While notified transactions cannot be closed pending merger clearance, a more contentious issue is the extent to which the parties may implement preparatory measures, such as terminating contracts with third parties. An EU case now challenges the strict approach taken in Norway.

Transactions that trigger a merger filing in Norway are subject to a standstill obligation: they cannot be implemented before the Norwegian Competition Authority (NCA) has cleared the transaction. The rule is based on EU law. In the absence of definitive practice and guidelines from the EU, however, the NCA has over time developed its own, very broad, interpretation.

Pending merging clearance, the parties have not only been barred from transferring control of the target but also from disclosing information on the target business and implementing preparatory measures that could affect the target’s market position or value. However, a recent opinion delivered by Advocate General Nils Wahl of the EU Court of Justice (EUCJ) proposes an interpretation that would allow the parties more freedom to take preparatory steps.

The NCA’s approach

Implementing a transaction pending merger review is prohibited both under EU merger rules and in most national merger regimes, including in Norway.

The purpose of the prohibition of so-called gun-jumping – implementing transactions prior to merger clearance – is to ensure effective and real merger control.

Should the transaction be blocked, it could be difficult to implement this decision if the target has already been transferred and integrated into the acquirer’s business.

The NCA has imposed a number of fines for gun-jumping, i.e. for breaches of the stand-still obligation. The NCA’s approach is that this obligation goes well beyond a prohibition of taking over the shares or the acquirer otherwise exercising control of the target business.

In the NCA’s interpretation, the standstill obligation also prevents a wide array of other measures, including:

– market coordination between the acquirer and the target;
– information exchange beyond what is strictly required; and
– other measures that could affect the market position or value of the target.

As a result, the parties to transactions that trigger a merger filing in Norway have had to take particular caution with respect to the contractual obligations on the seller and target during the period between signing and closing.

Only preparatory steps with no potential impact on the target’s market conduct have generally escaped the NCA’s interpretation of the standstill obligation.

AG Wahl’s opinion

The opinion delivered in January 2018 by Nils Wahl, an Advocate General at the EUCJ, relates to a fine imposed in a Danish case. In a merger between auditing firms Ernst & Young (EY) and KPMG Denmark, the latter gave notice to terminate its membership agreement with KPMG International at the time of the deal announcement in November 2013. At that point, the Danish Competition and Consumer Authority had not yet cleared the transaction.

The Danish authority argued that the termination of membership had to be regarded as gun-jumping for several reasons, including the fact that it was irreversible and had potential effects on the market.

According to Advocate General Wahl, however, these elements are irrelevant for the assessment of whether a measure shall be deemed to constitute gun-jumping.

Instead, Wahl emphasised the element of control as fundamental when assessing a potential violation of the standstill provision:

 “[The standstill provision] does not affect measures which, although taken in connection with the process leading to a concentration, precede and are severable from the measures actually leading to the acquisition of the possibility of exercising decisive influence on a target undertaking.”

Important keywords for the assessment in the future are thus likely to be whether the measures in questions “precede and are severable” from measures that actually imply the transfer of control.

What will it mean for M&A transactions?

Wahl’s opinion is not binding. It will be up to the EUCJ to consider the opinion and make its final ruling. However, in most cases the EUCJ follows the opinion of the advocates general.

If followed by the EUCJ, Advocate General Wahl’s interpretation of the standstill obligation would require the NCA to adjust its approach significantly.

The parties to transactions filed in Norway will have more freedom to implement preparatory measures between signing and closing.

In cases where the acquirer and the target are competitors, it will be the general rules on anti-competitive cooperation and information exchange which will represent the most important restrictions in the period between signing and closing.

However, these rules are generally not as restrictive in this context as the NCA’s current application of the standstill obligation.