Briefing

July 26 2018

Altice/PT Portugal: European Commission decision provides guidance on how merging parties can mitigate the risk of 'gun jumping'

• Rights in the SPA: the decision concluded that the rights granted to Altice in the SPA provided it with the ability to exercise a degree of influence over the target, PT Portugal, that went beyond those rights that can be legitimately obtained to preserve the value of the target business prior to closing.  In particular, the Commission found that the commercial matters requiring Altice approval were both wide-ranging and operational in nature, including the appointment of senior management, the vast majority of pricing policy decisions, and the entering into of a large number of contracts which, due to the low qualifying monetary thresholds, captured many contracts relating to the ordinary course of PT Portugal’s business.  Based on evidence on its file, the Commission rejected the parties’ arguments that the scope of Altice’s rights was necessary to protect the value of the target and that the rights were consultative in nature rather than requiring Altice’s express consent.  Significantly, the decision made it clear that the rights in question granted Altice the possibility to exercise decisive influence over PT Portugal upon the transaction agreement coming into effect on signing.  The decision emphasised that Altice’s interpretation of the agreement was not relevant: “while the possibility to exercise decisive influence must be effective, it is not necessary to show that the decisive influence was actually exercised”.

• How the rights were exercised in practice: the decision found that Altice was heavily involved in the decision making processes at PT Portugal between the signing date and adoption of the clearance decision.  Even in situations where the target was not obliged to obtain Altice's agreement under the transaction agreement, a variety of commercial decisions were made only with Altice’s consent. In particular, Altice was directly involved in: the decision making process regarding a PT Portugal marketing campaign (Altice also monitored the implementation and results of the campaign); setting the targets and the negotiating strategy regarding the renewal of PT Portugal’s contract with Porto Canal; establishing PT Portugal’s selection process for radio access network suppliers; defining the terms for the negotiation of a supply agreement between PT Portugal and Cinemundo; and the decision whether to include the DOG TV channel in PT Portugal’s TV offering.  Altice also “overstepped the boundaries of what could be considered appropriate conduct” necessary to preserve the target value by giving specific instructions in relation to possible acquisitions of shareholders’ stakes and through its involvement in decisions regarding an outsourcing contract.

• Significance and frequency of information exchange: the decision concluded that there had been a systematic and extensive exchange of commercially sensitive information by PT Portugal to Altice, both in meetings and on an ad-hoc basis, which was not necessary to preserve target value but rather gave Altice considerable insight into and influence over the day-to-day operation of the target business and its commercial and strategic policy at a time when the two parties were competitors in the same market.  Many of the communications were at Altice’s initiative and the parties did not implement any safeguards, such as clean teams or other measures, to protect PT Portugal’s information.  This level of exchange placed Altice in a position as if it already controlled PT Portugal, further evidencing that its actions constituted the exercise of decisive influence over the target in breach of the EU Merger Regulation.