Thought - Aprox. 5 min.

How to avoid gun-jumping

How to avoid gun-jumping
Written by
Stephanie ter Brake

It is almost impossible to think that the Ferrari IPO can’t be successful” said the chief executive of UBS recently on the sidelines of a conference in Milan. UBS was one of the bookrunners of the listing and therefore subject to the strict rules of the SEC on what can and cannot be said publicly in the so-called quiet period. This is the time from when a company files its registration statement with the regulator until the SEC declares the registration ‘effective’. Any violation is viewed as gun-jumping: trading securities on the basis of information that has not yet been disclosed to the public. For this reason, Ferrari was forced to correct the chief executive of UBS in an official statement.

Gun-jumping is not limited to public companies and violation of securities regulations. It also refers to unlawful premerger coordination between the parties to a M&A transaction. This may occur when merging parties fail to observe mandatory premerger notification and waiting period requirements, or when merging parties coordinate their competitive conduct prior to the actual closing of the merger. Both the European Commission and the Dutch Competition Authority (ACM) have imposed significant fines for gun-jumping. Merging parties therefore have to make sure they correctly comply with the antitrust rules. Below we will describe the do’s and don’ts to avoid gun-jumping.

Do’s

Premerger notification and waiting period requirements

  • identify jurisdictions where premerger notification is required;
  • timely give notice of the intention to implement a concentration;
  • make sure agreements relating to the acquired company’s pre-closing conduct are properly limited so as to avoid a claim that de facto control has been exercised before closing;
  • make sure any proposed ‘drop dead’ date for the implementation of the merger is sufficient to cover the anticipated regulatory process;

Coordination of competitive conduct prior to closing (only if parties are competitive)

  • sign a confidentiality agreement;
  • develop appropriate limitations and protocols on due diligence activities;
  • appoint a so-called ‘clean team’: an impartial party, bound by strict confidentiality protocols, to which the acquired company submits critical and sensitive business information;
  • the clean team consolidates and ‘sanitizes’ this information and releases it to the acquirer in a generic form;
  • develop legally-compliant integration planning to avoid a claim that the merging parties have crossed the line between permissible ‘planning’ and impermissible pre-closing coordination;
  • make sure any agreement relating to the acquired company’s pre-closing conduct is properly limited;
  • require the acquired company to continue to operate in the ordinary course of business consistent with past practices;
  • require the acquired company not to engage in conduct that would cause a material adverse change in the business.

Don’ts

Premerger notification and waiting period requirements

  • omit to give notice of the intention to implement a concentration;
  • give late notice of the intention to implement a concentration;
  • for the acquirer to hold a majority of votes in the shareholders meeting of the acquired company, even when holding less than 50% of the shares;
  • for the acquirer to take operational control over the acquired company before closing;
  • for the acquirer to send in an executive to run a business it is about to acquire;
  • present the merging companies as having merged before closing;

Coordination of competitive conduct prior to closing (only if parties are competitive)

  • exchange confidential information prior to closing;
  • exchange detailed information concerning customers, pricings and product plans;
  • drawing up detailed material change clauses, particularly with regard to prices for sales or input purchases;
  • allocating customers in view of sales activities prior to closing;
  • coordination of negotiations with customers in view of sales activities after closing (e.g. negotiations of long-term contracts);
  • coordination on prices or terms to be offered to customers;
  • pre-closing planning regarding products, distributions or employees;
  • attempting to work through employee concerns regarding the concentration before closing.

Do you have any questions? Please don’t hesitate to contact us.

E-mail: info@tripletbusinesslawyers.com

Phone: +31(0)20 333 0240

Now reading: How to avoid gun-jumping Back to overview