After successfully prosecuting the first penalty for gun-jumping in Australia earlier this year, the Australian Competition and Consumer Commission (ACCC) has recently released a publication warning merger parties of the gun-jumping risks when completing a merger or acquisition. The publication provide a straightforward outline of the relevant legislation and risks that parties should be aware of when completing a merger or acquisition.
The ACCC may find gun-jumping conduct in breach of Australia’s Competition and Consumer Act 2010 (Cth) (CCA) when merger parties start co-ordinating their activities or behaving as one entity instead of as competitors during the period before a transaction is completed. Conduct of this nature will breach the CCA, even if the relevant agreement is subject to ACCC merger clearance. In particular, the ACCC states that parties to a transaction will be at risk where:
- they share current and competitively sensitive information beyond what is required for integration planning and to conduct due diligence;
- the transaction documents place unreasonable restrictions on the target’s business activities or impede its ability to compete;
- steps are taken to integrate or co-ordinate their businesses, their dealings with customers (for example, joint advertising), or their pricing.
Where the ACCC considers that parties have engaged in this type of conduct, it may either prosecute the conduct, which can lead to significant personal or corporate penalties, or otherwise scrutinise and possibly apply to unwind the transaction.
What does this mean in practice?
The ACCC’s publication does not provide detailed guidance on where the boundaries lie with each of the risk areas identified. Each transaction should be carefully considered on its facts and appropriate protections put in place to address the risk of gun-jumping under the CCA.
While protections should be tailored to the specific transaction and risks involved, by way of general guidance:
- Sharing competitively sensitive information: where parties are competitors it is standard practice to implement a clean team arrangement where a select group of employees responsible for viewing competitively sensitive information necessary for due diligence and merger planning are not also involved in commercial decisions;
- Restrictions in transaction documents: any restrictions on the target’s conduct of the business pre-completion should be limited to those necessary to preserve the value of the target pre-completion and should not give the purchaser any day-to-day control or influence over commercial decision making;
- Integration planning: while the parties must not integrate pre-completion, this does not mean that integration planning cannot take place and there are things that the parties can do which would not be gun jumping. To ensure that merger parties stay on the right side of the line, guidelines should be put in place covering:
- Assets: what can be done to plan the combination of assets (as well as protect asset value in interim)
- Products and services: what can and cannot be done in relation to joint business plans; branding/product lines
- Customers and suppliers: what can be communicated to customers and how it should be said
- Personnel: what planning can take place in relation to employees’ salaries and pensions
- Systems (IT, finance etc.): data is a key asset but what kind of systems integration planning is permitted
Gun jumping and merger procedure violations: a growing global preoccupation
The ACCC’s warning follows its recent success with a penalty of A$1.05 million imposed against biotechnology company Cryosite for an agreement which prevented the parties from competing for customers and products between execution of the transaction documents and completion of the transaction.
The ACCC is not alone in targeting gun-jumping. There is heightened enforcement by antitrust agencies around the world against gun jumping, particularly in jurisdictions which unlike Australia have mandatory merger filing regimes. In the last four years, we calculate that there have been total fines of over US$300 million across over 30 jurisdictions and 6 continents.
Recent and notable decisions include:
- Chile: First gun-jumping investigation under its new mandatory and suspensory regime resulted in a settlement (approx. US$1.9 million paid by each party)
- China: several penalties for gun-jumping imposed in 2018 and 2019 (including in relation to transactions from almost 10 years ago)
- EU: Marine Harvest (EUR 20 million) and Altice (EUR 124.5 million)
- France: Altice (EUR 80 million)
- Philippines: first penalty for failure to notify under new mandatory regime in 2018. Enforcement continued with more failure to notify fines later in 2018 and 2019. Completed transaction voided following finding of gun-jumping in 2018.
It is certainly a good time to make sure that procedures are in place to spot when mergers need to be notified and to explain what kinds of steps can and cannot be taken before clearance and completion. Enforcement against gun-jumping is likely to increase as antitrust agencies come under pressure from government and elsewhere to ‘catch’ deals which might cause harm to consumers.