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Business Law

Gun jumping and information sharing – what not to do according to competition laws

Competition rules and regulations will prohibit agreements between competitors regarding issues such as price fixing, and also the sharing of business sensitive information in general in cases where this could result in less healthy competition. Also, competitors wanting to merge their businesses can be prohibited from doing so if they are sufficiently large and the merger is seen as negative for healthy competition on the open market. Hence, for any business, being aware of the anti-competition landscape is key in order to navigate any exchanges between competitors or other actors in the same market.

Anti-trust regulatory requirements

The anti-trust regulation has increased in relevance, and in relation to what restrictions are imposed on businesses. The specifics of the laws and regulations concerning competition matters are not always well-known to private actors doing what they can to win in business, and this can lead to costly mistakes. Law-breaching information sharing between competitors, and so called gun jumping, are two mistakes that seem to be recurring. So let´s have a high-level look at what you need to know in advance in order to not end up in breach of anti-competition rules.

 

Introduction to anti-trust regulation

Imagine that Company Win AB has 25 % of the used car industry in the Stockholm region. They have been in head-to-head competition with the second largest company in the region, Wroom AB. Wroom AB has 15 % of the used car industry in Stockholm and 60 % of the used car industry in the rest of Sweden. Company Win AB has a private equity fund with deep pockets as its owner, and the company has just gotten a chance to buy Wroom AB to a bargain price due to an internal dead-lock between the founders and other shareholders of Wroom AB.


If Win AB buys Wroom AB they accordingly take 25 % + 15% = 40 % of the market share for used cars in Stockholm. To grow organically from 25 % to 40 % would in all reasonable cases take much longer, and be much harder, than to buy Wroom AB they are reasoning.


So from the private actors´ perspective, buy and build can be a great strategy.


Anti-trust issues

The regulatory view point is that competition is good, and that markets with too much concentration is bad. Hence an industry with too few market actors competing over the customers by way of offering the relevant products or services to the customers, is bad, and an industry with many market actors competing over the same customers through price, quality, availability, other product and/or service features, and the terms and conditions in general, are what the laws and regulation regarding competition matters strives to both create, and protect.


Approval needed for M&A activities

In order to safe-guard a market´s competitive landscape, if certain criteria are met, there is a requirement for regulatory approval for the acquisition or merger of a company that offers the same products and/or services on the same relevant market as the buyer of that company. Typically the approval will be provided by the national Competition Authority, and if it’s a particularly big transaction regarding market actors within the EU, the approval may be provided at EU-level. In order to get a yes to the transaction, the authorities basically need to get comfort that the relevant market and sector will continue to have a solid competition.


Gun-jumping

So let’s look at a basic, expensive mistake that companies involved in the transactions make in relation to anti-trust regulations.


When Winner AB and Wroom AB have signed their share purchase agreement, that is after the due diligence, and after the negotiations have been completed, when they have indeed decided to go ahead with the transaction on defined terms, they must seek regulatory approval for the deal. They need to file the transaction with the competent authority.


At the moment they apply there should be a stand-still. This means that they are not allowed to move forward with the transaction before they get the relevant approval from the competent authorities.


However, Winner AB and Wroom AB´s marketing teams are already in deep conversations and even preparations for how to communicate that Wroom AB will change name, and become part of Winner AB´s brand, and for how they should adjust Wroom AB`s pricing so that it matches Winner AB´s price strategy for the coming year.


While announcing an upcoming merger is typically fine, the mistake here is that the integration of the companies concerned is initiated before the approval is received. This is gun-jumping. It is not allowed. This is in particular a problem in situations where the deal is not allowed for anti-competition reasons, and the companies therefore need to back-track on the integration. It may also result in a hefty fines.


No to information sharing?

An even wider prohibition goes for agreements between competitors as regards pricing and other competitive matters. This will include information sharing between competing companies that relate to business sensitive information, in particular such issues as price strategies.


When Winner AB and Wroom AB are moving towards the completion of the deal Winner AB will naturally evaluate Wroom AB:s business to ensure that they are not overpaying and getting what they are looking for. However, the information sharing must be done with care, in steps and only as assessed necessary for the transaction at hand.


One way to address the prohibition against information sharing is to use so called “clean-teams”. This will be teams (often external consultants) that keep the insights they get concerning the other company isolated so that the business operations of each company is, as far as possible, not partaking of the sensitive information.


Conclusion

Be aware that;

  1. you must not freely share business sensitive information with your competitors, and this could be the case also if you are courting each other for a potential merger,

  2. if you are evaluating an offer to buy/be bought or do a merger with a company within the same field of business (active on the same market) as you – you might need to get an approval (depending on the size of the market and of your share of the market) and hence you need to file the transactions with the anti-trust authorities, and

  3. if you do need to to file the transaction with the anti-competition authorities there is a stand-still that you must respect, between the signing of the SPA and when the filing is cleared, before you initiate the integration.


For further information see the Swedish Competition Authority


Note that this should not be seen as legal advice and only as a general orientation. Please don´t hesitate to reach out with any follow-up questions.


Stockholm, 2024-02-22

Author; Katarina Strandberg

Anti-trust regulatory requirements

The anti-trust regulation has increased in relevance, and in relation to what restrictions are imposed on businesses. The specifics of the laws and regulations concerning competition matters are not always well-known to private actors doing what they can to win in business, and this can lead to costly mistakes. Law-breaching information sharing between competitors, and so called gun jumping, are two mistakes that seem to be recurring. So let´s have a high-level look at what you need to know in advance in order to not end up in breach of anti-competition rules.

 

Introduction to anti-trust regulation

Imagine that Company Win AB has 25 % of the used car industry in the Stockholm region. They have been in head-to-head competition with the second largest company in the region, Wroom AB. Wroom AB has 15 % of the used car industry in Stockholm and 60 % of the used car industry in the rest of Sweden. Company Win AB has a private equity fund with deep pockets as its owner, and the company has just gotten a chance to buy Wroom AB to a bargain price due to an internal dead-lock between the founders and other shareholders of Wroom AB.


If Win AB buys Wroom AB they accordingly take 25 % + 15% = 40 % of the market share for used cars in Stockholm. To grow organically from 25 % to 40 % would in all reasonable cases take much longer, and be much harder, than to buy Wroom AB they are reasoning.


So from the private actors´ perspective, buy and build can be a great strategy.


Anti-trust issues

The regulatory view point is that competition is good, and that markets with too much concentration is bad. Hence an industry with too few market actors competing over the customers by way of offering the relevant products or services to the customers, is bad, and an industry with many market actors competing over the same customers through price, quality, availability, other product and/or service features, and the terms and conditions in general, are what the laws and regulation regarding competition matters strives to both create, and protect.


Approval needed for M&A activities

In order to safe-guard a market´s competitive landscape, if certain criteria are met, there is a requirement for regulatory approval for the acquisition or merger of a company that offers the same products and/or services on the same relevant market as the buyer of that company. Typically the approval will be provided by the national Competition Authority, and if it’s a particularly big transaction regarding market actors within the EU, the approval may be provided at EU-level. In order to get a yes to the transaction, the authorities basically need to get comfort that the relevant market and sector will continue to have a solid competition.


Gun-jumping

So let’s look at a basic, expensive mistake that companies involved in the transactions make in relation to anti-trust regulations.


When Winner AB and Wroom AB have signed their share purchase agreement, that is after the due diligence, and after the negotiations have been completed, when they have indeed decided to go ahead with the transaction on defined terms, they must seek regulatory approval for the deal. They need to file the transaction with the competent authority.


At the moment they apply there should be a stand-still. This means that they are not allowed to move forward with the transaction before they get the relevant approval from the competent authorities.


However, Winner AB and Wroom AB´s marketing teams are already in deep conversations and even preparations for how to communicate that Wroom AB will change name, and become part of Winner AB´s brand, and for how they should adjust Wroom AB`s pricing so that it matches Winner AB´s price strategy for the coming year.


While announcing an upcoming merger is typically fine, the mistake here is that the integration of the companies concerned is initiated before the approval is received. This is gun-jumping. It is not allowed. This is in particular a problem in situations where the deal is not allowed for anti-competition reasons, and the companies therefore need to back-track on the integration. It may also result in a hefty fines.


No to information sharing?

An even wider prohibition goes for agreements between competitors as regards pricing and other competitive matters. This will include information sharing between competing companies that relate to business sensitive information, in particular such issues as price strategies.


When Winner AB and Wroom AB are moving towards the completion of the deal Winner AB will naturally evaluate Wroom AB:s business to ensure that they are not overpaying and getting what they are looking for. However, the information sharing must be done with care, in steps and only as assessed necessary for the transaction at hand.


One way to address the prohibition against information sharing is to use so called “clean-teams”. This will be teams (often external consultants) that keep the insights they get concerning the other company isolated so that the business operations of each company is, as far as possible, not partaking of the sensitive information.


Conclusion

Be aware that;

  1. you must not freely share business sensitive information with your competitors, and this could be the case also if you are courting each other for a potential merger,

  2. if you are evaluating an offer to buy/be bought or do a merger with a company within the same field of business (active on the same market) as you – you might need to get an approval (depending on the size of the market and of your share of the market) and hence you need to file the transactions with the anti-trust authorities, and

  3. if you do need to to file the transaction with the anti-competition authorities there is a stand-still that you must respect, between the signing of the SPA and when the filing is cleared, before you initiate the integration.


For further information see the Swedish Competition Authority


Note that this should not be seen as legal advice and only as a general orientation. Please don´t hesitate to reach out with any follow-up questions.


Stockholm, 2024-02-22

Author; Katarina Strandberg

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