On 27 April 2023, Advocate General (AG) Collins delivered his opinion in Case C-746/21 P Altice Group Lux v Commission.  AG Collins proposed that the Court of Justice of the European Union (CJEU) dismiss Altice’s appeal of the 2021 General Court judgment rejecting (for the most part) Altice’s action for annulment of the 2018 European Commission (Commission) decision which imposed a record €124.5m fine on Altice for breaching EU merger control rules.  In particular, Altice Europe (as it was at the time) was sanctioned for implementing its 2014 acquisition of telecommunications rival, PT Portugal, prior to notifying the transaction and before receiving competition clearance from the Commission – in contravention of requirements under the EU Merger Regulation (EUMR).

Background

Altice, a multinational cable and telecommunications company, notified the Commission on 25 February 2015 of its proposed acquisition of PT Portugal, a Portuguese telecommunications and multimedia operator. The parties had concluded a sale and purchase agreement (SPA) in December 2014 that set out rules governing how PT Portugal’s business would be managed in the period between the signing of the SPA and the closing of the transaction (once clearance by the Commission had been received).  Following commitments given by Altice to the Commission to remedy certain concerns, the Commission cleared the merger on 20 April 2015.

However, the Commission launched an investigation in March 2016 into potential infringements of the gun-jumping rules under the EUMR. In its decision of 24 April 2018, the Commission found that Altice had breached both:

• the notification requirement under Article 4(1) EUMR, by which a qualifying merger must be notified prior to its implementation; and
• the ‘standstill’ obligation under Article 7(1) EUMR, which prohibits the parties from implementing a qualifying merger prior to obtaining clearance.

The Commission concluded that clauses in the SPA governing the management of PT Portugal in the period between signing of the SPA and closing of the transaction had given Altice the ability to exercise decisive influence when the SPA was executed (which was prior to notification, and a number of months prior to subsequent clearance of the transaction) and that Altice had actually exercised this decisive influence over PT Portugal’s day-to-day business. The Commission imposed a fine of €124.5m on Altice – €62.25m for the breach of Article 4(1) EUMR and €62.25m for breach of Article 7(1) EUMR.

General Court judgment

At the General Court, Altice argued that:

• the preparatory clauses in the SPA were of an ancillary nature and did not in themselves amount to early implementation – with implementation also requiring more than the ‘possibility' of exercising decisive influence over the target (i.e. requiring the actual exercise of decisive influence); and
• it was inappropriate for it to be fined twice for what it argued was the same underlying conduct, insofar as the Article 4(1) EUMR notification obligation becomes “redundant” by virtue of a party having been found liable for breaching the Article 7(1) EUMR ‘standstill’ obligation.

The General Court judgment rejected these arguments – in particular, endorsing the Commission’s: (i) finding of premature implementation via contractual clauses that merely entailed the ‘possibility’ of exercising decisive influence (the General Court also agreed with the Commission that Altice did actually exercise this decisive control); and (ii) recognition that there were two autonomous infringements that justified the imposition of two separate fines.

The General Court concluded that, absent any evidence demonstrating a risk of PT Portugal’s commercial integrity being undermined, Altice was not justified in including the pre-completion clauses. These were so numerous and broad that they went well beyond what was strictly necessary to preserve the value of Altice’s investment. For more detail on the General Court judgment, please see our previous alert: Gun-jumping: The EU General Court calls the shots.

Appeal

Altice appealed to the CJEU seeking annulment of the General Court judgment, or for the CJEU to substantially reduce the fines imposed under the contested Commission decision or to refer the case back to the General Court.

Altice argued that the General Court’s judgment infringed the principle of proportionality and the prohibition on double punishment by imposing the two fines cumulatively for breach of the notification requirement under Article 4(1) EUMR and the standstill obligation under Article 7(1) EUMR. Altice also argued that the clauses held to amount to ‘veto rights’ (giving Altice decisive influence over PT Portugal) should not have been interpreted as such.

Opinion of AG Collins

On 27 April 2023, AG Collins handed down his opinion in which he advised that the CJEU ought to dismiss Altice’s appeal. AG Collins draws the following conclusions regarding Altice’s grounds of appeal:

• Separate fines: AG Collins disagrees with Altice’s plea regarding the imposition of two separate fines, agreeing instead with the General Court’s finding that Articles 4(1) and 7(1) EUMR pursue “autonomous objectives” – stating that “the first mandates timely notification whilst the second prohibits early implementation” and that the former cannot, therefore, be regarded as “redundant in the light of the latter”. Given this, separate fines incentivise compliance with both independent obligations.
• The concept of implementation: AG Collins notes that the CJEU ruling in Ernst & Young confirms that a concentration arises as soon as “merging parties implement operations or transactions that contribute to a lasting change in… control”.  As such, Altice’s argument that the pre-closing covenants in question did not constitute a lasting change of control (as they only lasted until the closing of the deal) did not preclude them from amounting to implementation. He also dismisses Altice’s argument that “the possibility to exercise decisive influence” can only be conferred through the transfer of shares and, relatedly, affirms the General Court’s finding that the possibility to exercise decisive influence can give rise to a change of control.
• Veto rights: AG Collins confirms the General Court’s finding that certain pre-closing covenants at issue in the contested decision amounted to a ‘veto right’ as per the European Commission Consolidated Jurisdictional Notice – i.e. being a “situation where the parties to a transaction agree that the buyer’s consent is required for certain business decisions affecting the target”.
• Assessment of fines: AG Collins concludes that Altice intended to implement the deal in advance of notification and clearance by taking steps that were “more than preparatory and went further than preserving the value of the target” and without the normal and appropriate safeguards. It also pursued this despite evidence showing that it had been expressly warned that such conduct would breach applicable rules.  AG Collins adds that the Commission’s reasoning for the level of the fine was adequate given that the harm from gun-jumping infringements is difficult to quantify, and that greater transparency regarding the calculation of fines risks parties simply factoring this into the cost-benefit analysis of a merger. Additionally, AG Collins concludes that Altice’s argument that the fines imposed by the General Court were disproportionate is “manifestly unfounded” – the General Court clearly “had regard to the principle of proportionality in carrying out its review of the fines”.

Looking ahead

As we have previously noted, the Commission is determined to make compliance with the EUMR's procedural rules a key enforcement priority. In turn, the EU courts have systematically endorsed this approach and put parties on notice that they risk significant fines if they fail to observe the EUMR’s strict requirements.  AG Collins’ robust advice regarding Altice’s appeal suggests there will be no watering down of this position. Indeed, his concerns about compliance and emphasis on “deterrence” are underscored by his comment that “Altice’s suggestion that that method of proceeding is normal practice in mergers and acquisitions is worrying and deserves the Commission’s attention.” Whilst it is likely, as with the vast majority of cases, that the CJEU will follow AG Collins’ recommendation, it is not obliged to do so and the final outcome of Altice’s appeal will only be determined when the CJEU hands down its judgment in the case.

This matter highlights the importance of careful drafting of pre-closing covenants to ensure that they do not go further than required to preserve the value of the target, and do not intervene or provide veto rights to the acquirer in relation to the target’s day-to-day business decisions.

As recommended by the General Court in its judgment, merging parties should consider consulting the Commission ahead of any agreement or action that might be construed as implementation of the transaction prior to closing.

Authored by Angus Coulter, Mez Azizi, Eleanor Winn, and Matt Giles.