I. The term “gun-jumping” and its legal backgrounds

The EU Commission, as the competent European antitrust authority, has recently issued detailed statements in several decisions on cases of so-called gun-jumping (in some cases for the first time).
M&A transactions involving companies which (collectively) reach certain turnover thresholds must be filed with the relevant national or European antitrust authority(s). Following the antitrust authorities review the M&A transaction to determine whether it leads (or may lead) to adverse effects on competition (so-called merger control). Gun-jumping in the literal sense means violations of the prohibition of execution under antitrust law within M&A transactions.
The official control of mergers is intended to prevent the setting up of cartels and to avoid a significant impairment of free competition in the respective market.

1. Merger prohibition with reservation of permission

Merger control in Germany is governed by the Act against Restraints of Competition [Gesetz gegen Wettbewerbsbeschränkungen – GWB] and herein in sections 35 et seq. GWB. At European level, the EC Merger Regulation (ECMR) regulates parallel the conditions, the procedure and the legal consequences of any infringements of the merger control rules.
Both German and European law provide for a preventive prohibition with the reservation of approval. This means that M&A transactions that must be filed shall not be carried out before the expiry of a legally stipulated period of time, unless the relevant authority (in Germany the Federal Cartel Office and in Europe the European Commission) has granted approval (so-called prohibition of execution). Under European law, these periods generally amount to 25 working days, article 10 para. 1 sentence 1 ECMR, and under German law to one month, section 40 para. 1 sentence 1 GWB, whereby the authorities may extend these periods in individual cases for closer examination.

2. De minimis regulation

Under both German and European law, however, not all mergers have to be filed for merger control purposes. In fact, certain legally defined turnover thresholds must be reached by the parties involved in the transaction. The last financial year prior to the merger is the reference point. If these thresholds are reached, the transaction must be filed with the relevant antitrust authorities and a premature closing is prohibited by law.

3. Infringement of the prohibition of execution

An infringement of the antitrust prohibition of execution leads to a (pending) invalidity of the execution of the transaction. This means that in case of a later approval, the merger becomes effective. However, if the approval will not be obtained, each act of execution is ineffective from the beginning and the purchaser has never acquired ownership of the object of purchase.
The prohibition of execution before approval is granted by the antitrust authorities does not comprises the (legal) transfer of the object of purchase (e.g. the target company). Furthermore, an infringement of the prohibition of execution may already exist if the acquirer, even without (already) being the legal owner, has already gained influence in the target company.
In the absence of addressing statements by the authorities and the higher courts, there was a certain uncertainty in practice, particularly pertaining to the question which measures are already equivalent to (illegal) execution.
The recent decisions of the European Commission and the ECJ show (for the first time) certain concretizations and tendencies.

II. Measures equivalent to an (illegal) execution

A decision of the ECJ in 2018 dealt with the question to which point a measure is equivalent to an illegal execution. In this case, the ECJ denied an illegal execution of an M&A transaction after the EU Commission had already assumed an (inadmissible) execution due to the irreversibility of the measure.
According to the ECJ the fact that a measure which was consummated before the merger clearance was granted is irreversible is not sufficient to fulfill the infringement of the antitrust prohibition, even if this measure had already effected the market. Instead, according to the ECJ, execution is only granted if the purchaser acquires actual control over the target company or takes measures to change the control relationship. If the sole measure has an impact on the market without a corresponding change of control actually taking place, this shall not yet to be seen as execution.
This particular case was about a national unit of an internationally active auditing firm separating from the holding organization in order to join another international auditing firm. Contrary to the EU Commission, the ECJ did not see the separation from the holding organization as an execution, so that it lifted the fine imposed by the EU Commission.

III. Scope of so-called value maintenance clauses

Further information was provided by a decision of the EU Commission in connection with the acquisition of a Portuguese telecommunications company by a French competitor in May 2018.
The decision received particular attention in practice, not least because of the record fine imposed (EUR 124.5 million).
In addition to other (antitrust) interesting statements by the EU Commission, the decision and its justification also offered the possibility to understand the view of the EU Commission on so-called value maintenance clauses in M&A agreements.
In order to avoid a violation of the antitrust prohibition of execution on the one hand and on the other hand to protect the purchaser against a sustained loss of value of the object of purchase between signing and the granting of the merger approval due to (extraordinary) measures by the seller, so-called value maintenance clauses are included in M&A agreements in practice. “Value maintenance clauses” contain, on the one hand, the seller’s obligation to continue the business operations of the target company in the ordinary course of business as before in the period between signing and closing. On the other hand, such “value maintenance clauses” often contain a so-called negative catalog of legal transactions and management measures which the seller or the target company shall not carry out without the consent of the purchaser in the period between signing and closing.
However, in order to avoid an infringement of the prohibition of execution under antitrust law, the prevailing view in practice is that this so-called negative catalog may only reflect measures of management which go beyond the ordinary course of business, i.e. specifically no measures of day-to-day management.
But in the absence of a corresponding statements by the antitrust authorities and higher courts, there was great uncertainty in practice as to the concrete determination whether a measure does not belong to the ordinary course of business and thus a reservation of approval is permissible or if is part of ordinary course of business.
In the case decided, the purchaser’s reservations of approval or veto rights covered contracts belonging to the ordinary course of business and the target company’s pricing policy. The EU Commission considered this to be, among other things, an undue influence on the normal business operations of the target company prior to the release of the execution and imposed a record fine.

IV. Assessment and outlook

Even though it must always be reviewed on a case-by-case basis whether measures and approval reservations are permissible under antitrust law, the decisions issued on gun-jumping provide important indications of the admissibility of such measures and agreements in the period leading up to the execution of an M&A transaction and thus contribute to legal certainty.
On the other hand, these decisions clarify that the EU Commission in particular has a very restrictive view with regard to the admissibility of agreements between companies prior to granting merger clearance. Even if the case in which the record fine was imposed was a special one (the acquirer as a repeat offender, multiple infringements), it becomes obvious that the EU Commission is willing to make full use of the fine framework available in this case (up to 10% of the total turnover achieved).
Therefore, the antitrust restrictions between signing and closing must be strictly observed and the respective influence of the purchaser (reservations of approval) prior to the granting of the merger clearance, as well as the exchange of information, must be kept to a minimum.