Kilpailuoikeudelliset ehdot yrityskauppasopimuksissa/EN
When completion of a merger requires competition law clearance, the share purchase agreement (SPA) needs to include carefully negotiated provisions for the possibility that clearance is delayed, made conditional, or not obtained at all.
- Mistä on kyse: The parties allocate the risk of a failed competition law clearance contractually, in particular through efforts obligations (efforts clauses), an unconditional obligation to complete (hell-or-high-water), and a reverse termination fee (reverse break fee).
- Miksi sillä on kaupallista merkitystä: As regulatory risk increases — including significantly tightened EU and Finnish merger control and FDI screening — negotiating competition law clauses now warrants more time and attention than was customary in the past.
- Mikä menee useimmin pieleen: A genuinely unconditional hell-or-high-water commitment is very rare (found in only a small share of public M&A deals) — if a draft agreement uses the term loosely without the clause actually being unconditional, misunderstandings easily arise about how strong the commitment really is.
Efforts Obligations (Efforts Clauses)
[muokkaa]The most common way to allocate competition law risk is to agree on the parties' obligation to assist in obtaining clearance at a certain level of effort — for example "best efforts", "reasonable efforts", or intermediate formulations. Their precise content, and in particular the extent to which the buyer is obliged to offer remedies (e.g. divestitures) to obtain clearance, is one of the central issues of the negotiation.
Unconditional Obligation to Complete (Hell-or-High-Water)
[muokkaa]The strongest type of clause binding the buyer is the so-called hell-or-high-water clause, under which the buyer commits to completing the transaction and doing everything necessary to obtain clearance, regardless of the conditions or remedies required by the authority. A genuinely unconditional commitment — without materiality or other qualifications — is rare in practice: according to a study of US public M&A data, such a clause was included in only about 6% of the deals examined.[1]
Reverse Termination Fee (Reverse Break Fee)
[muokkaa]A reverse termination fee (reverse termination fee) is compensation paid by the buyer to the seller in the event that the transaction fails to complete specifically because competition law or other regulatory clearance is not obtained. The reverse termination fee is most commonly used in US public M&A transactions, where regulatory risk (e.g. a lengthy competition law or national security review) is significant; no precise, sourced statistics on the frequency of its use or its typical magnitude are presented here. A reverse termination fee shifts the financial consequence of regulatory risk to the buyer but gives the seller certainty of compensation, without obliging the buyer to complete the transaction by whatever means necessary.
Negotiation of competition law clauses is best started in parallel with a preliminary competition law risk analysis — the more likely a Phase II investigation or a remedies requirement is, the more precisely it is worth defining how far the buyer is obliged to go (e.g. a euro-denominated or turnover-based cap on the businesses to be divested) before the efforts obligation ceases to apply.
Gun-Jumping Protection in the Agreement
[muokkaa]In negotiating competition law clauses, a distinction must be drawn between the contractual allocation of clearance risk (see above) and the management of so-called gun-jumping risk: the agreement, and preparations for its implementation, must stay within the limits permitted by the standstill obligation before competition law clearance has been obtained.
The Court of Justice has delimited the scope of the standstill obligation in Ernst & Young (C-633/16): the prohibition covers only conduct that, wholly or partly, factually or legally, contributes to a change of control over the target company — a mere preparatory step with no direct functional link to implementation (in that case, termination of a non-compete agreement before clearance) does not in itself breach the standstill obligation, even if it has market effects.[2] This does not, however, mean that all premature coordination is permitted: the cartel prohibition under Section 5 of the Competition Act (Article 101 TFEU) can still apply if the parties coordinate their commercial conduct before implementation.
Practical contract technique for managing gun-jumping risk: the buyer's veto rights must be limited to actions outside the ordinary course of business that protect the value of the target — overly broad veto rights may be interpreted as a premature exercise of control; competitively sensitive information exchanged during due diligence (pricing, customer-specific terms) is ring-fenced through a so-called clean team arrangement, separate from the rest of the business and limited to a defined team; and concrete implementation of integration planning is deferred until after clearance.
The Commission's fining practice for gun jumping has tightened significantly: penalties have risen from a few tens of thousands of euros in the early 2000s to hundreds of millions — in Altice/PT Portugal (M.7993) the Commission imposed a fine of EUR 124.5 million on 24 April 2018, separately for both failure to notify and breach of the standstill obligation arising from the same conduct; the decision was upheld both by the General Court and, on further appeal, by the Court of Justice.[3]
Set out in the SPA a clear, concrete delimitation of what the buyer may and may not do before clearance (the scope of veto rights, limits on information exchange, the clean team procedure) — do not rely on a mere general "no implementation before clearance" clause. The Ernst & Young judgment provides some latitude for preparatory steps, but the cartel prohibition must still be considered separately.
See Also
[muokkaa]- Merger Control Procedure: Review Phases and Timeline
- Competition Law Assessment of Mergers and Remedies
- Information Exchange Between Competitors
Sources
[muokkaa]- ↑ Hell or High Water Provisions in Merger Agreements: A Practical Approach, Harvard Law School Forum on Corporate Governance, 2022 (US data — not directly generalisable to Finnish or EU merger practice).
- ↑ Court of Justice of the European Union, Case C-633/16, Ernst & Young v Konkurrencerådet, judgment of 31 May 2018.
- ↑ European Commission, Case M.7993 Altice / PT Portugal, decision of 24 April 2018.