'Jumping the gun' on mergers


Niall Collins examines a recent decision that appears to offer more flexibility in M&A transactions.

Ernst & Young P/S v Konkurrencerådet

On 18 January 2018, Advocate General Nils Wahl delivered an important opinion in Case C-633/16, Ernst & Young P/S v Konkurrencerådet. The case relates to a ‘gun-jumping’ fine imposed by the Danish competition council in connection with the merger between auditing firms Ernst & Young (EY) and KPMG Denmark (KPMG DK).

The case is particularly important, as it is the first time that the Court of Justice has been called upon to rule on the scope of the ‘standstill obligation’ in article 7(1) of the European Union Merger Regulation (EUMR).

Jumping the gun?

Any transaction that meets the mandatory reporting thresholds in the Competition Act 2002 (as amended), or in the EUMR, cannot be implemented until merger-control approval has been obtained. This is commonly referred to as the ‘standstill obligation’, and there can be significant consequences for breaching it.

Broadly, ‘gun-jumping’ is the colloquial term for prematurely putting into effect a transaction through integrating separate businesses prior to merger approval, or where the merging parties coordinate their competitive conduct prior to clearance.

The standstill obligation and the rules against gun-jumping exist to ensure effective merger control. For example, should a transaction be blocked, it could be difficult to implement the decision if the target has already been integrated into the purchaser’s business. How do you unscramble an egg?

A change in direction?

The commission has traditionally taken a strong line against companies that breach the standstill obligation. While an advocate general’s opinion is advisory only, it is followed by the court in a majority of cases, so Nils Wahl's opinion remains significant. Niall Collins, a partner and head of competition and antitrust at Mason Hayes and Curran, analyses the background to the case, and what it could mean for future mergers.

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