N° 2014/3 • 21EME ANNÉE • TRIMESTRIEL • PARUTION : SEPTEMBRE 2014 Nr 2014/3 • 21STE JAARGANG • DRIEMAANDELIJKS • PUBLICATIE : SEPTEMBER 2014

BUREAU DE DÉPÔT : BRUXELLES X

N° agréation P913344 Cah. Jur., 2014/3 - 65

I Introduction

1. The present paper aims to highlight competition law and economics aspects present in the pre- notification phase of acquisition of company processes and to analyze, from an in- house lawyer perspective, how acquiring companies may deal with the risks related thereto.

This paper will focus on the acquisition of all shares issued by a private com-pany to the exclusion of any merger, asset deal or acquisition of joint control (joint- venture) operations, even if these operations are also concentration tech-niques that may fall within the scope of the EU Merger Regulation. (1) The analysis of the particularities of these

various transactions would exceed the boundaries of the present paper but most issues encountered in share deals also exist in such other operations.

This paper will follow the main steps characterizing the majority of transac-tions in a chronological order, (2) even if each acquisition is different from an-other given notably the diversity of con-tractual techniques used by lawyers in various countries.

II Confidentiality agreement

2. A confidentiality or non- disclosure agreement is generally signed by the parties before any exchange of

information on the target company and its business. Such exchange of informa-tion is necessary to assess the desir-ability of the transaction, to permit the acquirer to assess the risks related to the target company, to identify key issues to be addressed in the share purchase agreement and to ensure the imple-mentation of the transaction. (3) Once the confidentiality agreement is signed, the acquirer will be provided with more or less precise information depending on the stage of the process. Often, the information memorandum essentially contains general information and fore-casts whereas the information available in the data room or in the vendor’s due diligence report is much more accurate

I

II

MANAGEMENT OF COMPETITION LAW RISKS IN ACQUISITION OF COMPANY PROCESSES – FROM THE PRELIMINARY CONTACTS

TO THE NOTIFICATION(S)

(1) Pursuant to Article  3 of Council regulation (EC) No.  139/2004 of January 20, 2004 on the control of concentrations between undertakings (hereinafter referred to as the “EUMR”), “a concentration shall be deemed to arise where a change of control on a lasting basis results from (a) the merger of two or more previously independent undertakings or parts of undertakings, or (b) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings.” See also the Commission’s staff working document of 25  June 2013 entitled “Towards more effective merger control” in respect of possible merger control for the acquisition of non- controlling minority shareholdings; P. ELLIOTT and J. VAN ACKER, “Proposed changes to rules on minority shareholdings and case referrals – Observations and

recommendations,” MLex AB extra, October 2013, pp. 1 et seq.; the White Paper on possible reform of EU merger control rules adopted by the Commission on 9 July 2014 dealing notably with minority shareholding acquisition.(2) Acquirers generally identify and monitor certain potential target com-panies before the first contact with the sellers. We assume for the pur-pose of the present paper that the whole process starts after such first contact between sellers and acquirers.(3) J. R. MODRALL, “Competition law issues in the M&A deal process,” in European Merger Control Law, Ch. 25, para. 25.03[1][a] (Matthew Bender 2012); J.- F. BELLIS, P. ELLIOTT and J. VAN ACKER, “The current state of the EU merger control system: ten areas where improvements could be made,” in International Antitrust Law and Policy, Fordham Competition Law 2011, New York, Juris Publishing, 2012, p. 339.

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and sensitive. Information on the target company and its activities may also be provided during management presenta-tions where the management team of the target company comments on the forecasts and answers more specific questions that may arise from the data room or the reading of the vendor’s due diligence report.

3.  Acquirers often consider that as soon as the confidentiality agreement is signed, they may access all informa-tion available on the target company, its activities, its profit margins, its sup-pliers and customers… Sellers are usu-ally more cautious and are reluctant to divulge sensitive information at an early stage of the process when they are not sure that the candidate acquirer has confirmed its interest and made an offer. Furthermore, it is not because the parties have signed a confidential-ity agreement that they may exchange information (4) in breach of Article 101 of the TFEU. (5) The due diligence practice is a grey zone as disclosures of information are necessary for the reasons explained above but they may raise competition law concerns in par-ticular where the acquirer, the seller or the target company are competi-tors, (6) even if they do not intend to restrict competition. The Guidelines on Horizontal Cooperation Agreements distinguish between the exchanges of information considered as object restrictions and those considered as restrictions by effects. Exchanges of information regarding future strategic intentions of either price or quantity constitute restrictions by object (7) (8) whereas exchanges facilitating coordi-nation and the emergence of collusive

outcome or leading to anticompeti-tive foreclosure are restrictions by effects. (9)

4.  Practitioners generally recommend that (i)  an appropriate confidentiality agreement, limiting the use of informa-tion for evaluating the proposed trans-action, is signed, (ii) the due diligence is conducted in phases, (iii) no member of operating teams (in particular from sales and marketing departments) but only people with a corporate function or external advisers (“clean teams”) are involved in the due diligence pro-cess, (iv) strategic information such as future prices or sales opportunities is not exchanged, (v) other very sensitive information is only disclosed to “exter-nal advisors” (10) who will analyze and sanitize it and, (vi) the documents and information received are either returned or destroyed if the parties do not pur-sue the discussion. (11)

III Internal preliminary assessment

5.  The acquirer will first determine where notification is required or ap-propriate. It will then identify and ana-lyze the competition law issues that may result from the proposed transac-tion. Finally, it will start collecting the information necessary to complete the notification(s).

A. NOTIFICATION THRESHOLDS

6. The acquirer will first check the no-tification thresholds. Concentrations having a Community dimension (i.e. where the turnover thresholds provided

under Articles  1, (2) or 1, (3) of the EUMR are reached) fall within the ex-clusive jurisdiction of the European Commission (12) and are assessed in a single procedure (“one stop shop” principle). Transactions not notifiable under the EUMR may be subject to notification under Member States laws and the Commission has no jurisdiction to deal with them. (13) Nevertheless, there exist possibilities for cases to be re- attributed by the Commission to Member States and vice versa, upon request and provided certain crite-ria are fulfilled so that the more ap-propriate authority (or authorities) for carrying out a particular merger inves-tigation should in principle deal with the case. (14) Such referrals are not fre-quent in practice.

7. The EUMR contains rules on the cal-culation method to be used. For exam-ple, where the concentration consists of the acquisition of all the shares in one or several subsidiaries of an undertak-ing, only the turnover relating to this sub- group shall be taken into account with regard to the seller. The acquirer must thus add the turnover of such ac-quisition perimeter to its own under-taking’s turnover to determine whether the concentration has a Community dimension.

The turnover concerned is the one of the preceding financial year (15) and derives from the sale of products and the provision of services falling within said undertaking’s ordinary activities (to the exclusion of inter- company sales) after deduction of sales rebates, VAT and other taxes directly related to turn-over. Turnover, in the Community or in a Member State, shall comprise the sales

III

(4) In acquisition of sole control processes, the acquirer does not disclose much information, contrary to the seller and/or the target company. In mergers sensu stricto, the exchange of information is generally bilateral.(5) Information sharing as a stand alone practice is a concern particularly in markets where collusion could easily be achieved by this means.(6) Until now, the Commission has not, to our knowledge, condemned an exchange of information between competitors in the context of the negotiation of a potential merger or acquisition transaction for violation of Article 101 of the TFEU (J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.03[1][c]).(7) Guidelines (2011/C 11/01) on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co- operation agreements, para. 75 (hereinafter referred to as the “Guidelines on horizontal cooperation agreements”).(8) Certain authors regret that an effect based approach is not also adopted in respect of exchanges of information about future conduct regarding prices and quantities (B. DURAND and D. RIDYARD, “The long and winding road,” Mlex Magazine, July- September 2010, p. 61).(9) This second theory of harm described in the Guidelines on horizontal co- operation agreements is more speculative and finds little support in the economic literature (B. DURAND and D. RIDYARD, “The long and wind-ing road,” op. cit., p. 61).(10) Sometimes, the parties also agree that certain information may only be disclosed to in- house lawyers and not to the whole transaction team.

(11) It is sometimes also recommended that the parties keep a record of the shared information what may not be compatible with the return and destruction obligation of the candidate acquirer. The destruction or return obligations are not always implemented in practice.(12) Member States are precluded from applying their national competi-tion rules to such concentrations (Article 21, (3) of the EUMR).(13) Should a transaction be notified at EU level, the markets concerned in all Member States will be examined by the Commission whereas in the event of notification at national level only, the competent national autho-rities will focus on the potential issues present in their countries. The acquirer may benefit from such limited approach as certain issues that could have been problematic in other countries may not be investigated.(14) See for more details the Commission notice (2005/C 56/02) on case referral in respect of concentrations; P. ELLIOTT and J. VAN ACKER, “Merger control – European Union,” in Merger Control – Jurisdictional compari-sons, London, Sweet and Maxwell, 2011, pp. 217 et seq.; Commission’s staff working document of 25 June 2013 entitled “Towards more effec-tive merger control” for proposed improvements to the system for refer-ring mergers from the Member State level to the Commission; the White Paper on possible reform of EU merger control rules adopted by the Commission on 9 July 2014 dealing notably with case referrals.(15) Rules might be different for concentrations to be notified in Member States.

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by destination (16) in the Community or in that Member State as the case may be. Generally, the seller does not com-municate the sales by destination of the target company early in the process. The information memorandum and the annual accounts published may help the acquirer to understand what could approximately be the sales by destina-tion of the target company or of the ac-quisition perimeter in a specific country but such analysis will need to be re-fined afterwards.

It is noteworthy that several acquisi-tions taking place within a two- year- period between the same persons shall be considered as one and the same concentration arising on the date of the last transaction. (17)

8. The parties may have some flexibil-ity to affect the notifiability of a con-centration under the EUMR through the transaction structuring. If the tar-get company’s turnover is close to the Community dimension, the parties may decide that the seller retains certain as-sets or businesses to exclude them from the transaction perimeter. Alternatively, if the acquirer intends to resell part of

the acquired business to a third party, structuring such sales as separate and independent transactions may lead to the principal transaction not having a Community dimension. (18)

B. THE COMPETITIVE ASSESSMENT

9. The competitive assessment is usu-ally conducted in two stages: first the definition of the relevant market(s) and then the assessment of competition in such market(s). (19)

1. Market definition

10.  Before considering whether the concentration contemplated raises sub-stantive issues, the acquirer will start its examination by defining the rel-evant market(s). A market has both a product (or service) and a geographic dimension. (20)

The market(s) will be defined by ref-erence to the so- called “hypothetical monopolist” or “SSNIP” test. (21) The underlying concept of this test is to identify those products and regions that provide the most important competitive constraints on the firms concerned. (22)

This test focuses on whether a hypo-thetical monopoly supplier would find it profitable to impose a “small but sig-nificant non- transitory increase in price” (a price increase of 5-10 percent) for a product or category of products in a specific geographic area without it being rendered unprofitable by either custom-ers switching to alternative products or buying them in another geographic area (demand- side substitution) and/or sup-pliers diversifying into supplying these products in the geographic area in ques-tion (supply- side substitution). (23) (24)

11. The acquirer will use the informa-tion provided in the information memo-randum cautiously. The description of its market segments by the seller may not be in line with the markets iden-tified by the competition authorities. Such segmentation may for example reflect the segmentation used by the seller for marketing purposes (25) or to present its market position in a more favourable way.

In its analysis, the acquirer shall pay much more attention to the previ-ous decisions made in a merger con-text (26) by the competition authorities

(16) For more details in this respect, see VAN BAEL and BELLIS, Competition Law of the European Community, 5th  edition, Alphen aan den Rijn, Kluwer, 2010, pp.  665 et seq.; P.  CHRISTENSEN, K.  FOUNTOUKAKOS and D. SJÖBLOM, “Mergers,” in The EC Law of Competition, Chapter 5, 2nd edi-tion, Faull & Nikpay (eds), Oxford University Press, 2007, p.  449, para. 5.106.(17) Article 5, (2) of the EUMR.(18) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.02[1][d].(19) Guidelines (2004/C 31/03) on the assessment of horizontal mergers under the Council regulation on the control of concentrations between undertakings, para. 10 (hereinafter referred to as the “Horizontal Mergers Guidelines”).(20) Commission notice (97/C 372/03) on the definition of relevant mar-ket for the purposes of Community competition law, para. 2 (hereinafter referred to as the “Notice on the definition of relevant market”).(21) The market is the smallest set of products that meets the Hypothetical Monopolist Test. In practice, the acquirer will try to determine whether a hypothetical monopolist with control over the products concerned would be able to profitably raise the price of these products permanently by 5-10 per cent, assuming that the prices of all other products remain constant. If the answer is yes, then this set of products defines a relevant market. If the answer is no, additional products should then be added to the puta-tive market and the test reapplied. This continues until the collection of products is worth monopolizing (S. BISHOP and M. WALKER, Economics of EC Competition Law: Concept, Application and Measurements, 3rd edition, London, Sweet & Maxwell, 2010, pp. 114 et seq., para. 4-008).A similar exercise applies for the definition of the relevant geographic market. The geographic dimension of the market must not be under-estimated as the firms concerned may have a high market share in one or several Member States what could jeopardize the concentration if the markets were national whereas the market share and market power of the combined entity may be completely diluted if the geographic market is larger (European for example). The acquirer should also be aware of “common fallacies” in defining relevant markets in order to avoid biasing its reasoning. Amongst such “common fallacies”, one may cite the fol-lowing ideas: “different end uses or different distribution channels imply separate relevant markets”; “competitive responses need to be instantane-ous”; “differences in market shares across regions imply separate relevant geographic markets”; “absence of imports imply separate relevant geo-graphic markets,” … (see notably the Notice on the definition of relevant market, para. 50; S. BISHOP and M. WALKER, Economics of EC Competition Law: Concept, Application and Measurements, op. cit., pp. 131 et seq., paras. 4-023 et seq.).

(22) S. BISHOP and M. WALKER, Economics of EC Competition Law: Concept, Application and Measurements, op. cit., p. 113, para. 4-006.(23) See for more details in this respect, A. LOFARO and D. RIDYARD, “The role of Economics in European Merger Control,” in European Merger Control Law, Ch. 24, para. 24.04[2] (Matthew Bender 2012).(24) The definition of the relevant market focuses on both constraints (demand- side substitutability and supply- side substitutability) with the primary focus on demand- side substitutability (Notice on the definition of relevant market, para. 13). The third source of competitive constraint provided by potential competition is normally not taken into account when defining the relevant market but will be properly undertaken in the second phase of the competitive assessment (Notice on the defini-tion of relevant market, para. 14). For further developments that would exceed the boundaries of the present paper on specific issues that may be encountered in defining the markets (continuous chains of substitu-tion, innovation markets, aftermarkets, two- sided markets …), see Notice on the definition of relevant market, paras.  56 et seq.; S.  BISHOP and M. WALKER, Economics of EC Competition Law: Concept, Application and Measurements, op. cit., pp. 145 et seq., paras. 4-040 et seq.(25) Notice on the definition of relevant market, para. 3.(26) The market definition in a concentration context may be different from the one adopted by the competition authorities under an Article 101 or 102 investigation. When assessing the impact of a 5 to 10 % price increase for the purpose of the SSNIP test, the current prices are the starting point. Indeed, in assessing the likely competitive effects of a concentration, the main competitive concern is whether said concentration will result in an increase in prices above the prevailing level (S. BISHOP and M. WALKER, Economics of EC Competition Law: Concept, Application and Measurements, op. cit., p. 124, para. 4-017). The analysis conducted in concentration inquir-ies is forward- looking. To the contrary, the competitive assessment under Articles 101 and 102 of the TFEU often focuses on whether the firms under investigation are currently subject to effective competition. The issue there is whether prevailing prices have already been increased above the com-petitive level so that the prevailing price level does not provide the appro-priate benchmark against which to assess competitive constraints (S. BISHOP and M. WALKER, Economics of EC Competition Law: Concept, Application and Measurements, op. cit., p. 124, para. 4-017). This problem is known as the “Cellophane fallacy”. The practical implication of this is that the relevant market may be defined differently in concentration or Article 101 or 102 cases (see also A. LOFARO and D. RIDYARD, “The role of Economics in European Merger Control,” op. cit., Ch. 24, para. 24.04[1] [g]; VAN BAEL and BELLIS, Competition Law of the European Community, op. cit., p. 679).

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in the same industry. (27) At EU level for example, decisions rendered at the conclusion of phase  II contain exten-sive examination of the scope of the relevant markets but a large major-ity of transactions notified under the EUMR is approved at the end of phase I where the Commission’s practice is to leave the market definition open. (28) Although these precedents are not binding on the competition authorities in new investigations, (29) they consti-tute a starting point for the assessment of any new concentration. (30)

12.  The competition authorities do not necessarily define what products fall within the scope of each segments identified as a potential market. The parties may not internally define their markets using such segmentation and the acquirer may have to retreat the in-formation at its disposal to fit, as far as possible, with the markets defined by the competition authorities.

13. The acquirer’s team must also keep in mind that the competition authori-ties may send questionnaires to third parties (competitors, customers…) (31) at a later stage in the process and the members of this team must ask them-selves whether the market as they de-fine it will not be vigorously contested by third parties as not corresponding to any commercial reality. (32)

14.  Once the relevant product and geographic markets are defined, the acquirer will assess the market shares

of the various players, determine the market concentration and proceed with the substantive assessment of the con-templated transaction.

2. Substantive assessment

a) Overview

15. A proper competitive assessment needs to take into account a wide range of factors specific to the industry under investigation to assess whether as a re-sult of a concentration, the combined firms, perhaps together with other competing firms will enjoy enhanced market power. (33) Competition au-thorities may apply different tests and procedures in this respect. At EU level, the Commission considers whether the concentration can be expected to give rise to a significant impediment to effective competition (“SIEC” test), in particular as a result of the creation or strengthening of a dominant posi-tion. (34) Even if there exist differences between tests applied at national level, the substantive “merger” assessment remains typically based on widely ac-cepted economic principles with the key focus ultimately being whether the concentration is likely to give rise to anti- competitive effects.

16.  In such assessment, a key issue considered by the competition authori-ties is what would have happened in the absence of the concentration (i.e. the counterfactual to the concentra-tion). (35) In most cases the market

conditions existing at the time of the transaction constitute the relevant com-parison for evaluating the effects of a concentration. However, in certain cir-cumstances, future changes to the mar-ket that can reasonably be predicted may be taken into account. (36)

17. The issues to be investigated may be categorised according to the nature of the concentration in question al-though a particular concentration may fall into more than one category. At EU level, the Commission would assess the contemplated concentration both on the basis of the Horizontal and Non- Horizontal Mergers Guidelines. (37) The acquirer will adopt the same ap-proach for its internal analysis and focus on the main points of attention raised by the type of concentration concerned.

18. This preliminary assessment helps the acquirer to determine more pre-cisely the possibility to obtain an ap-proval in phase  I. If the acquirer identifies potential issues, it may start thinking about remedies to be pro-posed to the relevant competition au-thority in order to entirely eliminate the competition problem and render the concentration compatible with the internal market. Should it appear that the sole remedy consists of the disposal of so- called Crown Jewels, (38) the ac-quirer may renounce to the acquisition.

19. During its preliminary assessment, the acquirer may realize that its mar-ket share on a relevant market is higher

(27) If the Competition authorities have not yet made any decision in the acquirer’s industry, the application of a SSNIP test will be necessary. Even if it knows the market definitions adopted in past decisions by the competition authorities, the acquirer will be well inspired to re- apply a SSNIP test when assessing a specific concentration. A practical applica-tion of the hypothetical monopolist test in this first internal assessment phase does not require in principle formal econometric analysis (S. BISHOP and M. WALKER, Economics of EC Competition Law: Concept, Application and Measurements, op. cit., p. 124, para. 4-017). Should the findings of this first analysis raise significant doubts on the compatibility of the transaction with the common market, the acquirer may ask external con-sultants to conduct a more detailed economic analysis what could lead to a refined definition of the relevant market(s). For more details on the main classes of empirical techniques used in this respect, see A. LOFARO and D. RIDYARD, “The role of Economics in European Merger Control,” op. cit., Ch. 24, para. 24.04[4].(28) N. LEVY, European Merger Control Law, Ch.  8, Definition of the relevant market, para.  8.02[3] (Matthew Bender 2012); P. CHRISTENSEN, K. FOUNTOUKAKOS and D. SJÖBLOM, “Mergers,” in The EC Law of Competition, op. cit., p. 475, para. 5.208.(29) Where the Commission has previously examined a market, the bur-den is in practice placed on the notifying parties of the new transaction to show why the previous definition was incorrect or should be changed in the light of new circumstances or information (N. LEVY, European Merger Control Law, op. cit., Ch. 8, Definition of the relevant market, para. 8.02[3]). Concerning the geographic dimension of the market, it is noteworthy that the Commission takes the view that decisions identify-ing EEA wide markets that were adopted before the enlargement of the EU may no longer be relied on (N. LEVY, European Merger Control Law, op. cit., Ch. 8, Definition of the relevant market, para. 8.05[3]).

(30) N. LEVY, European Merger Control Law, op. cit., Ch. 8, Definition of the relevant market, para. 8.02[3].(31) Notice on the definition of relevant market, para. 40.(32) Parties may prepare a “communication strategy” to better inform customers or suppliers who may have concerns about the transaction, once it has been publicly announced.(33) S. BISHOP and M. WALKER, Economics of EC Competition Law: Concept, Application and Measurements, op. cit., p. 107, para. 4-001.(34) Horizontal Mergers Guidelines, para.  1. For more developments on the choice between the dominance and the substantial lessening of competition standards, see A. LOFARO and D. RIDYARD, “The role of Economics in European Merger Control,” op. cit., Ch. 24, para. 24.03[1] [f]; L.- H. RÖLLER and M. DE LA MANO, “The impact of the new substantive test in European Merger Control,” E.C.J., Vol. 2, No. 1, April 2006, pp. 9 et seq.(35) Horizontal Mergers Guidelines, para. 9.(36) Horizontal Mergers Guidelines, para. 9.(37) Guidelines (2008/C 265/07) on the assessment of non- horizontal mergers under the Council regulation on the control of concentrations between undertakings, para.  7 (hereinafter referred to as the “Non- Horizontal Mergers Guidelines”).(38) Indeed, the solution proposed must eliminate the competition con-cerns raised by the concentration in their entirety and must be capable of being implemented effectively in a short period of time. In respect of divestments remedies, the divested activities must consist of a viable busi-ness that can effectively compete with the “merged” entity on a lasting basis, if operated by a suitable acquirer. Consequently, it does not suffice to propose the disposal of one or two loss making lines of production to satisfy requirements from competition authorities (P. ELLIOTT and J. VAN ACKER, “Merger control – European Union,” op. cit., p. 222). The remedy should also pass the market testing.

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than expected. (39) The acquirer may even realize that it already has a domi-nant position in one or several of the markets concerned and that certain of its existing practices may need to be adapted.

20. If the sale of the target company is organized through an auction process, this preliminary assessment will help the acquirer to better understand what its industrial competitors could do or not in the auction (for example, if they are exposed or not to a potential phase II, if they have to notify at EU level or at national level …). Should private investment funds participate to the auction process, the analysis will be less useful in this respect for the acquirer as they are usually not pre-sent in the sector concerned and have thus no similar competition problems.

b) Horizontal mergers

1. Concept

21. Horizontal mergers (used as a ge-neric term) are concentrations between actual or potential competitors which operate at the same level of the sup-ply chain, and typically involve firms that compete in the production or sale of substitutable goods or services. (40) The majority of concentrations that give rise to competition concerns are hori-zontal concentrations.

22. Once the acquirer has defined the relevant market(s), it will try to calcu-late its market share(s) (by volumes and by sales (41)) and estimate the one(s) of its competitors. The acquirer will use various sources of information in this respect. (42) The acquirer will then calculate the concentration ratios on such market(s). A commonly used measure of market concentration is the

Herfindahl- Hirschman Index (HHI). The HHI is calculated by summing the squares of the market shares of the firms within the market.

23.  Market shares and concentration levels provide useful first indications of the market structure (43) and of the competitive importance of the par-ties and their competitors. (44) Even if there exists no concrete market share threshold below which a concentration will be approved or above which it will be prohibited, it is likely that a con-centration resulting in a market share below 25 % will not impede effective competition. (45) In its assessment, the competition authority will consider the market concentration before and after the proposed transaction, as measured by the HHI. (46) Even if this index may be used as an initial indicator of the ab-sence of competition concerns, it does not give rise to a presumption of either the existence or the absence of such concerns. (47)

24. There are two conceptually distinct means by which a horizontal concen-tration might give rise to competition issues: through “non- coordinated” or “unilateral” effects and through “coor-dinated” effects. (48)

2. “Non- coordinated” or “unilateral” effects

25.  “Non- coordinated” effects arise where a significant competitive con-straint is eliminated by the con-centration, such that the combined entity could unilaterally and profit-ably increase prices or behave anti- competitively otherwise.

The acquirer may invoke various coun-tervailing factors (49) to demonstrate that the concentration will not give rise

to unilateral effects. Depending on the circumstances, the acquirer may argue that (i) the target company and it are not close competitors, (ii)  custom-ers have the possibility and ability to switch suppliers given the competitive nature of the sector, (iii)  competitors have excess capacity and may easily ex-pand output, (iv) the combined entity has not the ability to hinder expansion by competitors, (v)  the concentration does not result in the elimination of an important competitive force such as a “maverick player,” (vi) there exists potential competition from other geo-graphic markets, (vii) barriers to entry or expansion are low, (viii) customers have a strong countervailing buying power and may change their existing practices, develop alternative sources of supply, enter the market themselves or sponsor entry by others, (ix) the in-crease in market share resulting from the concentration is de minimis, (x) ef-ficiencies brought about by the concen-tration will benefit to the consumers, (xi)  the target company is a failing firm (50) which would otherwise exit the market, (51) (xii) the combined en-tity would face fierce competition from other major players with large portfo-lios or (xiii) the brand loyalty does not play a significant role on the markets concerned. (52)

The competitive analysis will be based on an overall assessment of the fore-seeable impact of the concentration in light of the relevant factors and condi-tions and the preceding list must not be considered as a “checklist” of argu-ments to be applied mechanically in each case. (53)

(39) The acquirer might have considered the market too broadly in com-parison with the market definition adopted by the competition authorities, or the market structure might have changed since the previous analysis or the acquirer might have never made such market analysis seriously.(40) A central issue is to determine whether there is an overlap between the activities of the undertakings concerned.(41) Both volume sales and value sales provide useful information. In case of differentiated products, sales in value and their associated market shares will usually be considered to better reflect the relative position and strength of each player (Notice on the definition of relevant market, para. 55).(42) See section C.2. below.(43) Historic market shares may also provide a useful insight into the competitive dynamics of the market. For example, changes in market shares over time (i.e. the last three to five years) might suggest that there is effective competition in the market. In sectors with short innovation cycles, the probative value of market shares is limited (Case T- 79/12, Cisco Systems and Messagenet v. Commission, para. 69).(44) Horizontal Mergers Guidelines, para. 14.(45) Recital 32 of EUMR and Horizontal Mergers Guidelines, para. 18. This threshold differs from the one of the horizontal “affected markets” for which additional information is required in the notification.

(46) Horizontal competition concerns are unlikely in a market with a post- concentration HHI below 1,000 or in a market with a post- concentration HHI between 1,000 and 2,000 if the increase in the HHI resulting from the concentration (the “delta”) is below 250 or in a market with a post- concentration HHI above 2,000 if the increase in the HHI resulting from the concentration is below 150, except in certain special circumstances (such as a concentration with a maverick firm, significant cross- shareholdings …) (Horizontal Mergers Guidelines, paras. 19 and 20).(47) Horizontal Mergers Guidelines, para. 21.(48) Horizontal Mergers Guidelines, para. 22.(49) Horizontal Mergers Guidelines, paras. 26 et seq.; VAN BAEL and BELLIS, Competition Law of the European Community, op. cit., pp. 687 et seq.(50) See for a “failing division” example, the press release issued by the European Commission on September  2, 2013 entitled “Mergers: Commission approves acquisition of Shell Harburg refinery assets by Nynas AB of Sweden.”(51) Such exit would deteriorate the competitive structure of the market to at least the same extent.(52) Should the market be characterized by several of these factors, the acquirer may have a better chance to obtain the concentration clearance.(53) Horizontal Mergers Guidelines, para. 13.

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3. “Coordinated” effects

26.  A horizontal concentration may also be anti- competitive if it leads to “coordinated effects” which are fre-quently referred to as tacit coordination or collective dominance.

In markets predominantly supplied by a small number of firms (i.e. oligopolis-tic markets), a concentration may sig-nificantly impede competition if there exists a likelihood of coordination be-tween different firms on matters such as price, quality or output.

In its internal assessment, the acquirer will analyze the prevailing competitive dynamics and pay notably attention to the factors conductive to coordination such as the transparency of the market, the stability in firms’ market shares and market concentration, the symmetry of the various players, the homogeneity of the products and the degree of inno-vation in the market, (54) the barriers to entry, the extent to which custom-ers switch suppliers over time, the low buyer power, the absence of maverick firm …

Coordination is more likely to emerge in markets where it is relatively simple to reach a common understanding on the terms of tacit coordination (identi-fication of the focal point for coordi-nation). In the Airtours case, the Court of First Instance (55) laid down the fol-lowing three- prong test (56) that was later adopted in the Horizontal Mergers Guidelines. First, the coordinating firms must be able to monitor with a suffi-cient degree of speed and precision whether the terms of coordination are being adhere to. Second, discipline re-quires some form of credible deterrent mechanism that can be activated against “cheaters” (temporary price war for ex-ample). Third, the reaction of outsiders, such as current and future competitors not participating in the coordination, as well as customers, should not be able

to jeopardise the results expected from the coordination. (57)

c) Vertical and conglomerate mergers

1. Concept

27.  Vertical “mergers” are concentra-tions between firms operating at dif-ferent levels of the supply chain (for example between a raw material sup-plier and a manufacturer, or between a wholesaler and a retailer). Generally, these concentrations raise less con-cerns (58) as they entail no loss of di-rect competition between firms in the same market and often result in sub-stantial efficiencies. (59)

28.  Conglomerate “mergers” may be defined as concentrations between firms active in different, but related markets (excluding horizontal and vertical concentrations), such as those between suppliers of complementary products (60) (i.e. products that are often purchased or sold together). (61)

29. The primary concern regarding ver-tical and conglomerate concentrations is that a firm with market power in one market might try to use this market power to extend its power into a sec-ond market. By leveraging its market power in such a way, the combined en-tity may be able to foreclose competi-tors from the upstream, downstream or conglomerate market and thus act anti- competitively. Non- horizontal con-centrations are unlikely to pose a threat to effective competition (62) unless the combined entity has a significant de-gree of market power in at least one of the markets concerned. The Non- Horizontal Mergers Guidelines provide a threshold comparable to a “safe har-bour” for vertical and conglomerate mergers where the market share of the combined entity is below 30 % on each of the markets concerned and the post- merger HHI is below 2000, (63) ex-cept where special circumstances exist

for example in the event of significant cross- shareholdings, indication of past or ongoing coordination … (64)

2. “Non- coordinated” or “unilateral” effects

30.  In vertical concentrations, the guidelines focus on two methods which may lead the combined entity to en-gage in foreclosure: a strategy of input foreclosure by which the combined en-tity would restrict the availability of raw materials/key inputs to downstream ri-vals or a strategy of output/customer foreclosure by which the combined entity may restrict access to a sufficient customer base to rivals in the upstream market. (65)

31.  In conglomerate concentrations, such foreclosure may be achieved in particular through the tying or bun-dling of complementary products. The concern being that the combined en-tity forces customers to buy groups of products and makes it difficult for rival suppliers of certain individual products to compete. (66)

32.  The Non- Horizontal Mergers Guidelines propose an analysis focus-ing on a)  the ability of the combined entity to engage in foreclosure, b) its in-centives to do so and c) whether a fore-closure strategy would have significant adverse effects on competition. (67)

The ability of the combined entity to engage in foreclosure will depend on a number of factors including the im-portance of the product to customers/suppliers and the existence of a sig-nificant degree of market power in the upstream/downstream or conglomerate market. (68)

Even if the combined entity has the ability to engage in foreclosure, it is also relevant to consider whether it has a clear profit incentive to adopt such behaviour. The profit incentive calcula-tion will depend upon various factors,

(54) Coordination is more difficult in markets characterized by high prod-ucts heterogeneity and innovation.(55) Case T- 342/99, Airtours v. Commission, para. 62.(56) This has led the Commission to apply a more systematic analytical framework instead of relying on a non- binding list of factors as indica-tors of collective dominance (N. LEVY, European Merger Control Law, op. cit., Ch. 14, Coordinated effects, para. 14.04; A. LOFARO and D. RIDYARD, “The role of Economics in European Merger Control,” op. cit., Ch. 24, para. 24.06[2] [b]).(57) Horizontal Mergers Guidelines, para. 41.(58) Non- Horizontal Mergers Guidelines, paras. 11 to 13.(59) For example, the internalization of pre- existing double mark- ups, the reduction of inventory costs, investments on new products …(60) Non- Horizontal Mergers Guidelines, para. 91.(61) This concept is sometimes referred to as “portfolio power” which implies that a firm controls such a wide range of products that it has mar-ket power to structure prices, to proceed with tying and to use econo-

mies of scale for example in sales, logistics and marketing to leverage its dominant position in one product to create or strengthen its position in another related product (VAN BAEL and BELLIS, Competition Law of the European Community, op. cit., p. 727).(62) In this analysis, the impact on effective competition is crucial, not the mere impact on competitors at some level of the supply chain. In particular, the fact that rivals may be harmed because a concentration creates efficiencies does not in itself give rise to competition concerns (Non- Horizontal Mergers Guidelines, para. 16).(63) Non- Horizontal Mergers Guidelines, para. 25.(64) Non- Horizontal Mergers Guidelines, para. 26.(65) Non- Horizontal Mergers Guidelines, para. 30.(66) Non- Horizontal Mergers Guidelines, para. 93.(67) Non- Horizontal Mergers Guidelines, paras. 32 et seq.(68) Non- Horizontal Mergers Guidelines, paras. 33 to 39, 60 to 67 and 95 to 104.

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including the type of strategy being considered, the amount of revenue that would be foregone in a specific market and the additional sales revenue in the upstream, downstream or conglomerate market(s) that would be gained by the combined entity. (69)

Counter- strategies or “outside options” available for customers or suppliers to reduce their dependence on the com-bined entity may imply that the fore-closure strategy has no or only a limited impact on competition and ultimately on consumers. (70)

3. “Coordinated” effects

33. Coordinated effects for vertical and conglomerate concentrations must be assessed by the acquirer using a similar framework as set out above for hori-zontal concentrations (71) but with spe-cific consideration given to how such concentrations increase the likelihood or efficiency of any anti- competitive coordination. (72) A vertical concentra-tion may for example affect coordinat-ing firms’ incentives to adhere to the terms of coordination. (73) A vertically integrated firm may be in a better posi-tion to maintain pricing and effectively punish rivals when they choose to de-viate from the terms of coordination because the firm in question is either an important customer or supplier of the “cheater”. Similarly, a conglomerate concentration may increase the multi-market contacts between coordinating firms and these interactions on several markets may increase the scope and ef-fectiveness of disciplining mechanisms. Such concentrations may also reduce the possibility to destabilize the coor-dination by increasing barriers to entry.

C. TYPES OF EVIDENCE AND PROBATIVE VALUE

34. During the preliminary assessment phase, the acquirer’s team will start collecting the information required to complete the notification(s). (74) The assessment being fact- specific and involving several analytical tools, evidence from various sources may be available. Even if there is no pre- established hierarchy between the types of evidence that may be used (75)

and if no single type of evidence may be dispositive in any given case, the ac-quirer must be aware of differences in the probative value for the competition authorities of evidence obtained from different sources (76) and pay attention to the overall corroborative effect of the evidence gathered.

All types of evidence described below are not available to the acquirer, in par-ticular during the preliminary assess-ment process, but the acquirer should keep these various sources in mind as the competent competition authority may confront it with such evidence in the course of the proceedings.

1. Parties’ evidence

35.  Concentrations with Community dimension must be notified using a prescribed form (Form CO) (77) which requires the submission of exten-sive information and data. Such form is more a pleading in many respects than a simple form. (78) This repre-sents the first (79) and sometimes the best opportunity to present affirmative evidence regarding the contemplated transaction. This submission may influ-ence the approach to be adopted by the Commission for its review of the operation. (80)

2. Market share data

36. As indicated above, market shares and concentration levels provide useful first indications of the market structure and of the importance of the various players in the market. The acquirer may use various sources of information to estimate the market share of its com-petitors (the information memorandum, market analyses made by its business intelligence department, the perception of the market shares by its sales depart-ment, reports published by industry associations or independent experts, information from official sources, like Eurostat …). (81)

Market share data will typically need to be supplemented by other quantitative or qualitative evidence to carry out a comprehensive survey. (82)

3. Internal documents

37. The Form CO requires the submis-sion of business documents such as internal reports, analyses, market stud-ies, surveys, presentations and other transaction- related documents prepared for the board of directors or other inter-nal committees of the acquirer. In prac-tice, potentially hundreds of internal documents may need to be provided to the Commission, even below board of management level and including e- mail correspondence. (83)

The Commission has relied on a num-ber of occasions on such pre- existing documentary evidence to corroborate or contradict positions advanced by the parties on the market definition (84) and the competitive environment (85) or to better understand the rationale of the concentration.

(69) Non- Horizontal Mergers Guidelines, paras. 40 to 46, 68 to 71 and 105 to 110.(70) Non- Horizontal Mergers Guidelines, paras. 47 to 57, 72 to 77 and 111 to 118.(71) See section b), 3°.(72) Non- Horizontal Mergers Guidelines, paras. 81 to 90 and 119 to 121.(73) Non- Horizontal Mergers Guidelines, paras. 82 et seq.(74) Such gathering of information may involve interactions between a limited number of people from several departments in the acquirer’s organization and confidentiality measures may be necessary in order to avoid leaks. Once the transaction is publicly announced, the gathering of information may be pursued and finalized more easily by involving additional employees.(75) Case T- 342/07, Ryanair Holdings plc v. Commission, para. 136.(76) N. LEVY, European Merger Control Law, op. cit., Ch. 10, substantive appraisal, para. 10.10.(77) See section VII for more details on the Form CO and the Short Form.(78) N. LEVY, European Merger Control Law, op.  cit., Ch.  10, substan-tive appraisal, para. 10.10[1]; N. LEVY, “Evidentiary issues in EU Merger Control,” in Annual proceedings of the Fordham Corporate Law Institute 2008, New York, Juris Publishing, 2009, p. 123.(79) During the process, the acquirer may still be invited by the Commission to submit evidence on certain matters.

(80) N. LEVY, European Merger Control Law, op.  cit., Ch.  10, substan-tive appraisal, para. 10.10[1]; OCDE Competition Committee roundta-ble discussion on evidentiary issues in merger review: the European Commission, October 2006, accessible on http://ec.europa.eu/competi-tion/international/multilateral/oecd_submissions.html, para. 10.(81) The availability of comprehensive and reliable data varies from case to case and sometimes poses a problem to the parties seeking to use share calculations for guidance. This problem may sometimes be re-solved after the Commission has requested actual sales data from the firms in the industry, what only occurs after the investigation process is underway (A. LOFARO and D. RIDYARD, “The role of Economics in European Merger Control,” op. cit., Ch. 24, para. 24.04[3] [b]).(82) N. LEVY, European Merger Control Law, op.  cit., Ch.  10, substan-tive appraisal, para. 10.10[2]; N. LEVY, “Evidentiary issues in EU Merger Control,” op. cit., p. 128.(83) F. CARLIN and G. BUSHELL, “The devil in the detail: European merger regulation reforms increase burden for merger parties,” accessible on http://www.bakermckenzie.com/fr, p. 4.(84) OCDE Competition Committee roundtable discussion on eviden-tiary issues in merger review: the European Commission, October 2006, op. cit., para. 25.(85) N. LEVY, European Merger Control Law, op. cit., Ch. 10, substantive appraisal, para. 10.10[3].

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With its concentration simplification package recently adopted, (86) the Commission aimed at alleviating ad-ministrative burdens on companies but many practitioners fear that several changes introduced may to the contrary increase the amount of information to be furnished in certain situations, both for short- form and long- form filings. (87)

The teams involved in the transaction should pay a particular attention to the loose use of technical terms such as “markets,” “dominant position,” “barri-ers to entry” … in internal documents but also in documents created by finan-cial or strategic advisers as they may raise unnecessary concerns if reviewed by the Commission. (88) Ideally and even if this constitutes a challenge for in- house lawyers, such discipline in document creation should also apply earlier in the process at the level for in-stance of the internal committees which periodically assess the market(s) and the potential targets. (89)

4. Independent industry reports

38. The competent authority will typi-cally rely on pre- existing independent studies by industry experts not only to generate market share data but also to provide evidence of the dynamics and characteristics of the market(s) con-cerned. (90) Knowing that competition authorities attach importance to such “neutral” information, the parties must take such reports into account during their preliminary assessment and for the preparation of the notification(s), even if people active in the industry are sometimes perplex as to their ac-curacy or the methodology used to

collect or process the data, in particu-lar when broad geographic markets are concerned.

5. Business person statements

39. The Commission is generally skep-tical about witness statements given by senior employees. The Commission has sometimes used such statements to un-derline certain inconsistencies with po-sitions taken by the parties during the review process or to assess the likeli-hood of a potential entry in the absence of the transaction. (91)

6. Competitor testimony

40. The acquirer must remain cautious in the explanations given to the compe-tition authorities as competitors may be requested to provide information about the market and its functioning, (92) the supply- side substitution, the competi-tive alternatives available … that could be used to support the theory of harm under investigation. (93) However, competitors are rarely neutral about a concentration and their complaints should be treated with some skepti-cism (94) as they may be more con-cerned by the fact that they will face a stronger competitor than by possible harmful effects on customers. (95)

7. Customer testimony

41. Customer testimony (generally in the form of written responses to ques-tionnaires (96) sent by the competition authorities) may for instance provide indications of competition concerns, corroborate expert and documentary evidence or support findings on the market definition, (97) Competition authorities should nevertheless be

cautious with such evidence as (i) even if customers’ opinion is informative, it is not a substitute for factual evi-dence, (98) (ii)  customers may be bi-ased or poorly informed, (iii) the panel of customers questioned may not be representative, (iv)  the way the ques-tions are worded may be ambiguous and lead to unreliable answers and (v)  opinions of intermediate custom-ers may not be conclusive of consumer behavior. (99)

8. Consumer surveys

42.  Consumer surveys properly con-ducted may provide useful evidence in particular on the consumer willingness to shift demand in response to a change in price in respect of the product market definition. (100) The probative value of a consumer survey commissioned by the parties in the context of the con-centration review will be lower than a survey conducted by the parties in another context. (101) The Competition authorities may also initiate consumer surveys or request external experts to carry out such surveys on their behalf.

9. Empirical analyses

43. The Horizontal and Non- Horizontal Mergers Guidelines being grounded in economics, they have increased the re-liance placed by competition authorities on quantitative evidence (102) ranging from the collection of “basic data” (such as market share or pricing data) to com-plex statistical and econometric analy-ses. (103) In the past, the Commission relied on empirical analyses for exam-ple to evaluate market definitions and competitive effects, to assess the ability of the combined entity to raise prices,

(86) Commission implementing regulation (EU) No.  1269/2013 of December 5, 2013 amending regulation (EC) No. 802/2004 implementing the Council regulation (EC) No. 139/2004 on the control of concentra-tions between undertakings.(87) See for example the new sections 5.3 and 6.2 of the short Form CO and sections 5.4 and 6 of the long Form CO in respect of the supporting documents to be produced or the definition of all plausible alternative markets.(88) For more details on the investigation powers of the Commission, see VAN BAEL and BELLIS, Competition Law of the European Community, op. cit., p. 757.(89) Even if no concrete opportunity exists at that time.(90) N. LEVY, European Merger Control Law, op. cit., Ch. 10, substantive appraisal, para. 10.10[5].(91) Ibid., para.  10.10[4]; Case No. COMP/M.3149, Procter & Gamble/ Wella, paras. 44-48.(92) OCDE Competition Committee roundtable discussion on evidentiary issues in merger review: the European Commission, op. cit., para. 17.(93) N. LEVY, European Merger Control Law, op. cit., Ch. 10, substantive ap-praisal, para. 10.10[7]; N. LEVY, “Evidentiary issues in EU Merger Control,” op. cit., p. 139; OCDE Competition Committee roundtable discussion on evidentiary issues in merger review: the European Commission, op. cit., para. 19.

(94) Competitors are less likely to complain about anti- competitive merg-ers that result in higher prices.(95) N. LEVY, European Merger Control Law, op. cit., Ch. 10, substantive appraisal, para. 10.10[7].(96) For more details on the practice of so- called “Article 11 letters,” see VAN BAEL and BELLIS, Competition Law of the European Community, op. cit., p. 756.(97) Ibid., p. 679; N. LEVY, European Merger Control Law, op. cit., Ch. 10, substantive appraisal, para. 10.10[6].(98) The absence of concerns identified by customers does not necessar-ily mean that a concentration is not anti- competitive.(99) N. LEVY, European Merger Control Law, op. cit., Ch. 10, substantive appraisal, para. 10.10[6].(100) OCDE Competition Committee roundtable discussion on evi-dentiary issues in merger review: the European Commission, op. cit., para. 30; N. LEVY, European Merger Control Law, op. cit., Ch. 10, substan-tive appraisal, para. 10.10[8].(101) N. LEVY, European Merger Control Law, op. cit., Ch. 10, substantive appraisal, para. 10.10[8].(102) OCDE Competition Committee roundtable discussion on eviden-tiary issues in merger review: the European Commission, op. cit., para. 34.(103) N. LEVY, European Merger Control Law, op. cit., Ch. 10, substantive appraisal, para. 10.10[9].

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to measure the degree of price paral-lelism  … (104) The Economics Best Practices Guidelines provide that eco-nomic models or econometric analyses will rarely prove conclusive by them-selves. (105) In Deutsche Börse / NYSE Euronext, the Commission confirmed its view that it has a certain discretion especially with respect to assessments of an economic nature and that quanti-tative analysis may be useful but by no means mandatory. (106)

IV Letter of intent, Term sheet, Memorandum of Understanding, Offer

44.  Following its preliminary as-sessment, the acquirer may formally confirm its interest in the potential ac-quisition through a letter of intent or a preliminary “offer.” The parties could also enter into a term sheet or a mem-orandum of understanding. The pur-pose of such documents is to set out the fundamental terms of the transac-tion before the parties invest resources, time and money in due diligence in-vestigations as well as the drafting and negotiation of comprehensive agree-ments. (107) The provisions of said documents are generally non binding, except the exclusivity, (108) the non- solicitation (109) and the governing law and jurisdiction clauses.

Several aspects of such documents re-late expressly or implicitly to competi-tion law. For example, they may briefly provide that the potential acquisition will be conditional upon the approval of the transaction by the competition authorities, that the transaction contem-plated will be subject to representations and warranties customary in this kind of

transaction (110) and that the acquirer may withdraw from the discussions or review the enterprise value (111) should the data room reveal detrimental issues. (112) Said documents may also specify the competition authority that will need to be notified and the main arguments to be developed to obtain the approval. Finally, they may contain the principle of certain indemnity rights should competition law problems have been identified.

V Due Diligence

45. During the due diligence process, the acquirer has access to information on the target company and its business. The legal due diligence team pays nota-bly attention to competition law issues. It focuses on major financial risks such as pending or threatened cartel investi-gations against the target company or its subsidiaries or abuses of dominance (for instance rebates schemes in breach of Article 102 of the TFEU) but also on contracts with suppliers and customers that may contain null and void provi-sions (such as resale price maintenance clauses, territorial restrictions on pas-sive sales …). (113) This list is not ex-haustive. Other aspects to be checked relate for example to the potential reim-bursement of illegal state aids or to the absence of required approvals in previ-ous M&A deals.

46.  A secret cartel will in principle not be discovered in the data room which is generally populated with con-tracts (114) and other legal and finan-cial documents sorted out by the seller and its advisors before being disclosed to the acquirer. Should an ongoing car-tel investigation be at an early stage,

there may not be a lot of documents available. (115) It may be limited to the power of attorney granted to a lawyer to apply for leniency or to a copy of minutes where an existing cartel inves-tigation is mentioned. On the basis of such information, the acquirer may ask additional questions to the seller and reconsider the price offered, take the necessary contractual measures (if any) to meet that risk or even abandon the project.

47. The outcome of the due diligence investigation may also help the ac-quirer to determine the measures to be adopted after the closing of the trans-action. It may decide to implement a more in- depth internal audit on a spe-cific aspect once it is the owner of the company, to stop doubtful practices or to put a training and/or compliance program in place.

VI Share purchase agreement

48. Many provisions in share purchase agreements directly or indirectly con-cern competition law.

As a prolonged review by the competi-tion authorities may significantly dete-riorate the business conducted by the target company, especially if the con-templated transaction is eventually pro-hibited, (116) sellers have developed strategies to allocate or shift competition law risks. To determine the obligations it wishes to impose on the acquirer to benefit from an optimal protection in given circumstances, the seller needs to properly assess the competition law aspects of the concentration. (117) This preliminary assessment is generally less refined than the one conducted by the acquirer. Nevertheless, it allows the

IV V

VI

(104) N. LEVY, European Merger Control Law, op. cit., Ch. 10, substan-tive appraisal, para. 10.10[9]; N. LEVY, “Evidentiary issues in EU Merger Control,” op. cit., pp. 143 et seq.(105) DG Competition best practices for the submission of economic evidence and data collection in cases concerning the application of Articles 101 and 102 TFEU and in merger cases, para. 4.(106) Case No. COMP/6166, Deutsche Börse / NYSE Euronext, para. 246.(107) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.03[3][a].(108) Such exclusivity clauses are typically of short duration and only affect the seller’s freedom to enter into negotiation with an alternative buyer. Such provisions do not normally raise issues under Article 101 of the TFEU (J. R. MODRALL, “Competition law issues in the M&A deal pro-cess,” op. cit., para. 25.03[3][d]).(109) Restrictions on the potential buyer to recruit employees of the seller would in principle not have appreciable effects on competition and raise generally no issue. A prohibition against soliciting the seller’s customers and suppliers may be more sensitive. It should be specified that the non- solicitation obligation applies only to customers that the acquirer becomes aware of through the confidential information received (J.  R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.03[3][e]).

(110) See section VI, C, on the compliance with law representations and warranties.(111) The enterprise value is generally the starting point to calculate the equity value and thus the purchase price.(112) It is sometimes provided that such rights may be exercised only if the issue discovered may not be dealt with in the share purchase agree-ment (through an indemnity clause for example).(113) This may imply a change in practices and a renegotiation or lead in the worst cases to litigious situations with such suppliers or customers after the completion of the deal.(114) To the exclusion of exchange of e- mails, notes from meetings, …(115) However, the fact that a seller hides that a cartel investigation is ongoing might reveal and be considered as a willful misconduct or fraud.(116) R. STEUER, J. SIMALA and J. ROBERTI, “Competition law in merger trans-actions: managing and allocating risk in the new normal,” Competition Law International, Vol. 9, No. 1, April 2013, p. 42.(117) A. SCOTT and V. HOGAN, “Getting the deal done: antitrust risk- shifting provisions in merger agreements,” accessible on http://www.wsgr.com/PDFSearch/sher_fall11.pdf, p. 78.

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seller to identify the major antitrust con-cerns existing, to estimate the time and resources required to complete the nec-essary filings and to determine whether remedies might be required. On their side, acquirers must be aware of the various interacting risk- sharing mecha-nisms usually relied on by sellers and of their respective advantages and disad-vantages. This will enable them to adopt their own strategy and make suitable counter- proposals. The solutions finally negotiated and reflected in the contract shall depend on the risk appetite of the parties and on their bargaining power.

Given the Commission fining policy in cartel cases and the initiatives taken to encourage whistle blowing, new provi-sions dealing with these concerns also appear in share purchase agreements and certain customary provisions, not initially related to competition law and barely discussed in the past, are now seriously negotiated by the parties due to their potential impact in a competi-tion law context.

A. MERGER CONTROL CONDITION

1. Condition precedent

49. A concentration with Community dimension can in principle not be im-plemented before the approval by the Commission. A similar rule applies in most Member States. The clearance from the competition authorities is thus a condition precedent in most share purchase agreements.

50.  The provision may clarify which approvals are concerned. (118) Should the condition only cover “required” approvals, it may be argued that it

does not catch approvals in jurisdic-tions where notification is voluntary or whose laws do not prohibit closing of a notified transaction before the trans-action is cleared, even if it raises sub-stantive issues. (119) As approvals may also be appealed by interested parties, it is sometimes suggested that acquirers should insist that all approvals required or advisable be obtained and that they have become final, without any appeal or challenge to such approvals having been filed. (120)

2. Approval covenants

51. The contract usually provides that the seller will cooperate (121) in pro-viding reasonable assistance to the acquirer in the preparation of the com-petition filings. (122) The intervention of external lawyers may be provided to avoid exchange of sensitive information between the parties.

52. The extent of the acquirer’s obliga-tions to obtain the necessary approvals raises more controversial issues than the obligation to make filings. (123) Depending on the magnitude of the competition issues identified during their respective preliminary assessment, the parties may consider various alter-natives in the level of burden imposed on the acquirer.

The acquirer may be only subject to a general obligation to attempt to ob-tain the necessary approval(s). Such obligation may range from the use of “commercially reasonable efforts,” “rea-sonable efforts,” “reasonable best ef-forts” to “best efforts.” The meaning of such terms may be ambiguous and vary depending on the law applicable to the

share purchase agreement. To avoid these uncertainties in the context of possible remedies, the acquirer may try to negotiate a right to walk away (124) in the event it would have to proceed with a disposal for example.

On its side, the seller usually expects the acquirer to do whatever is neces-sary to obtain the approval from the competition authorities, including agreeing to any divestures or remedies even if they change the economics of the transaction. Such provisions are sometimes called “hell or high water clauses.” (125)

Between these two ends of the spec-trum, the acquirer may agree to divest business or accept remedies that would not have a “material adverse effect” on the combined entity’s activities, to ac-cept divestures or other remedies up to a certain quantitative threshold (for in-stance based on the turnover or on the book or market value of the asset con-cerned) or to identify precisely the rem-edies acceptable in a list for example of the subsidiaries, plants or product lines that it would be willing to divest. (126)

Such clauses are not only difficult to negotiate but they also draw the atten-tion of the competition authorities on potential issues (“red flag effect”) (127) and could make them believe there is a problem where none exists. As a prac-tical matter, the acquirer may fear that any possible remedy specified in the agreement becomes the minimum re-quired by the competition authority and reduces its “bargaining power” vis- à- vis such authority.

Including such understanding in a sep-arate document such as a side letter is

(118) For developments on the “carve out and close” or “close around” option that consists in holding separate assets in a jurisdiction and close the rest of the transaction to avoid that the lack of approval in a juris-diction holds up the entire deal, see R. STEUER, J. SIMALA and J. ROBERTI, “Competition law in merger transactions: managing and allocating risk in the new normal,” op. cit., p. 43.(119) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][f].(120) Ibid.(121) The cooperation of the seller is especially required to finalize the notification in auction processes where limited information is usually available in the data room so that the acquirer does not know precisely when it prepares the notification what are the sales by destination, the market shares, the volumes … of the target company in the relevant market(s) identified.(122) Sometimes, such clauses are more broadly written and cover not only the information required to complete the notification and obtain the approval from the competition authorities but also the information necessary to undertake preparatory actions regarding the implementation of the transaction and ensure the integration of the acquired business. Parties should remain cautious and effectively limit their exchanges of information between signing and closing to what is strictly necessary for these purposes (without effective implementation of the transaction before closing) to avoid any possible concern under Article 101 of TFEU

or under the standstill obligation provided for in the EUMR. The acquirer may take safeguard measures such as the intervention of a “clean team” for the transition planning.(123) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][e][ii].(124) Depending on the manner such provision is drafted, the acquirer might also be protected by a material adverse change clause that could allow him to abandon the transaction in the event the value of the con-templated operation significantly changes following the intervention of the competition authorities.(125) R. STEUER, J. SIMALA and J. ROBERTI, “Competition law in merger trans-actions: managing and allocating risk in the new normal,” op. cit., p. 37; J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][e][ii].(126) A. SCOTT and V. HOGAN, “Getting the deal done: antitrust risk- shifting provisions in merger agreements,” op. cit., p. 70; J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][e][ii]; R. STEUER, J. SIMALA and J. ROBERTI, “Competition law in merger trans-actions: managing and allocating risk in the new normal,” op. cit., pp. 37 et seq.(127) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][e][iii]; A. SCOTT and V. HOGAN, “Getting the deal done: antitrust risk- shifting provisions in merger agreements,” op. cit., p. 71.

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in principle not a satisfactory solution as the notifying party must provide, all documents bringing about the con-centration with the notification. Even if such document is not filed with the no-tification, it may have to be disclosed in response to questions form the relevant competition authorities. (128)

For these reasons, the parties may re-nounce inserting such specific clauses in their agreements and limit language to “plain vanilla” provisions (129) in order to focus on other risks allocation or risks shifting provisions contained in the share purchase agreement.

3. Obligation to contest

53. Even if it is not frequent in practice, the agreement may contain obligations for the parties to contest, including by litigation, certain decision of the competition authorities such as a deci-sion to prohibit the deal. The parties must carefully weigh such obligations and determine the stage of litigation to which they commit, (130) the fees arrangements as well as the party re-sponsible for the decisions related to the litigation. By shifting the risk of litigation to the acquirer, the seller may try to encourage the acquirer to accept greater divestures. (131)

4. Drop- dead date

54. The parties may provide a drop- dead date after which one or both of them may terminate the share purchase agreement if the transaction has not closed. (132) The parties must be rea-sonable in establishing such date taking into account the time required to obtain the concentration approval(s), (133) in

particular where multijurisdictional fil-ings are necessary. The substantive as-sessment made by each party (134) as well as their knowledge of the various competition authorities practices and timelines (135) shall play a decisive role in setting the drop- dead date. Should the acquirer seek flexibility in respect of the drop- dead date, the seller may insist on stronger obligations for the acquirer to obtain the clearance. (136)

5. Indemnity in the event of prohibition

55. Another solution for the seller to be protected against the risk the condi-tion precedent is not fulfilled or at least to be financially compensated therefore is to require an indemnity (in the form for instance of a reverse breakup fee or termination fee) from the acquirer in the event of failure to obtain the ap-proval. (137) This possible compensa-tion might induce a reluctant seller to move forward with a deal despite the substantive issues identified and the associated complications or to prefer a bidder instead of another in sales organ-ized through auction processes. (138)

As a recent example shows, acquirers should be careful with such provision. Following the Commission’s decision to prohibit the proposed acquisition of TNT Express by UPS, UPS had to pay a contractual “termination fee” of 200 MEUR to TNT Express. (139)

B. CONTRACTUAL RESTRICTIONS ON STRATEGIC DECISION OR EXPENDITURE

56. In the share purchase agreement, the seller commonly covenants that the target company will be run in the

ordinary course of business between signing and closing. The acquirer gen-erally imposes restrictions on strategic decisions (financing, corporate restruc-turing, dismissal of key employees …) or on expenditure (140) above a cer-tain amount to make sure that the seller will not make decisions between sign-ing and closing that could completely change the financial or legal situation of the target company or jeopardize the strategic plans of the acquirer. Even if some limitations of the seller’s or the target company’s conduct before clos-ing may be legitimate (to maintain the integrity of the target company or for in-tegration planning purposes), the seller remains the owner of the target com-pany between signing and closing and the target company must be able to be-have independently and pursue a com-petitive business strategy during this period. Even if the Commission has, to our knowledge, not to date found that pre- closing “ordinary course” covenants resulted in a violation of competition law rules, (141) imposing unusually stringent restrictions that could block any business decision or lead to coor-dination between signing and closing might be considered as a premature ex-ercise of control involving gun- jumping or challenged under Article 101 of the TFEU. (142)

C. REPRESENTATIONS AND WARRANTIES

57. The seller generally represents and warrants that its statements of facts in the share purchase agreement are true and accurate at the date of the agree-ment or the closing and undertakes,

(128) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][e][iii].(129) The parties may also opt for a “simple” clause when they have not identified substantive competition law concerns.(130) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][e][ii].(131) A. SCOTT and V. HOGAN, “Getting the deal done: antitrust risk- shifting provisions in merger agreements,” op. cit., p. 72.(132) “Ticking fees” might constitute an acceptable alternative for the acquirer which is then obliged to pay interest on the purchase price if the transaction does not close by a certain date (R. STEUER, J. SIMALA and J. ROBERTI, “Competition law in merger transactions: managing and allo-cating risk in the new normal,” op. cit., p. 37).(133) The acquirer should specify in the contract that the time limit to obtain the necessary approval(s) is subject to the efficient cooperation of the seller.(134) Where substantive issues have been identified, fixing the drop- dead date is critical and may lead to intense negotiation to let the competition authorities sufficient time for the review without however encouraging protracted investigations or non- constructive approaches (A. SCOTT and V. HOGAN, “Getting the deal done: antitrust risk- shifting provisions in merger agreements,” op. cit., p. 76).(135) In certain slower jurisdictions, clearance on a deal that lacks sub-stantive issues may take several months (R. STEUER, J. SIMALA and J. ROBERTI, “Competition law in merger transactions: managing and allocating risk in the new normal,” op. cit., p. 43).

(136) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][g].(137) The tools of reverse breakup fee and drop- dead date can be used by sellers in combination to allocate the concentration approval risk. For instance, the agreement may provide that if the drop- dead date for ter-mination of the transaction is extended due to the opening of a phase II, the acquirer will have to pay a reverse breakup fee in the event of pro-hibition decision (J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][g]).(138) A. SCOTT and V. HOGAN, “Getting the deal done: antitrust risk- shifting provisions in merger agreements,” op. cit., p. 67; R. STEUER, J. SIMALA and J. ROBERTI, “Competition law in merger transactions: managing and allo-cating risk in the new normal,” op. cit., p. 36.(139) See the document accessible on http://www.sec.gov/Archives/edgar/data/1090727/000109072713000005/ups- 12312012xexhibit2.htm and the Annual Report (2012) of TNT Express, accessible on http://www.tnt.com, p. 5.(140) Often, the acquirer specifies that such decisions require its prior written consent.(141) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][e][i].(142) BELLAMY and CHILD, European Union Law of Competition, 7th edi-tion, Oxford University Press, 2013, pp. 579 and 580, para. 8.127. See section VII below for more details on gun- jumping.

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subject to certain contractual limits, to indemnify the acquirer for any damage arising from incorrect representations and warranties.

Representations and warranties may deal expressly (143) or implicitly with competition law issues. Often the ac-quirer relies on the “compliance with law” clause (144) which is a standard provision in which the seller states that the target company has complied with all applicable laws, rules and regula-tions. In the absence of disclosure (“clean representation”), the risk of vio-lation is put on the seller who will be held liable to the acquirer for any com-petition law infringement committed by the target company.

58. To limit its risk, the seller shall in-sert certain limits to its liability in the contract.

The de minimis, the basket (145) and the cap are the traditional financial limits.

The de minimis aims at eliminating in-significant individual claims, i.e. claims for which the amount at stake is so negligible that the acquirer accepts not to take them into account to calculate the basket and renounces to be indem-nified for. The basket is a cumulative amount of claims (exceeding the de minimis threshold) below which the seller shall not have to compensate the acquirer. The parties consider that it is only opportunistic to trigger the con-tractual indemnification mechanisms if such basket is exceeded. (146) The cap is the maximum amount for which the seller may be held liable in the event of breach of the representations and war-ranties. It usually corresponds to a cer-tain percentage of the purchase price and gives comfort to the seller who

knows that the remaining of the price is not at risk.

Sellers also insert time limits (147) in the contract to reduce their risk of li-ability for breach of the representations and warranties. Such time limits vary in function of the representations and warranties concerned and generally range from 12 and 24 months except for the ownership of the shares (“title”) and tax, social and environmental law matters. A recent trend for acquirers consists in extending such period in the event of breach of the representa-tions and warranties related to compe-tition law issues. This trend might be reinforced following the recent initia-tives facilitating damage actions, under the form of “class actions”, in particular after competition law infringements.

59. The acquirer must be cautious with the disclosures which are exceptions to the representations and warran-ties. (148) The acquirer should refuse a full disclosure of the data room against the representations and warranties. Such practice is dangerous for the ac-quirer as the data room may contain hundreds of contracts and documents and any piece of information disclosed in the data room would be considered as an exception to the representations and warranties. It is in the acquirer’s interest to require only accurate disclo-sures under the form of schedules or a specific disclosure letter. (149)

D. (ANTI- )SANDBAGGING PROVISION

60.  The concept of “sandbagging” refers to the right of an acquirer to bring an indemnity claim on the basis of breaches of the representations

and warranties by the seller which are known by the acquirer prior to the closing of the transaction. (150) Anti- sandbagging provisions are seller- friendly as they limit or prohibit indemnification for any matter known by the acquirer prior to the closing of the transaction. (151) To the contrary, pro- sandbagging provisions reinforce the position of the acquirer (152) as it would keep the right to be indemnified despite any knowledge or awareness of a breach of the representations and warranties. (153)

Depending on the law applicable to the contract and on the circumstances, the silence of the parties in this respect may not constitute a good protection (154) for the acquirer. The judge or the ar-bitrator may consider the acquirer foreclosed from asserting a breach of the representations and warranties if it closed the deal with the “knowledge and acceptance” of the facts constitut-ing such a breach. (155)

E. SPECIFIC INDEMNITY

61.  Should a major competition law issue be discovered (156) during the due diligence process, it is important for the acquirer, taking into account the fi-nancial risk at stake, to be fully covered under a specific indemnification provi-sion. Contrary to the representations and warranties, specific indemnities are gen-erally not limited in time and amount.

The parties must draft such provision carefully, in particular where the ac-quirer’s due diligence has revealed po-tential competition law violations that have not yet resulted in an investigation or otherwise become public. References

(143) Through express promises regarding the absence or extent of com-petition law liabilities.(144) Other representations and warranties may also implicitly concern competition law issues (for example statements on litigation or on the absence of undisclosed liabilities).(145) In practice, the basket is sometimes also referred to as the “thresh-old”.(146) Depending on the way the provision is drafted, the acquirer may then be indemnified as from the first euro or for what exceeds the basket amount.(147) The acquirer has to notify the seller of its claim within a specific period otherwise it will be time- barred.(148) Should a serious infringement to competition law be disclosed, the acquirer may require a specific indemnity in this respect, take the risk of pursuing the transaction without such a protection or reconsider the transaction.(149) The acquirer may then be aware of potential or existing competi-tion law problems at the reading of the disclosures.(150) H. T. SPILKO and D. J. GOLDMAN, “The importance of sandbagging provisions from a buyer’s perspective: what you know may harm you,” 2009, accessible on http://www.kramerlevin.com, p. 1.(151) A. MIZIOLEK and D. ANGELAKOS, “Sandbagging. From poker to the world of mergers and acquisitions,” Michigan Bar Journal, June 2013,

p. 30; H. T. SPILKO and D. J. GOLDMAN, “The importance of sandbagging provisions from a buyer’s perspective: what you know may harm you,” op. cit., p. 2.(152) A. MIZIOLEK and D. ANGELAKOS, “Sandbagging. From poker to the world of mergers and acquisitions,” op.  cit., pp.  30 et seq.; T. SPILKO and D. J. GOLDMAN, “The importance of sandbagging provi-sions from a buyer’s perspective: what you know may harm you,” op. cit., p. 2.(153) The argument invoked by the acquirer in this respect is that the seller should know the content of the data room and should be liable for the past conduct of the business.(154) L. P.  IOVINE, “Sandbagging in M&A deals: silence may not be golden,” 2012, accessible on http://www.paulhastings.com, pp.  1 and 2; C. K. WHITEHEAD, “Sandbagging: default rules and acquisition agreements,” Delaware Journal of Corporate Law, 2011, Vol. 36, pp. 36 et seq.(155) H. T. SPILKO and D. J. GOLDMAN, “The importance of sandbagging provisions from a buyer’s perspective: what you know may harm you,” op. cit., p. 3.(156) Even if no specific risk has been identified, the acquirer may still wish to be covered by a specific indemnity provision for example if the seller has been condemned for competition law infringements several times in the past.

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to potential infringements in the share purchase agreement may increase the risk of investigation, especially if the agreement needs to be disclosed. (157)

62. The acquirer must keep in mind the parental and successor liability mecha-nisms which may play a role in terms of due diligence, risk assessment, draft-ing of contractual provisions and post- closing integration.

If a target company involved in a car-tel for example remains in existence after the closing, it retains its liability in accordance with the principle of per-sonal responsibility. (158) This is the case whether or not the infringement has ceased before the transfer. (159) The seller may be held liable (usually, jointly and severally) for the infringing conduct of the target company during the period of its ownership, should the conduct of the target company be at-tributed to it in accordance with the rules governing parental liability. (160) If the target company is “absorbed” into the acquirer and ceases to exist, the acquirer shall succeed to the tar-get company’s previous liability in ac-cordance with the principle of legal continuity. (161)

Given the possible interactions between the parental and successor liability re-gimes, acquirers of parent or interme-diate holdings must not only check for the involvement of such target com-pany but also of its current or past subsidiaries in a cartel. (162) Indeed, should the target company be held personally liable for an infringement by

one of its subsidiaries on the basis of parental liability and should the target company be absorbed after the closing by a company of the acquirer’s group, such liability might be transferred to the successor company. (163)

The acquirer may thus not only obtain sufficient protection in the share pur-chase agreement (through a specific indemnity clause) (164) but also mini-mize the exposure of the acquirer’s group by ensuring the infringement has ceased and by limiting post- sale integration. (165)

F. FINANCIAL SURFACE

63. The financial stability and capac-ity of the seller is of utmost importance to comply with its indemnification ob-ligations under the contract. Should the seller be liquidated, go bankrupt or be unable to pay, the acquirer would lose the protection provided in the contract and finally bear the risks. The acquirer may request a guarantee from the seller’s parent company to remain pro-tected in these circumstances.

64.  Should the seller be the parent company of the seller’s group, and as it is generally difficult to obtain a bank guarantee or to put in place an escrow account for more that 18 months (166) in such context, the acquirer sometimes accepts a commitment from the seller not to proceed with restructurings or operations that may materially affect its financial surface and consequently its capacity to comply with its indemnifica-tion obligations. (167)

G. PURCHASE PRICE ADJUSTMENT MECHANISM

65. The parties may choose a purchase price adjustment as an alternative to a specific indemnity clause. Like the spe-cific indemnity, the purchase price ad-justment mechanism is not subject to the financial and time limits applicable to the representations and warranties. The parties would rather opt for a spe-cific indemnity clause if an investiga-tion has just started whereas they may prefer a price adjustment (168) if they expect a fine to be imposed or to be confirmed just before or rapidly after the closing of the transaction. (169)

H. CONDUCT OF PROCEEDINGS

66.  Share purchase agreements gen-erally contain provisions relating to the conduct of defense in the event of “third party claims”. This generic term covers any litigation initiated by or claim made by a third party, such as an investigation by the competition authorities. Should no investigation or claim be ongoing, such provision is generally standard. The situation is dif-ferent if a competition law investigation or proceedings is pending. The parties then prefer to insert a tailored- made clause (170) in their agreement in addi-tion to the general clause applicable to the other third party claims.

I. RETENTION OF DOCUMENTS

67. When an investigation of the compe-tition authorities is ongoing, the acquirer

(157) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][e].(158) Case C- 279/98 P, Cascades v. Commission, paras. 78 to 80.(159) Where the target company continues the infringement after the transfer and liability can be attributed to the acquirer, the acquirer may be held responsible for the conduct of its new subsidiary with effect from the date of acquisition (Case C- 286/98 P, Stora Kopparbergs Bergslags v. Commission, paras. 37 to 39).(160) Joined cases T- 117/07 and T- 121/07, Areva and others v. Commission, paras.  116 to 120; L.  ORTIZ BLANCo, EU Competition Procedure, New York, Oxford University Press, 2013, p. 480, para. 11.19; Joined cases T- 122/07 and T- 124/07, Siemens AG Österreich and others v. Commission, paras. 139 et seq.(161) Rules are different in respect of asset deals. The company pre-viously responsible for the assets continues to be liable as long as it remains in existence, in accordance with the principle of personal re-sponsibility. It is only in principle when that company no longer exists that the acquirer of the assets responsible for the infringement attracts liability for the infringement on the basis of economic continuity or in the event of abuse. Where the transferred assets continue the infringement under the responsibility of the new owner (and the company previously responsible for those assets remains in existence), in accordance with the principle of personal responsibly, liability is only to be attributed to the new owner from the time which it acquires control over the assets (A. BROWN and M. SCHONBERG, “Widening the net: the General Court ex-tends the principle of successor liability in EU Competition Law,” ECLR 2013, 34 (1), also accessible on http://www.herbertsmithfreehills.com,

p. 3; see also Case T- 146/09, Parker ITR and Parker- Hannifin Corp v. Commission, paras. 87 et seq.(162) A. BROWN and M. SCHONBERG, “Widening the net: the General Court extends the principle of successor liability in EU Competition Law,” op. cit., p. 4.(163) Ibid.(164) The acquirer may also insert a clause in the share purchase agreement by which the seller commits to pay the fine or to provide a bank guarantee in the event of appeal of the decision rendered by the Commission. Otherwise, the risk exists that the acquirer or the target company has to pre- finance until a decision is made on the appeal.(165) The acquirer should avoid for example merging the target com-pany with another subsidiary of its group in order to ring- fence the li-ability within the acquired company after the closing (N. KAR, C. WARNER and D. BOWMAN, “Cartel fines: sharing the blame?,” accessible on http://ld.practicallaw.com).(166) In cartel cases, the proceedings may take several years before a fining decision is made.(167) Such commitment is difficult to obtain form sellers in particular when they are listed.(168) The tax implications of each alternative may also influence the choice of the parties.(169) The parties may also agree that part of the price is blocked on an escrow account while waiting for the decision.(170) H. DUBOUT, “La gestion des réclamations de tiers dans les garanties de passif,” Bull. Joly Soc., 2003, pp. 599 et seq.

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generally wants to be informed about the proceedings but without necessarily conducting the defense. The seller who risks being condemned jointly and sev-erally with the target company in a cartel case for instance shall typically con-duct the defense and may have already taken initiatives in this respect (such as the filing of a leniency application). To pursue the conduct of defense after the closing, the seller may need to access documents of the target company or to receive information from its employees (who were for example involved in the infringement). (171) The contract may impose a cooperation obligation to the acquirer and the target company. This obligation is however not without risk as the seller may invoke at a later stage a lack of cooperation (172) and try to reduce the indemnity it owes to the ac-quirer. A solution sometimes used in practice is to let the seller take a copy of all the documents of the target com-pany it deems necessary at closing to ensure the defense and to provide the acquirer with the list and the copy of such documents. (173)

J. MITIGATION CLAUSE

1. Mitigation duty

68. Mitigation provisions are customary in share purchase agreements. They re-flect a well admitted legal principle (i.e. the duty of the parties to limit the dam-age suffered) but are generally broadly written to encompass compromise, set-tlement or admission of liability situa-tions. The parties may also choose to deal with such situations in the conduct of proceedings provision which could for example require the prior consent of the other party before any initiative is taken in this respect. Such require-ment may raise more difficulties in car-tel situations (following in particular the initiatives from the competition authori-ties in the field of immunity or leniency

applications (174)) than in other fields of law. Indeed, time is of the essence in immunity or leniency processes as the first applicants will benefit from the im-munity or the higher fine reductions, the fines imposed by the Commission are substantial (deterrence effect) and the parties do no have at that time any idea of the damages that may be claimed by customers in follow- on actions.

2. Immunity and leniency

69.  Should a cartel be discovered during the due diligence process, the acquirer may threaten the seller to abandon the transaction unless the target company immediately applies for immunity and sufficient protective measures (against in particular subse-quent damages actions) are provided for in the share purchase agreement.

70. Mitigation provisions may be dif-ficult to deal with in the event the acquirer would discover clues of a pre- existing cartel after the closing. (175)

When negotiating the share purchase agreement, the seller is unlikely to ac-cept that the acquirer or the target com-pany be entitled to apply for immunity after the closing. The seller may indeed be fined for its own participation in the cartel and held liable for the expenses incurred by the acquirer and the tar-get company during the investigation and for damages claimed by customers afterwards. The Seller would prefer in such a situation to wait until the in-fringement is time- barred. (176)

The situation might be different for leni-ency applications as in such a case, the acquirer or the target company would not be the first whistle blower but would only react to an ongoing investi-gation and try to reduce the amount of the fine to be imposed notably on the target company and subsequently re-covered from the seller under the share purchase agreement. However, this remains delicate to negotiate and the

seller may wish to assess first its finan-cial exposure in terms of fine, damages and expenses or to contest the alleged infringement.

The question of the undertaking cov-ered by the leniency application in such case arises. According to the 2006 Leniency Notice, leniency or immunity is applied for and granted to undertak-ings in the competition law sense. (177) It is important to determine which legal persons belong to the undertaking and are meant to be covered by the appli-cation. This is of particular relevance to group of companies where the im-munity or leniency application may be made by the subsidiary involved in the infringement or its parent com-pany. (178) Generally all undertakings belonging to a single economic unit at the time of the immunity or leniency application are covered by the applica-tion and the subsequent decision from the Commission. (179) Despite the Leniency Notice wording, it may appear that limiting the application to a single economic unit would run counter to the aims of the Commission’s leniency policy. (180) In a situation of successive parents, the former parent on the one hand and the new parent and the di-rectly involved subsidiary on the other hand are generally considered to have a sufficiently strong isolated interest to apply separately for immunity or leni-ency. (181) However, one may wonder if there would not be good reasons in certain circumstances to grant immunity or the same level of leniency to both undertakings on the basis of a single immunity or leniency application.

Due to the current wording of the Leniency Notice and the uncertainties acquirers remain confronted with, they may choose to remain silent in the con-tract in this respect rather than to try to negotiate flexible solutions with the risk of counterproductive effects.

(171) H. DUBOUT, “La gestion des réclamations de tiers dans les garanties de passif,” op. cit., p. 600.(172) For example if the documents requested may not be found and communicated.(173) It will then be more difficult for the seller to invoke an alleged breach of their cooperation obligation by the acquirer or the target company.(174) To increase the likelihood of detecting cartels, competition authori-ties have adopted leniency programs whereby firms engaged in a cartel are encouraged to confess this activity in order to avoid fines (immu-nity) or to obtain a substantial reduction of fines (leniency). See the Commission notice (2006/C 298/11) on immunity from fines and reduc-tion of fines in cartel cases. Other types of restrictions are normally less difficult to detect and/or investigate and therefore do not justify being dealt with under a leniency programme.(175) Despite the considerations on the mitigation clause and a possible immunity application, such situation may lead to or revive discussions

on the accuracy and completeness of the representations and warran-ties and of the disclosures, on the sandbagging provisions and on an alleged fault committed by the seller in the due diligence and negotia-tion processes.(176) In the meantime, the seller would propose to provide the acquirer with a specific indemnity undertaking.(177) L. ORTIZ BLANCO, EU Competition Procedure, op.  cit., p.  252, para. 6.10.(178) VAN BAEL and BELLIS, Competition Law of the European Community, op. cit., p.  1139; L. ORTIZ BLANCO, EU Competition Procedure, op. cit., p. 252, para. 6.10.(179) Case T- 161/05, Hoechst v. Commission, paras. 75 to 79.(180) L. ORTIZ BLANCO, EU Competition Procedure, op.  cit., p.  253, para. 6.11.(181) Ibid.

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3. Settlements

71.  In 2008, the Commission intro-duced a settlement procedure for firms involved in a cartel proceedings. (182) After having seen the evidence in the Commission’s file, the firms concerned may submit a settlement submission, acknowledging their involvement in the cartel and their liability for it. In re-turn, the Commission reduces the fine imposed on the parties by 10 %.

72.  In non cartel cases, Article  9 of Regulation 1/2003 empowers the Commission to adopt decisions accept-ing commitments offered by under-takings in the course of proceedings where the Commission intends to adopt a decision that orders termination of a potential infringement. (183) The com-mitment must constitute an appropri-ate remedy to the competition concern identified and is rendered binding upon the undertaking to which the so- called “Article  9 decision” or “commitment decision” is addressed. (184) Said deci-sion intends to bring an apparent ongo-ing infringement to an end and restore competition in the market.

73. In both situations, an acquirer may wish to settle in order to terminate a proceedings or to reduce the financial risk but share purchase agreements generally contain provisions which re-quire the agreement of both parties to settle any existing claim. (185) It might be less difficult to negotiate a balanced solution in this respect than for immu-nity or leniency applications as at the settlement stage, the proceedings is al-ready ongoing, immunity and leniency

may already have been applied (in car-tel cases) and the parties will probably both be engaged in finding a solution to further reduce the financial conse-quences of an already materialized risk.

K. NO RECOURSE PROVISION

74. Even if the validity of such clause may be challenged in certain jurisdic-tions, the acquirer usually requires an undertaking from the seller not to claim damages to the target company, its di-rectors or employees for past activities. The purpose of such clause is to avoid the disruptive effects caused by a claim made by the previous owner on the basis for instance of prior infringements to competition law rules.

L. NON- COMPETITION PROVISION

75. The acquirer making a huge invest-ment to purchase the target company, it does not want the seller who knows the business, the suppliers and the customers to recommence the same activity just after the sale. Non- compete provisions relate to the post closing phase of the transac-tion and are classical in share purchase agreements. The purpose is to let the ac-quirer sufficient time to gain the loyalty of customers, to assimilate and exploit the acquired know- how and finally to benefit from the full value of the business.

76. Non- competition clauses are justi-fied (186) when their duration, their geographical field of application, their object and the persons subject to them do not exceed what is reasonably

necessary to achieve legitimate objec-tives as those mentioned above. (187)

They are acceptable for periods of up to three years, when the transaction includes the transfer of customer loyalty in the form of goodwill and know- how. When only goodwill is included, such clauses should be limited to two years. (188)

The geographical scope of the clause must be limited to the area in which the relevant products or services were offered before the transfer. (189)

Similarly, non- competition clauses must remain limited to products and services forming the economic activity of the target company. (190)

The seller may bind itself, its subsidiar-ies and commercial agents. However, an obligation to impose similar restrictions on others would not be regarded as di-rectly related and necessary to the im-plementation of the concentration. (191)

Clauses which limit the seller’s right to purchase or hold shares in a company competing with the business transferred may be justified under the same condi-tions. However, the seller must not be prevented from purchasing or holding shares purely for financial investment pur-poses, with no right to management func-tions or material influence attached. (192)

77. Non- compete clauses are generally completed by non- solicitation commit-ments from the seller who undertakes not to interfere with customers or sup-pliers of the target company and not to hire any key employee (193) of the target company during a certain period. Non- solicitation clauses are evaluated in a similar way (194) as non- compete provisions. (195) (196)

(182) Commission regulation (EC) No. 622/2008 of 30 June 2008 amending regulation (EC) No. 773/2004, as regards the conduct of settlement pro-cedures in cartel cases; Commission notice (2008/C 167/01) on the conduct of settlement procedures in view of the adoption of decisions pursuant to Article 7 and Article 23 of Council regulation (EC) No. 1/2003 in cartel cases.(183) The case must not be one where the Commission intends to im-pose a fine such as a hardcore cartel case (recital 13 of Council regula-tion No. 1/2003 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty; Commission Memo/04/217 of September 17, 2004 entitled “Commitment decisions (Article 9 of Council regulation 1/2003 providing for a modernised framework for antitrust scrutiny of company behaviour)”).(184) L. ORTIZ BLANCO, EU Competition Procedure, op. cit., p. 577, para. 13.09.(185) Sellers do not want that acquirers alone settle a litigation that may result in an indemnification obligation under the contract and acquirers refuse that sellers alone settle on matters that may imply a cost or other obligations for the target company. See also H. DUBOUT, “La gestion des réclamations de tiers dans les garanties de passif,” op. cit., p. 604.(186) A decision declaring a concentration compatible with the com-mon market shall be deemed to cover restrictions directly related and necessary to the implementation of the concentration (Article 8, (1) of the EUMR and Commission notice (2005/C 56/03) on restrictions directly related and necessary to concentrations, para. 1 (hereinafter referred to as the “Notice on ancillary restraints”)). (187) By contrast, non- competition clauses cannot be considered neces-sary when the transfer is in fact limited to physical assets (such as land,

buildings or machinery) or to exclusive industrial and commercial pro-perty rights (Notice on ancillary restraints, para. 21).(188) Notice on ancillary restraints, para. 20.(189) This geographical scope can be extended to territories into which the seller was planning to enter at the time of the transaction, provided that the seller had already invested in preparing this move (Notice on ancillary restraints, para. 22).(190) This can include products and services at an advanced stage of development at the time of the transaction, or products which are fully developed but not yet marketed (Notice on ancillary restraints, para. 23).(191) Clauses which would restrict the freedom of resellers or users to import or export would not be acceptable (Notice on ancillary restraints, para. 24).(192) Notice on ancillary restraints, para. 25.(193) Such commitment reassures the acquirer who may more easily retain key employees to effectively run the business after the acquisition.(194) Notice on ancillary restraints, para. 41.(195) The Notice on ancillary restraints (paras. 27 et seq.) also provides specific rules for IP rights licence agreements or purchase and supply obligations that may be necessary (for example during a transitional period) to implement effectively the concentration and avoid disruptive effects and losses of value.(196) The fact that certain commitments do not qualify as ancillary to the concentration does not mean that they automatically infringe Articles 101 or 102 of the TFEU (J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.06[2]). They will be subject to a more in- depth assessment under these articles.

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M. ALLOCATION OF EXPENSES

78.  Lengthy merger proceedings can be expensive. Allocating the expenses (advisors fees, translation costs …) be-tween the parties is not a protection against the business risks associated with the merger control proceedings but may be a manner for the seller to shift, to a certain extent, the costs re-lated to such risks to the acquirer. (197)

VII Notification

79.  The acquirer (198) of the tar-get company has to file the notifica-tion. (199) The acquirer usually starts working on the notification before fi-nalizing the negotiation of the share purchase agreement. (200)

The practices of the various competi-tion authorities may vary in terms of information requirements, translations, pre- notifications processes …

We will focus hereafter on the rules ap-plicable to the notification of concentra-tions with Community dimension.

80. The notification will be completed on the basis of the preparatory inter-nal assessment made by the acquirer and the information gathered (see sec-tion III above). There exists a difference in philosophy between both exercises. During the preliminary assessment, the acquirer conducts a risk analysis and notably checks (i) what would be the situation should the Commission con-firm the definition of the market(s) adopted in previous cases, (ii) whether there are reasons to depart from such

precedents to further sub- segment the market, (201) (iii) what are the argu-ments that the competition authority could oppose to the concentration and what are the possible answers or so-lutions in this respect. In contrast, the notification is a form of pleading where the acquirer proposes a definition of the relevant market(s) ideally in line with the Commission precedents (if any) and its analysis of the situation. The acquirer also provides evidence and underlines the suitable and convincing elements to obtain the approval. (202) Nevertheless, the information provided by the ac-quirer must be correct and complete.

81.  The Form CO specifies the in-formation that must be provided by the notifying parties when submit-ting a notification to the Commission. Concentrations which are unlikely to pose any competition concerns can be notified using a Short Form. (203)

The acquirer is required to provide information on numerous aspects of the transaction and the markets con-cerned. (204) Pre- notification contacts with the Commission are valuable in de-termining the precise amount of infor-mation required in the notification. (205)

The time- limits provided under the EUMR will not begin to run until all the information to be supplied with the notification has been received by the Commission. (206)

82. A notifying party who supply in-correct or misleading information may be fined (207) and the Commission may revoke its compatibility decision if it was based on incorrect information

for which the notifying party was responsible.

83. The notification must be completed in one of the official languages of the EU and this language will thereafter be the language of the proceedings. Supporting documents are to be submit-ted in their original language and where this is not an official language of the Community, they must be translated into the language of the proceedings. (208)

84. Sensitive information may be sub-mitted separately and marked as “busi-ness secret” and the notifying party must give the reasons why it should not be divulged or published. (209)

85. The acquirer must notify the con-centration with Community dimen-sion to the Commission before the implementation of the transaction. The acquirer generally notifies the contem-plated concentration following the con-clusion of the share purchase agreement even if the parties might agree to do so following for instance the execution of the letter of intent provided they dem-onstrate that their plan for the proposed concentration is sufficiently concrete.

86. The implementation of the concen-tration is in principle suspended until the Commission’s final decision. A failure to notify and obtain the approval (210) before implementing the transaction (“jumping the gun”) can put the legal va-lidity of the transaction in question (211) and lead to a significant fine. (212)

There are two main exceptions to the “standstill obligation.” Firstly, the Commission may grant a derogation from the suspension requirement on reasoned

VII

(197) In practice, the parties generally accept to bear the fees of their own counsels.(198) Article 4, (2) of the EUMR.(199) A concentration which consists of a merger sensu stricto or an acquisition of joint control shall be notified jointly by the parties to the merger or to the joint acquisition of control.(200) In auction processes, a draft notification is sometimes requested to the acquirer together with the final offer and the marked share purchase agreement it would be willing to sign.(201) If there exist uncertainties in this respect, it is generally not in the interest of the acquirer to identify in its notification smaller market seg-ments than those defined in previous cases.(202) The Commission is of course not obliged to retain the market definition proposed by the acquirer and is not bound by the market analysis made by it.(203) Article 3, (1) of the Commission regulation (EC) No. 802/2004 im-plementing the EUMR.(204) Description and details of the concentration, information about the parties, market definitions with additional information in the event of affected or significantly impacted markets … (see for more details sec-tions 6 and 7 of the Form CO).(205) VAN BAEL and BELLIS, Competition Law of the European Community, op. cit., p. 751; G. L. TOSATO and L. BELLODI, EU Competition Law, vol. I, Leuven, Claeys & Casteels, 2006, p. 305, para. 10.5.(206) The notification will only be effective and phase I will only start on the date on which complete and accurate information is received by the Commission (Article 10, (1) of the EUMR).(207) Up to 1 % of the aggregate turnover of the undertaking concerned (Article 14, (1) of the EUMR).

(208) Article 3, (4) of the Commission regulation (EC) No. 802/2004 im-plementing the Council regulation (EC) No. 139/2004 of January 20, 2004 on the control of concentrations between undertakings.(209) Article 18, (3) of the Commission regulation (EC) No. 802/2004 implementing the Council regulation (EC) No. 139/2004 of January 20, 2004 on the control of concentrations between undertakings.(210) In the event the deadlines prescribed for completion of the Commission’s investigation have expired, the transaction shall be deemed to have been declared compatible and may then be implemented (Articles 7, (1) and 10, (6) of the EUMR).(211) Where the Commission finds that a concentration has already been implemented and that this concentration has been declared incompatible with the common market, the Commission may require the undertak-ings concerned to “dissolve” the concentration, in particular through the disposal of all the shares or assets acquired, or take any other restorative measures (Article 8, (4) of the EUMR).(212) The fine may amount up to 10 % of the aggregate turnover of the undertaking concerned (Article 14, (2) of the EUMR). On 12 December 2012, the General Court handed down a judgment dismissing an appeal by Electrabel against the Commission decision to fine it (20 million EUR) for completing an acquisition without having received prior approval under the EUMR (Case T- 332/09, Electrabel v. Commission, paras. 285 et seq.). The European Court of Justice dismissed Electrabel’s appeal against this judgement (Case C- 84/13P, Electrabel v. Commission). On 23 July 2014, the Commission imposed a fine of a similar magnitude on Marine Harvest for acquiring Morpol prior to receiving merger clearance (see the statement released by the Commission on 23 July accessible on http://europa.eu/rapid/press-release_IP-14-862_en.htm).

Cah. Jur., 2014/3 - 81

request. (213) The Commission occa-sionally uses this power to permit the implementation of transactions outside the EU or in respect of concentrations that clearly raise no competitive con-cern. (214) The Commission also allowed rescue operations requiring quick closure during the financial and economic cri-sis. (215) Secondly, with regard to public bids, (216) the suspension requirement will not be infringed where the bid is im-plemented prior to obtaining the clear-ance provided that (i) the concentration is notified to the Commission without delay and (ii)  the acquirer does not exercise the voting rights attached to the acquired shares or does so only to maintain the full value of its investment (based on an au-thorization from the Commission). (217) Nevertheless, bidders should bear in mind that by implementing the bid early, they run the risk of having to divest the acquired shares if the transaction is finally prohibited. (218) (219)

87.  The fact that the acquirer and the target company must continue to compete between signing and closing raises difficult questions in terms of in-tegration practices. The parties must be cautious not only with pre- closing “or-dinary course” covenants (220) but also with integration initiatives and planning during this period. (221)

The following measures are frequently taken between signing and closing (222) and should in principle cause no diffi-culties: (223) ensuring the compatibility

of the target company’s IT system with the one of the acquirer as from the clos-ing date, reassuring (key) employees to make sure they will not leave the target company before the closing, consider-ing the carve- out issues resulting from previously shared services between the seller and the target company, inform-ing the suppliers and customers of the target company benefiting from change of control provisions so that they waive their contractual protection …

Circumstances leading, separately or in combination, to gun- jumping or infringing Article 101 of the TFEU during said period may be found in the US practice. (224) For example, the parties should refrain, under the cover of integration planning, from making joint pricing decisions, trans-ferring personnel, subjecting the target’s routine decisions to the approval of the acquirer, allocating markets or customers, coordinating business plans, negotiating jointly commercial terms with customers and suppliers, exchanging sensitive infor-mation, … (225) (226)

Most of these examples are obvious but certain aspects remain equivocal and one may regret the lack of guidance from the Commission in this largely fact- specific area. (227)

VIII Conclusion

88.  Competition law and economics are present at every stage of the acqui-sition process.

As from the beginning of the discus-sions, the parties have to keep these aspects in mind. Acquirers have to per-form a sometimes complex assessment of the transaction contemplated and to collect data in this respect, as their ar-guments must be supported by robust evidence to convince the competition authorities.

In the past, share purchase agreements contained only a few provisions specific to competition law dealing essentially with the approval of the concentration by the competition authorities and the non- compete obligation.

Nowadays, competition law has be-come a major concern and is consid-ered as one of the main sources of risks in acquisition of company processes.

This has led practitioners to insert new types of provisions allocating competition law risks between the parties in share purchase agreements but also to reas-sess the impact of customary provisions that may have unexpected consequences when read in a competition law context.

The standards in the “M&A industry” are evolving to circumvent and address these competition law risks and particu-larities, which appear to be at the origin of renewed practices is this sector.

Vincent LEROY

Company LawyerVIII

(213) The derogation may be subject to conditions and obligations (Article 7,(3) of the EUMR).(214) For more details in this respect and additional examples of deroga-tion, see N. LEVY, European Merger Control Law, op. cit., Ch. 17, notifica-tion and administrative procedure, para. 17.03[1]. (215) Final report of the Hearing Officer in Case No. COMP/M.4956, STX/ Acker Yards; Case No. COMP/M.5363, Santander/Bradford & Bingley Assets.(216) Similarly, the prohibition against premature closing will not be infringed in the case of “creeping bids.” Creeping bids involve a series of transactions in securities by which control is acquired from various sellers (Article 7, (2) of the EUMR).(217) Article 7, (2) of the EUMR.(218) P. ELLIOTT and J. VAN ACKER, “Merger control – European Union,” op. cit., p. 206.(219) This happened in the Schneider/Legrand case where Schneider launched a successful public exchange offer on the shares issued by Legrand before the Commission decided to prohibit the concentration and to order the sepa-ration of Schneider and Legrand (Case COMP/M.2283, Schneider/Legrand). Although the Commission’s decision was annulled on appeal (Case T- 310/01, Schneider Electric SA v. Commission), the transaction was subsequently abandoned and Schneider sued the Commission for damages (A. JONES and B. SUFRIN, EU Competition Law: Text, Cases & Materials, 5th edition, Oxford, Oxford University Press, 2014, p. 1,172). In the Tetra Laval/Sidel case, the Commission ordered Tetra Laval to divest the shareholding it acquired in Sidel following a public offer (Case COMP/M.2416, Tetra Laval/Sidel, Commission decision of January 30, 2002) but the decision prohibiting the transaction was finally annulled on appeal (Case T- 5/02, Tetra Laval BV v. Commission). See for more details on these cases, N. LEVY, European Merger Control Law, op. cit., Ch. 17, notification and administrative procedure, para. 17.03[1] [a].(220) See for more details in this respect section VI, B above.

(221) Although the Commission has a relatively modest gun- jumping enfor-cement record, it has already shown its readiness to pursue parties suspected from infringing the suspension requirement. For example, the Commission carried out down raids in the context of Ineos’s proposed acquisition of rival PVC manufacturer Kerling on the basis of alleged exchanges of sen-sitive information, appointment of new managers and instructions given on how to run the business prior to obtaining the clearance. The case was eventually dropped without a finding of gun- jumping (J.- F. BELLIS, P. ELLIOTT and J. VAN ACKER, “The current state of the EU merger control system: ten areas where improvements could be made,” op. cit., p. 338).(222) The parties may put “clean teams” in place to perform certain of these missions.(223) Such measures are in principle neither irreversible nor detrimental to competition in the event the deal would eventually not close.(224) J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][e].(225) See also R. LIEBESKIND, “Gun- jumping: antitrust issues before closing the merger,” 2003, accessible on www.pillsburylaw.com, pp. 1 et seq.; C. R. HIGGINS and D. S. COPELAND, “Premerger planning and coordination – How to avoid ‘gun jumping’ under US Antitrust Law,” in The International Comparative Legal Guide to Merger Control 2008 – A Practical Insight to Cross- Border Merger Control Issues, Ch. 2, London, Global Legal Group Ltd, 2008, pp. 9 et seq. (also accessible on www.kayescholer.com).(226) Basically, prior to closing the acquirer must neither assert manage-ment control over the target company, nor coordinate its behaviour with the latter, nor begin to implement integration plans (J. R. MODRALL, “Competition law issues in the M&A deal process,” op. cit., para. 25.04[1][e]).(227) J.- F. BELLIS, P. ELLIOTT and J. VAN ACKER, “The current state of the EU merger control system: ten areas where improvements could be made,” op. cit., p. 340.