CJEU: implementation of concentration requiring clearance by competition authority may take place before option is exercised

The General Court of the Court of Justice of the EU (CJEU) dealt with the takeover of Toshiba Medical Systems Corporation (TMSC) by Canon. This acquisition was carried out in a rather complex manner, comprising two steps. In the first step (‘the interim transaction’), Canon entered into an agreement with Toshiba, TMSC's parent company, whereby Canon acquired an option to purchase TMSC shares. A few months later, this was followed by the second step of the transaction: Canon obtained the necessary clearance for the merger concentration from the Commission and then exercised the option to acquire the shares, becoming the sole shareholder of TMSC (the ultimate transaction). The rationale for the staged acquisition was that the sale of TMSC would be recognised as a capital contribution in Toshiba's accounts and Canon would formally acquire control of TMSC only after having obtained the necessary clearances from the relevant competition authorities.

The Commission initially cleared the concentration. However, subsequently, based on a complaint by a third party, it opened an investigation into the possible infringement of the obligation to notify and the standstill obligation. In its subsequent decision, the Commission found that Canon had infringed on those obligations by prematurely (partially) implementing its acquisition of TMSC through the interim transaction.

Canon defended itself against the decision before the CJEU. The court ruled that a distinction had to be drawn between the concepts of concentration and implementation of the concentration. While a concentration is only deemed to have been implemented when a lasting change of control over the undertaking takes place (i.e., a partial concentration is impossible), the implementation of a concentration can take place as soon as the parties to the concentration implement operations contributing to a lasting change of control over the target undertaking. And since a concentration can also be implemented by several formally distinct legal transactions which are interconnected and interdependent, it is also possible to implement the concentration in a partial manner even before acquiring control of the undertaking. This was also the case for TMSC, as, according to the CJEU, the interim transaction had a direct functional link to the change of control over TMSC and was necessary for the implementation of the concentration.

It is thus apparent from the judgment that both the Commission and the CJEU interpret the implementation of a concentration concept very broadly. The merging undertakings must therefore assess sufficiently in advance whether and, if so, at what point they will be obliged to notify the competition authorities of the planned concentration. If they assess this wrongly, they may face the annulment of the concentration or a fine of up to 10% of the net turnover achieved in the last completed accounting period.