Gun jumping: beware, the Commission will take action

Companies preparing a transaction must be aware of the importance of not implementing a transaction between notification and clearance, even for transactions that may initially escape the Commission’s jurisdiction.

The EU Merger Regulation (EUMR) requires companies not to close a reportable transaction before the Commission has cleared it (the ‘standstill obligation’). If the companies fail to do so, the Commission can take interim measures to restore or maintain conditions of effective competition.

Until recently, the Commission had never imposed interim measures during an ongoing merger review. On 29 October 2021, however, the European Commission (“Commission”) announced that it had adopted interim measures with regard to the Illumina/GRAIL transaction, following what it called “an unprecedented early implementation of a concentration”.

The Illumina/GRAIL transaction

The Commission’s investigation into the Illumina/Grail transaction has been controversial from the start. In March 2021, the Commission published its new Guidance on the upward referral mechanism, indicating a policy shift to catch potential killer acquisitions. Even if Member States do not have jurisdiction to review a transaction, they are now encouraged to refer transactions to the Commission that meet certain criteria (see our May 2021 newsletter). Soon after, the Commission decided to accept requests by six Member States to investigate Illumina’s acquisition of GRAIL, which was not notifiable in any EU jurisdiction. The parties notified the transaction in June 2021, but explicitly contested the Commission’s jurisdiction and appealed against the Commission’s decision.

In July 2021, the Commission started an in-depth review of the transaction. A month later, Illumina completed its acquisition but announced it would hold Grail separate during the Commission’s review. The Commission reacted by announcing that it would investigate whether Illumina and Grail breached the standstill obligation.

The interim measures

The Commission imposed the following interim measures:

• GRAIL must be kept separate from Illumina and be run by independent management acting in the exclusive interest of GRAIL;
• Illumina and GRAIL cannot share confidential information;
• Illumina must supply additional funds necessary for the operation and development of GRAIL;
• The interactions between Illumina and Grail must be undertaken “at arm's length”, meaning Illumina may not unduly favour GRAIL;
• GRAIL must actively work on alternatives to the transaction to prepare for the possibility that the Commission does not clear the transaction.

Failing to comply with the interim measures could lead to penalty payments of up to 5% of Illumina and GRAIL’s average daily turnover and/or fines of up to 10% of their annual worldwide turnover. These sanctions do not include a possible fine if the Commission concludes Illumina and GRAIL breached the standstill obligation.

Tough stance

The Commission has made clear that it will actively police gun jumping, even if a transaction does not initially meet national or EU merger thresholds. Imposing these measures also shows that the Commission considered Illumina’s steps to keep GRAIL separate insufficient, and may provide a first indication on what measures the Commission may find acceptable. Merging parties must continue to tread carefully.

This article was published in the Competition Newsletter of December 2021. Other articles in this newsletter:

• Back to the future – Commission publishes roadmap for green and digital challenges
• Dominant firm may refuse to supply retailer after initial delivery
• ECJ: private enforcement in aviation sector also a national court's game
• Google Shopping: self-preferencing is a form of abuse of dominance