Based on current antitrust enforcement practices in China, the U.S. and the EU, what are likely to be identified as “Gun-jumping in Relation to Implementation of Concentration before Receiving Clearance" are typically the following: (1) implementation of certain steps of a multi-step transaction; (2) conducts which are equivalent to obtaining control; and (3) excessive exchanges of sensitive business information, in all three cases, prior to receiving clearance from the antitrust regulator.

In practice, for various reasons, the parties to a transaction may consider a multi-step transaction, or set forth in transaction documents that the acquirer has the right to impose influence on certain business decisions of the acquiree (including but not limited to appointing officers) during the transitional period, or exchange sensitive business information, etc. From the business perspective, the transactional arrangements mentioned above could be reasonable and necessary. For example, such arrangements could be conducive to preserving the value of the target company and closing the transaction smoothly and efficiently. However, it cannot rule out the possibility that the antitrust regulator may consider such arrangements before receiving clearance as “Gun-jumping in Relation to Implementation of Concentration before Receiving Clearance" and therefore subject the parties to penalties.

In practice, if a transaction reaches the filing thresholds, for the purpose of achieving business goals efficiently, the parties to such a transaction may adopt a multi-step transaction structure (i.e., split the transaction into several parts), and implement multiple steps prior to receiving clearance from the antitrust regulator. The parties to the transaction may argue that such prior implementation does not violate the antitrust regulatory provisions, but the antitrust regulator may hold that such multi-step transaction shall be deemed as a centralized transaction. In this regard, partial implementation of multiple steps of such a centralized transaction before receiving clearance may constitute early implementation of concentrations of undertakings, i.e., “gun-jumping".

In Case One and Case Two above, even though the parties to such transactions were aware of that their overall transactions have met the thresholds for filing and submitted filing documents accordingly, they implemented some steps of such transactions before receiving clearance. However, the antitrust regulators (SAMR and CJEU) held different opinions on whether such early implementations constitute “gum-jumping". According to their opinions, the correlation between such early implementation and the overall transactions shall be the key factor to determine whether such early implementations constitute “gum-jumping":

• If such early implementation is highly correlated with the overall transaction and is intended to allow the parties to the transaction to obtain control of the target company or to impose certain influence over the target company, such early implementation is more likely to be deemed to constitute “gun-jumping".

   

• However, if such early implementation is only a preparatory and auxiliary step to the overall transaction and does not enable the parties to the transaction to impose any influence over the target company, it is less likely that such early implementation is eventually deemed to constitute “gun-jumping".

In practice, for the purpose of imposing influence over daily business operations and closing the transaction efficiently, or averting the decline in the value of the target company as a result of the misconducts of its management during the transactional period, the parties to the transaction may consider implementing certain activities in advance which may contribute to obtaining substantive control or rights that can substantially affect the business operations of the target company as agreed upon in transaction documents.

For example, the parties to the transaction may participate, directly or indirectly (e.g., by appointing officers), in the business operations, management and decision-making of the target company, or reach an agreement in transaction documents to confer veto rights on the acquirer for certain critical issues, such as making decisions on key business activities and modifying the articles of association of the target company during the transactional period. 

By implementing such activities or reaching such agreements above, the parties to the transaction may slip into a situation violating antitrust regulatory provisions. To be specific, if such transaction reaches the filing thresholds, it is  likely to be considered “gun-jumping" because of the implementation of such activities or reaching such agreements above prior to receiving clearance from relevant antitrust regulators even if the merger filing has been submitted.

Based on the cases above, there are various forms in which the parties to the transaction obtain or exercise rights for management and decision-making de facto. However, if the parties to the transaction, directly or indirectly (e.g., by appointing officers), participate in the management or decision-making of the target company, such as the decision to close certain entities of the target company, the formulation of the reorganization plan, and engagement in business negotiation, it cannot be ruled out that such actions could be considered “gun-jumping" so long as they are implemented before receiving clearance. Thus, the parties to the transaction should carefully assess their merger filing obligations and refrain from participating in the actual operation of the target company or assets until receiving clearance from relevant antitrust regulators.

It is common practice to impose restrictions on the management of the target company during the transactional period for the purpose of preserving the value of the target company, such as prohibiting the sale of material assets, suspending profit sharing, and requiring acquirer’s consent before carrying out certain transactions. However, if the agreements in connection with such restrictions confer rights on the acquirer to impose influence over the business operations of the target company before receiving clearance from relevant antitrust regulators, such agreements may be classified as “gun-jumping".

A takeaway from cases above is that antitrust regulators (especially the EU antitrust regulator in Case Seven) intended to strive for a balance between justifiable needs for value preservation and compliance with antitrust regulatory requirements. As shown in Case Seven, while recognizing that the parties to the transactions can, in order to preserve the value of target company, impose certain restrictions on activities of target company during the transactional period, the EU antitrust regulator also suggests that, if such arrangement goes well beyond justifiable needs and in effect grants the acquirer the right to exert a decisive influence on the business operation of a target company, such arrangement may be deemed to constitute “gun-jumping". According to Case Eight and Case Nine, American antitrust regulator also pays close attention to the transactional arrangements imposing restrictions on daily business operation of a target company.

Notably, according to the cases above, other than the conducts restricting the daily business operation of target company de facto (e.g., repudiating business contracts of the target company based on the veto rights specified in transactional agreements), any transactional agreements granting an acquirer the right to impose certain restrictions on the daily business operation of a target company (even though such right may not have been exercised) may also result in constituting “gun-jumping", as it allows the acquirer to impose material influence on the target company. For example, according to Case Seven, the EU antitrust regulator held that although Altice had not made use of its veto rights, the mere ability to exercise decisive influence by virtue of such veto rights was sufficient to bring about a change in control and therefore constituted “gun jumping".

In China’s antitrust practice, no case involving transactional arrangements has yet been determined to constitute “gun-jumping". As a takeaway from analysis above, however, if any agreements in the transaction documents granting an acquirer the right to impose influence on daily business operation of a target company (e.g., requiring the target company to acquire the acquirer’s consent before entering into certain contracts or carrying out certain conducts) before receiving clearance from antitrust regulator, such agreements may result in constituting “gun-jumping".

In practice, it is inevitable to exchange certain information among the parties to the transaction in various stages of the transaction. After concluding the transaction documents, to efficiently accomplish the purpose of the transaction (e.g., leveraging the business alliance formed by the transaction), the parties to the transaction may exchange sensitive business information, such as product price, customer list, marketing plan, and R&D plan. However, such exchange of sensitive business information may result in constituting “gun-jumping".

Based on the case above, from antitrust regulatory perspective, such exchange of sensitive business information before receiving clearance from antitrust regulator may indicate that the parties to the transaction have compromised their independent market position (i.e., antitrust regulator may be inclined to believe that, the parties to the transaction, when having independent market positions, will keep such sensitive business information strictly confidential and will not disclose to any competitors), or the acquirer has in effect obtained the control of target company, by which such conducts may be determined by the regulator as an early implementation of concentration which constitutes “gun-jumping". In addition, if competitors involved in a transaction are found to have exchanged sensitive business information, such exchange runs the risk of being deemed by the regulator as “horizontal monopoly", which is forbidden under the AML.

In practice, as the deal structures tend to be complex and prone to change, from antitrust compliance perspective, we understand that, to ensure that the transaction goes smoothly, the parties to the transaction may consider engaging lawyers to review the transaction structures and documents at early stages to eliminate the risks in connection with violating antitrust regulation. In particular:

First, in a complex multi-step transaction, if the transaction as a whole reaches the filing threshold, it is advised to prudently scrutinize the correlation between each early step and the entire transaction and determine the timing to carry out such early step, in order to avoid carrying out such early step before receiving clearance from antitrust regulator and therefore being deemed to constitute “gun-jumping". 

Second, we advise being cautious when it comes to any exchange of sensitive business information before receiving clearance from antitrust regulator. If the exchange is indeed necessary, be sure to, among other things: (1) restrict the scope of information to be exchanged; (2) restrict the number of individuals with access to such information, e.g., limiting the personnel with access to such information to the members of a clean team; and (3) take other measures, such as concluding NDA and formulating strict information disclosure and management policy, to avoid the impact of information exchange on competition.

Third, before acquiring the clearance from the antitrust regulator, refrain from any actions, such as appointing officers, participating in decision-making process and other business operation of the target company, that may be deemed to effectively obtain control over the target company.

Last but not the least, where a transitional arrangement is agreed in the transaction documents, such transitional arrangement shall be limited to a reasonable extent for preserving the value of the target company, and it is advisable to plan the transitional arrangement based on the timing for obtaining clearance from the competent antitrust regulator. For instance, one needs to avoid setting forth any provision whereby the acquirer may exert influence over the daily operation of the target company before the antitrust regulator approves the transaction.