The European General Court (GC) has affirmed a EUR 28 million (USD 32 million) fine against Canon for gun-jumping in connection with Canon's 2019 acquisition of Toshiba's medical device business (TMSC). The GC's decision underscores the high risks for merging firms that implement transaction structures that might be perceived by regulators as evading mandatory and suspensory merger control regimes.

Canon and Toshiba essentially devised a "warehousing" transaction structure under which Toshiba first rearranged TMSC's share structure and conveyed the voting shares of TMSC to a newly formed special purpose company (the "First Transaction"). The First Transaction allowed Toshiba to receive approximately USD 6.1 billion from Canon immediately, allowing Toshiba to shore up its balance sheet prior to the end of its fiscal year. In a second step (the "Second Transaction"), Canon obtained control of TSMC's voting shares once all required merger clearances had been obtained.

Generally, EU merger notifications are required in case of an "implementation" of a "a change of control on a lasting basis." In Canon/TMSC, the EC considered that the First Transaction amounted to a "partial implementation" of the overall acquisition because the First Transaction had a "direct functional link" with the ultimate acquisition of control by Canon. Canon, as the ultimate acquirer, should thus have notified and awaited clearance for the First Transaction before partially putting into effect the acquisition.

While the GC is careful to align the EC's decision with the EU Merger Regulation (EUMR) and previous case practice, its approach nevertheless leaves some key questions unanswered:

• First, the judges' interpretation de facto expands the filing obligation beyond the (easily measurable) transfer of control. It already requires the filing of preliminary transactions with a mere "direct functional link" to the implementation of a final transaction. At the same time, however, the judgment does not provide bright-line guidance on when two transactions share a "direct functional link" or what it regards as a "transaction" in this context.
• Second, the decision begs the question of whether there is any solution for firms that find themselves in Toshiba's predicament. In theory, merging parties can obtain an exemption from the EC from the merger notification regime in exceptional circumstances. In practice, however, this route has been of little value given that the information requested often comes close to what is required for a full merger notification. In light of the GC's ruling in Canon/TMSC, perhaps the EC will become more flexible in exceptional cases.

Canon/TMSC accords with several recent decisions that demonstrate the EC's tough stance on gun-jumping. In September 2021 the GC also affirmed the EC's decision to fine Altice EUR 124.5 million (USD 153 million) for prematurely exercising control of PT Portugal. The EC found Altice had secured and exercised far-reaching veto rights in the purchase agreement that allowed it to influence the target's ordinary course of business before receiving merger clearance. Further, Altice requested and received commercially sensitive information from the target although prior to the implementation of the transaction.

Both cases serve as a reminder that the EC takes gun-jumping seriously and will not shy away from slapping buyers with high fines if they violate merger notification requirements.