{"id":1117,"date":"2021-09-22T16:52:42","date_gmt":"2021-09-22T14:52:42","guid":{"rendered":"http:\/\/haavind.local\/en\/2021\/09\/22\/pre-closing-covenants-in-spa-constituted-illegal-gun-jumping\/"},"modified":"2022-07-21T12:50:51","modified_gmt":"2022-07-21T12:50:51","slug":"pre-closing-covenants-in-spa-constituted-illegal-gun-jumping","status":"publish","type":"post","link":"https:\/\/haavind.stage01.dekodes.no\/en\/pre-closing-covenants-in-spa-constituted-illegal-gun-jumping\/","title":{"rendered":"Pre-closing covenants in SPA constituted illegal gun jumping"},"content":{"rendered":"\t
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Pre-closing covenants in SPA constituted illegal gun jumping<\/h1>\n\n

On 22 September 2021 the General Court ruled that pre-closing veto rights in an SPA entailed illegal implementation of an acquisition. The case illustrates that the risk of gun-jumping needs to be considered carefully in the drafting of pre-closing covenants in SPAs and in handling pre-closing information access.
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\n\t\t\t\t\t\t22 September, 2021 \u00b7 6 min. reading time<\/span>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\n
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\n\t\t\t\t\t\tSimen Klevstrand<\/span>\n\t\t\t\t\t\tPartner<\/span>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/a>\n\t\t\t\t\t
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\n\t\t\t\t\t\tMarianne Henne M\u00f8ller<\/span>\n\t\t\t\t\t\tSenior Associate<\/span>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/a>\n\t\t\t\t\t
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\n\t\t\t\t\t\tKaroline Narvestad Maurtvedt<\/span>\n\t\t\t\t\t\tTrainee solicitor<\/span>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/a><\/div>\n\t\t\t\t
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On 22 September 2021 the General Court ruled that pre-closing veto rights in an SPA entailed illegal implementation of an acquisition. The case illustrates that the risk of gun-jumping needs to be considered carefully in the drafting of pre-closing covenants in SPAs and in handling pre-closing information access.
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In 2018, the European Commission fined Altice EUR 125 million for implementing a concentration prior to its notification and clearance. Altice, a multinational cable and telecommunications company, was acquiring PT Portugal, a telecommunications and multimedia operator in Portugal. The transaction was notified to the Commission and declared compatible with the internal market subject to certain conditions.<\/p>\n\n\n\n

Following the release of press reports revealing several visits to PT Portugal by Altice executives, the Commission launched an investigation that found Altice to have \u2018jumped the gun\u2019 and exercised decisive control over PT Portugal prior to clearance. Reasons included that the transaction agreement conferred rights upon Altice that were used to veto decisions and intervene in the daily operations of PT Portugal, such as marketing campaigns and pricing, and that the transmission of commercially sensitive information from PT Portugal to Altice allowed for a level of control that went beyond what is considered permissible between signing and closing.<\/p>\n\n\n\n

The Commission concluded that this constituted illegal gun-jumping in breach of Articles 4(1) and 7(1) of Council Regulation (EC) No. 139\/2004.<\/p>\n\n\n\n

See this article<\/a> for further background on the Commission decision and its significance.<\/p>\n\n\n\n

The appeal <\/strong><\/h3>\n\n\n\n

Since the 2018 decision, Article 7(1) and the meaning of \u2018implementation\u2019 has been interpreted more narrowly in the case of E&Y P\/S v Konkurrencer\u00e5det, <\/em>where it was held that \u2018a concentration is implemented only by a transaction which, in whole or in part, in fact or in law, contributes to the change in control of the target undertaking\u2019. <\/em><\/p>\n\n\n\n

Citing the above-mentioned case at the hearing of the appeal, Altice argued that the Commission had extended the notion of \u2018implementation\u2019 beyond its scope and meaning by relying on conduct that did not amount to implementation in order to prove the infringement, and that the threshold should be set higher than the \u2018possibility of exercising decisive influence\u2019.[1]<\/a><\/em> Additionally, it was argued that the merely ancillary nature of the pre-closing covenants made them incapable of amounting to early implementation and that the transmission of information from PT Portugal to Altice could not contribute to the finding of exercise of control.<\/p>\n\n\n\n

Not surprisingly, the Commission maintained its previous position on the broad interpretation of the stand-still obligation during the hearing.<\/p>\n\n\n\n

The opinion of the General Court <\/strong><\/p>\n\n\n\n

The General Court (\u2018the Court\u2019) reduced the fine imposed on Altice but dismissed all other claims. Target value protection in the period between signing and closing is in principle accepted by the Commission, but the Court found that the limitations in the SPA were too broad and numerous, and the monetary thresholds too low, to be considered legitimate and therefore went beyond what was necessary for value preservation. Examples of these limitations included the following:<\/p>\n\n\n\n