By Cătălina Burcă-Andonie
ECJ clarifies – conduct not contributing to lasting change of control does not violate the standstill obligation
Pursuant to the EU merger control rules (mirrored in the Romanian legislation as well), an M&A operation involving undertakings with a significant turnover must be notified to the European Commission / national competition authority prior to any implementation – this entails a “standstill obligation” burdening the buyer, as the sole party obliged to make the notification formalities. In very broad lines, the “standstill obligation” means that the buyer signs the transaction deals but undertakes to refrain from implementation (not to change management, not to execute or terminate contracts, not to change the business activity of the bought company etc.).
However, we see more and more often the requirement from the buyer to protect its investment between signing and clearance. And the red line is not always crystal clear. However, this aspect is extremely important, as failure to comply with the standstill obligation can lead to significant fines for the company acquiring control.
Thus, it is very important for any party to a transaction to know the notification thresholds and the obligation to notify prior to implementation. Secondly, it is also important for the parties involved in the operation to know what to do or not to do until the competition clearance is obtained (what are the limits or the leeway within the standstill obligation).
Recently, in Ernst & Young P/S v Konkurrencerådet (Case C-633/16), the Court of Justice of the European Union has provided some guidance on how to act until the transaction is authorized for implementation. The key takes away are as follows:
- Operate independently following execution of the transaction documents;
- The buyer should refrain from influencing the target (either in day to day or strategic decisions);
- The buyer may have the right to review or oppose to conducts that are “outside the ordinary course”;
- Put in place guidelines to be circulated with was is not allowed to be exchanged as information and what are the “clean” teams.