Gun jumping in Hungary - the authority imposes another fine amidst stricter enforcement tendencies

19 December 2018 | newsletters

Yet another decision indicates that the Hungarian Competition Authority (HCA) is among the more rigorous competition authorities in Europe. It has once again imposed a fine for gun jumping, i.e. the acquisition of control over the target in a transaction already prior to competition law clearance. The HCA imposed the first ever gun jumping fine in March 2016, marking a new era of stricter enforcement of merger control rules in Hungary. Six other gun jumping decisions have followed since then. Meanwhile, the authority has also sanctioned undertakings for flaws in their notifications.

In the current case, ETS Efficient Technical Solutions GmbH (ETS) – a service provider of technical building services – acquired the Hungarian undertaking TGS Engineering Kft. The HCA cleared the transaction without even initiating a proceeding. This effective approach was based on the authority's view that the transaction does not significantly lessen competition. Nevertheless, the HCA picked up on the fact that control may have already been acquired by ETS prior to notifying the transaction in Hungary. The case handlers reviewed the agreement and noted that it did not require HCA notification or clearance as a closing condition. Furthermore, ETS already transferred the purchase price in breach of the standstill clause, which obliges the parties to refrain from implementing the concentration prior to clearance by the HCA. The decision notes that this issue was already discussed during pre-notification talks.

The HCA cleared the transaction but also decided to initiate a proceeding to investigate potential gun jumping. The authority took this approach even though (i) the acquisition was recorded in the official registry only after the clearance was issued, and (ii) no other steps were taken to obtain control over the target.

In its statement, ETS stressed that prior to the HCA's clearance no steps were taken to obtain control over the target undertaking and nothing occurred that would otherwise breach the standstill clause. ETS argued that (i) it did not appoint a new management, (ii) the business relationship between the parties remained as it was before the transaction, and (iii) the controlling rights were not exercised.

But the HCA proved adamant. According to the agreement, the only condition for ETS to acquire the shares of the target was to transfer the purchase price. The HCA took the view that shift of control occurred as soon as the purchase price was transferred to the seller; hence, the seller lost its controlling rights already prior to the HCA's clearance. Without the seller in control, the mere fact that ETS did not exercise controlling rights does not ensure a standstill in control relations. The HCA thus established the infringement.

In its decision, the HCA highlighted that gun jumping is a grave infringement. The notification obligation together with the standstill clause constitutes the basis of the merger control regime. Nevertheless, the HCA identified several mitigating circumstances and decided to impose only a moderate fine of HUF 4,400,000 (approx. EUR 13,500).

There are two important conclusions market participants may draw from the HCA's decision:

Firstly, the HCA's signal towards the market is clear: it will not take any potential infringement of the standstill clause lightly. It employs a strict interpretation of the competition act and expects undertakings to comply in full, even in cases where the transaction does not affect competition in any way. In the last few years, the HCA not only imposed fines for gun jumping, but also withdrew clearances due to certain flaws or omissions in the parties' notifications. Besides imposing fines, the HCA can order a full divestment. Market participants must therefore be vigilant even where the transaction has no material effect on competition.

Secondly, it is noteworthy that the potential infringement was already discussed during the pre-notification meeting with the HCA. This highlights the benefits of such contacts. The HCA gave the parties the opportunity to explain and argue in the notification that a shift of control did not take place. Pre-notification thus remains a highly useful tool to liaise with the authority before officially notifying transactions.

----------

We're on top of legal developments in Austria and CEE. Are you? Subscribe to our weekly updates!

Further reading:
Hungary: HCA publishes digital consumer protection strategy

legal service:

eu & competition

country:

hungary