This post is also available in: esEspañol

On June 30, 2019, the European Commission (“EC”) announced that it had imposed a fine of €28 million on the Japanese company Canon Inc. (“the buyer”) for breaching concentrations control regulations in the framework of its acquisition of Toshiba Medical Systems Corporation (TMSC), a Toshiba Corp. subsidiary supplying medical equipment (Toshiba).

In July 2017, the EC sent the statement of objections to the buyer, considering that, as a result of the corporate structure outlined by the Japanese company to acquire the Toshiba subsidiary, the former had breached its obligation to report the transaction and to suspend its execution until it obtained the approval of the competition authority (“standstill obligation”), which is known as “gun-jumping..

The buyer, Toshiba, and an intermediate buyer—a  project company indirectly created by both companies for the purpose of the transaction (MS Holding Corporation) —had negotiated that Canon’s acquisition of TMSC would be carried out in two phases:

  • Phase 1: initially, Toshiba transferred 95% of the shares of TMSC to MS Holding Corporation for €800. At the same time, the buyer acquired the remaining 5% and a call option on the 95% of the project company for €5.28 billion. This allowed Toshiba (which was facing a delicate economic situation) to obtain the total sale amount immediately, without awaiting the approval of any competition authority.
  • Phase 2: subsequently, in August 2016, the buyer notified the EC and other relevant competition authorities of its intention to acquire TMSC by exercising its option. The EC authorized the transaction in September of the same year and the buyer then proceeded to exercise its call option, acquiring all the capital of TMSC.

In the EC’s opinion, those two phases constituted a single transaction, as the first one was necessary to acquire the control of TMSC and, therefore, the transaction was effectively executed before being notified to the authority.

Canon has announced that it will appeal the fine before the General Court, arguing that the first phase of the transaction did not grant it the effective control of TMSC as, had the EC blocked the concentration, the buyer would have been obliged to transfer its share in the capital due to the resulting impossibility of exercising the call option.

The General Court will therefore have a new opportunity to rule on the demarcation of which acts have the character of merely preparatory and which acts effectively contribute to the change of control in the company’s management, as the CJEU already addressed in its response to the preliminary issue in case C‑633/16, Ernst & Young contra Konkurrencerådet, which we commented on in this post. In that case, the CJEU ruled that the execution of a concentration takes place when the parties “carry out transactions contributing to changing the control of the relevant company on a lasting basis.”

Also, on a national level, two-phase transactions are met with suspicion by the authorities. The Spanish National Competition Commission (today the Spanish Markets and Competition Commission) sanctioned Verifone Systems, Inc. in 2012 for having orchestrated the acquisition of the business of Hypercom Corporation in Spain through a third party with the aim of avoiding its obligation to notify as it met the market share threshold established in the Spanish Competition Act (Case SNC/0022/12, VERIFONE/HYPERCOM).

In any case, this penalty, along with the heavy fines previously imposed for this type of infringement (as we reported here and here), highlights the importance of acting with caution in the framework of M&A transactions, and the significant consequences of the breach of competition regulations.

The EC’s decision is not yet available, but the official press release can be consulted here.

This post is also available in: esEspañol


35 artículos

Blog de Cuatrecasas, uno de los referentes en la abogacía de negocios en España y Portugal. Representamos a algunas de las principales empresas cotizadas de ambos países y asesoramos a nuestros clientes en operaciones estratégicas, así como a inversores extranjeros interesados en el mercado ibérico


36 artículos