Competition aspects of access to confidential information in M&A transactions
Anytime competitors share confidential information it may attract the attention of competition authorities. This holds true when information is exchanged in connection with M&A activity.
Mergers and acquisitions in Poland by parties whose combined turnover exceeds EUR 50m in Poland or EUR 1bn worldwide must generally be notified to the Office of Competition and Consumer Protection. If the transaction presents a risk of significantly restricting competition, the competition authority may block it. But that is not the only threat. When the undertakings involved are competitors, and they share confidential commercial information back and forth or unilaterally during the course of the transaction, they are in a delicate situation.
Before the parties obtain approval from the competition authority to carry out a concentration, they are regarded as independent undertakings and are required to compete with one another at arm’s length, on market terms. This includes a prohibition on disclosing confidential information that may weaken the intensity of competition between them. Antitrust issues arise in this context with respect to disclosure of confidential commercial information
- during the course of due diligence, or
- after due diligence is conducted but before the concentration is approved by the competition authority.
So far no decisions have been handed down in the European Union concerning the flow of information in this respect. However, in 2007, the European Commission issued a memorandum (Memo/07/573) stating that it had conducted a “dawn raid” of two PVC manufacturers in the UK (identified as Ineos and Kerling) who were suspected of violating the Merger Regulation (139/2004) by sharing confidential commercial information before obtaining clearance for their intended merger. In that case no decision was subsequently issued prohibiting such exchange, which suggests that the Commission did not find sufficient evidence to conclude that the exchange of information had any anti-competitive effect.
In the United States, however, numerous decisions have been issued on this practice—referred to “gun-jumping.” Some of the leading cases in this area include Insilco (1978), Computer Associates (2002), Gemstar–TV Guide (2003), Omnicare (2009) and Qualcom (2006).
The US authorities have often expressed the concern that complete transparency between competitors prior to finalisation of M&A transactions may have detrimental effects—particularly when the transaction is not ultimately carried out, but one or both parties “know too much” for them to compete effectively, also presenting a risk of collusion.
Therefore, in the US, antitrust authorities require competitors who are in the course of a merger or acquisition that is not yet final to comply with the following organisational rules:
- Access to confidential information should be justified by legitimate needs. Information should not be shared that is not necessary for an assessment of the market situation of the target and its growth prospects, or necessary to conduct preparations for post-closing integration of the parties’ operations.
- In the case of the most sensitive information, particularly concerning prices and commercial terms applied with specific customers, the information should so far as possible be aggregated and historical (involving periods earlier than the prior three months).
- Information should be exchanged on the basis of a confidentiality agreement assuring that the information is used only for the purpose of conducting due diligence (or other purposes identified in the agreement following completion of due diligence)and is not passed on to personnel who could use it for other purposes (particularly those responsible for sales and marketing of competing products).
- It is recommended that an independent third-party “trustee,” such as financial or legal advisers, be assigned the task of reviewing and analysing confidential information in order to assess the condition of the target. The trustee should then prepare a report for the acquirer presenting the conclusions drawn from the confidential information, without disclosing the confidential information itself.
If these conditions are met, exchange of information during the course of a merger or acquisition (before obtaining regulatory clearance for the transaction) would be fully permissible. Such exchange enables an accurate assessment of the target, estimation of the risk associated with the transaction, and preparation for eventual integration, and thus serves a pro-competitive function.
Despite the lack of decisions in the EU on the issue of information exchange in the M&A context, in light of the existing decisions concerning exchange of information generally, similar guidelines would also be relevant in the EU and thus in Poland as well. It is an issue that should be borne in mind when planning a merger or acquisition between competitors.
Antoni Bolecki, Competition Law Practice, Wardyński & Partners