Facing the facts: providing accurate information to authorities during mergers

There has been a flurry of recent activity by the European Commission (the Commission) in efforts to enforce procedural compliance in EU merger control reviews. In this edition, we have already commented on the risks parties face if they fail to observe the requirement to suspend transactions pending clearance, known as “gun jumping”. In this article, we discuss the importance of ensuring that parties provide accurate information when notifying deals and make sure they do not mislead the Commission.

Fines on Facebook

The Commission recently fined Facebook €110 million for providing misleading information during its assessment of Facebook/WhatsApp, a deal valued at USD 19 billion. When it notified the deal in 2014, Facebook reportedly informed the Commission that it would not be able to create reliable, automatic matching between Facebook users’ accounts and WhatsApp users’ accounts. This gave the impression that user accounts would not be integrated and the two services would effectively operate independently from one another.

Two years later, WhatsApp made a public announcement updating its terms of service and privacy in which it stated that it had begun sharing information with its parent company, Facebook. This statement led the Commission to send a Statement of Objections to Facebook in December 2016 alleging that the company had provided incorrect information to the Commission both in its original notification of the transaction and in response to a follow-up request for information. The Commission considered that it had been misled by Facebook as to whether or not it was technically possible to match Facebook users' IDs with WhatsApp users' IDs given the information it had received.

The rules concerning the provision of information can be found in Article 14(1) of the EU Merger Regulation. This provides for the Commission to be able to impose fines of up to 1 per cent of the aggregated turnover of a company which “intentionally or negligently provides incorrect or misleading information during an investigation or acquisition”. In determining the amount of any fine, the Commission can take into account the gravity and duration of the infringement and any aggravating circumstances.

Facebook accepted that it had breached the rules leading the Commission to consider an appropriate level for the fine. In setting out its analysis, the Commission accepted that even if Facebook had explained that it was technically possible to match user accounts, it would not have reached a different outcome in clearing the deal. Nonetheless, given the nature of the offence, the Commission saw fit to impose a significant fine.

Is the Facebook fine a one-off?

Prior to Facebook/WhatsApp the Commission had not imposed a penalty on a company for providing incorrect or misleading information in respect of a transaction in over ten years. The level of penalty imposed was far smaller in the past. For example, in 2004, Tetra Laval was fined €90,000 due to “gross negligence” in its submissions. Prior to that, in 2002, Deutsche BP was fined €35,000 due to negligent infringement of “considerable gravity with the only attenuating circumstance being that Deutsche BP did not dispute the facts”. In a third case, in 2000, Mitsubishi was fined €50,000 for failure to provide EC with requested information during an investigation in addition to a €900,000 delayed cause penalty.

But the Facebook penalty is by no means an isolated incident. Indeed, the Commission has recently issued Statements of Objection in respect of similar behaviors by GE, and separately by Merck-Sigma-Aldrich. These cases appear to indicate a trend of the Commission being more closely aware of when misleading or incorrect information has been provided – and not being afraid to investigate and to impose punitive sanctions after the event.

The trends at Commission level have already been observed elsewhere. In 2015, the German Federal Cartel Office sought to require Savencia to divest Sobbeke, a business it had acquired in 2011, on the basis that it had provided inaccurate market share information. Forced divestiture was avoided only by Savencia voluntarily selling its shares in another entity it had acquired previously (Andechser Molkerei), with the FCO also imposing a penalty of €90,000.

Other competition agencies also have systems in place to penalise parties which provide incorrect information. For example, the Canadian Competition Bureau may deem the original merger notification incomplete and restart the statutory waiting period upon receipt of the corrected notification, resulting in significant delays if the error is discovered late in the 30-day period. This contrasts with the position in the United Kingdom, where it is a criminal offence to “knowingly or recklessly supply false or misleading information” to the Competition and Markets Authority (the CMA) in connection with merger submissions.

Conclusion

Signals from the Commission suggest that any information parties provide will be carefully scrutinized. To protect against the threat of fines, companies must think carefully about the information they provide and be sensitive to the possibility that the information could be interpreted in different ways. This is not only important so as to avoid fines but also as a means to protecting the companies’ reputation which might be tarnished in future dealings with competition agencies.