Each company which is planning or negotiating M&A transaction with its competitor, especially in a form of a takeover of a competitor, should be aware that such transaction is a subject to the antitrust regulation unless parties are below the market shares limits regulated by the domestic antitrust law. Conducting a pre-closing due diligence or planning other activities in order to merge with the competitor while getting full access to its documents and data may be recognized by antitrust office as violations of antitrust law.
One of the most important rule towards M&A transactions from the antitrust law point of view is an obligation of the competitors (who are under M&A proceedings) to remain competitors until closing of M&A procedure. It means that merging parties should refrain from sharing any sensitive information concerning their business until obtaining M&A control clearance from the antitrust office. Such an exchange of competitively sensitive data and information between merging parties before the closing of M&A transaction may raise so called “gun-jumping” concerns and serious antitrust issues.
What is a definition of “gun-jumping”?
Under antitrust laws a notion of “gun-jumping” is described as an unlawful pre-merger coordination actions between the merging parties as sharing competitively sensitive information about each of the party involved in M&A transaction. It could take the form of pre-merger exchange of information concerning, in particular:
- prices level and prices policy,
- terms and conditions of the agreements concluded with the competitors business parties, or
- production plans,
which contain competitively sensitive information which, while in the hands of the competitors, may harm the competition in the market. Such a pre-merger coordination between the competitors who are under M&A transaction may be found against the antitrust law and result in enforcement action against the competitors which violated gun-jumping prohibitions. Currently, the number of enforcement actions against such merging competitors has increased significantly throughout the EU and in US and should not be ignored while planning M&A transaction.
Usually there are two basic types of competitors’ coordination activities which might be found gun-jumping:
- taking control over the acquired company in advance of closing M&A transaction with access to the sensitive information and data, or
- disclosing competitively sensitive information (like prices or production plans) in advance of closing M&A transaction.
Both types of conduct are very likely to be recognized as the violation of antitrust law and may result in enforcement actions. The threat is real. We are facing an increase of the antitrust authorities’ activity in this respect in Poland as well as in other European jurisdictions. Therefore, the information sharing and information planning should be well-considered and planned in advance with the lawyers.
What does it means for M&A transaction?
The above-mentioned means that until the M&A transaction between the competitors is formally closed (the control clearance is granted), the parties of the transaction should:
- refrain from sharing antitrust sensitive information,
- remain independent companies running independent businesses,
- refrain from coordinating competitive conduct of market actions,
- refrain from consolidating their activities and business policies.
The gun-jumping prohibitions do not mean that the competitors under M&A transaction cannot exchange any information concerning their business activity. Naturally, certain information needs to be disclosed to plan and control steps of the transaction and integrate business activity of the entity which will run after closing of M&A transaction. Therefore, any consultations or exchange of information between the merging parties should be controlled any carefully considered by their legal advisors to avoid antitrust risks and potential enforcement actions while planning and closing the M&A transaction. One of the solution, especially in case of a takeover of a competitor by its competitor, is to give access to the competitively sensitive information concerning the acquired competitor only to the external advisors who are not allowed to pass this sensitive information on the acquirer.