article 7 (1) of the EU Merger Regulation (EUMR).
Advocate General Wahl noted in his Opinion that none of DCCA's criteria were relevant for determining the scope of the standstill obligation. According to Wahl the concept of 'concentration' is crucial to understanding the standstill obligation, thereby highlighting the importance to show a change of control. Wahl opined that the standstill obligation does not affect measures that precede and are severable from the measures actually leading to controlling the target undertaking.
In its ruling the Court of Justice concurred with Wahl that to define the scope of the standstill obligation, account must be taken of the definition of concentration. According to the Court, article 7(1) EUMR must be interpreted as meaning that a concentration is implemented only by a transaction which, in whole or in part, in fact or in law, contributes to the change in control of the target undertaking.
Specifically the Court indicated that where transactions, despite having been carried out in the context of a concentration, "are not necessary to achieve a change of control" of an undertaking, they do not fall within the scope of Article 7 EUMR. Those transactions, "although they may be ancillary or preparatory to the concentration, do not present a direct functional link with its implementation, so that their implementation is not, in principle, likely to undermine the efficiency of the control of concentrations".
This article was published in the Competition Law Newsletter of June 2018. Other articles in this newsletter:
European Commission must reassess Lufthansa's request to waive merger commitments
Dutch Appeal Court drastically reduces cartel fine Dutch construction company
District Court of Amsterdam declines jurisdiction in competition law damages case
Belgian Supreme Court confirms illegality of dawn raids due to the lack of a warrant
