Canon/Toshiba Medical Systems Corporation

The Commission alleges that Canon engaged in gun-jumping by implementing its acquisition of Toshiba Medical Systems Corporation (TMSC) before notifying the transaction and obtaining merger control approval from the Commission. The interest in the case is that the implementation was only partial, and took place in the context of a two-stage transaction structure where only the first stage was implemented before notification and clearance. 

Following a shift some years ago, the Commission set its face firmly against “warehousing” structures, insisting that it would treat combined arrangements as one single transaction where they are inter-dependent.¹ In consequence the first stage, putting the target business into a virtual “warehouse”, would not be considered to be notifiable in its own right. This policy position is of key importance in auction situations where industrial buyers may be in competition with private equity buyers, and at a disadvantage since the PE buyer will often have an easier route to antitrust clearance. Hence the interest for an industrial (or “strategic” buyer) to warehouse the business in a first stage, allowing itself thereafter the time and space to argue substantive antitrust issues and justify clearance after a slower process. In contrast, under the HSR rules in the U.S., the initial acquisition of convertible securities is exempt from notification but, assuming the applicable thresholds are met, the subsequent exercise or conversion of such securities will be reviewable. In other words, it is sufficient that the antitrust agencies will have the opportunity to review the substantive transaction before it is implemented. But that is not the position of the European Commission.

The interest in the Canon case is that the policy against warehousing is applied to the effect that implementation of the first step is considered gun-jumping, even though the second step was put on hold until after notification and clearance. In the first step a new vehicle was set up to acquire 95% of the share capital of TMSC for a token payment, while Canon paid €5.28 billion for a single non-voting share representing the balance of 5%, together with share options to acquire the 95% stake. (The new vehicle had “three controlling shareholders” but their identity is not revealed.²) The effect of this structure was that Canon de facto made advance payment of the purchase price to the seller, Toshiba Corporation, without any antitrust process. In the second step, once the relevant antitrust approvals had been obtained, Canon exercised its share options, so taking 100% control of TMSC.

The Commission cleared Canon’s acquisition in September 2016, describing the two-stage deal structure - without criticism at the time.³ It has however now opened the new infringement proceedings. While it made clear that the original clearance will not be revoked, the question of a fine for gun-jumping now looms. Fines can be up to 10% of worldwide annual turnover. Previous fines for gun-jumping have ranged from €33,000 to €20 million.  

It will be interesting to see whether the Commission sees gun-jumping simply by the advance payment of the price, regardless of other transactional elements. In fact it may well be important here that the interim holding vehicle could not sell its shares in TMSC without the approval of Canon. Aside from reinforcing the notion that the two transactions were inter-dependent, this right in itself could be considered to give a first measure of influence over TMSC.⁴   

Merck/Sigma-Aldrich

As a condition of obtaining clearance for its acquisition of Sigma-Aldrich, Merck was required to divest certain Sigma-Aldrich assets to address competitive concerns in relation to specific laboratory chemicals. The Commission’s preliminary view is that Merck and Sigma-Aldrich failed to provide information in relation to an innovation project that was critical to the competitive assessment of those laboratory chemicals.  

According to the press release, if the project had been correctly disclosed, it would have been included in the remedy package since it was closely linked to the divested business and had the potential to increase sales. Merck has since agreed to license the technology to Honeywell, the acquirer of the divested business. However, the Commission noted that this took place following a delay of almost one year, and only after a third party alerted it to the situation.  

GE/LM Wind

The Commission indicates that GE omitted certain information from its original notification of its acquisition of LM Wind: the information concerned GE’s R&D activities and the development of a specific product that the Commission believed was relevant to its assessment of competition in the onshore and offshore wind turbine markets. The missing information was supplied in a revised notification.  

At the time, the Commission was also investigating Siemens’ proposed acquisition of rival wind turbine maker, Gamesa. The Commission’s initial view is that the missing information had consequences for its assessment of both transactions: it was needed in order to assess the future position of GE and the competitive landscape on the markets for wind turbines.