The EU law on "gun-jumping" was clarified today in an important judgment of the European Court of Justice (ECJ).
Under EU law merging parties are generally prohibited from implementing transactions falling within the European Commission's jurisdiction until they are cleared. The ECJ has now clarified that this standstill obligation is only breached when the parties do something which "contributes to the change in control of the target undertaking".
In this case KPMG Denmark had agreed to be merged into EY's international network, subject to clearance by the Danish competition authority. Before clearance had been obtained, KPMG Denmark terminated its cooperation agreement with KPMG's international network. The Danish competition authority decided this was gun-jumping. The case eventually reached the ECJ, because the relevant provision of domestic Danish competition law was directly derived from the EU equivalent, Article 7(1) of the EU merger regulation. The ECJ decided that KPMG Denmark's withdrawal from KPMG's international network was not gun-jumping "even though that withdrawal is subject to a conditional link with the concentration in question and is likely to be of ancillary and preparatory nature" because "despite the effects it is likely to have on the market, it does not contribute, as such, to the change of control of the target undertaking".
Although the judgment is brief, it provides high-level principles for those advising on what a target (and by extension a buyer) can and cannot do before clearance is obtained. Further guidance can be found in the non-binding advisory opinion of Advocate-General Nils Wahl, which was essentially followed by the ECJ.