Some harsh lessons: EU Court upholds €20 million fine against Electrabel for acquiring control of another company without European Commission approval

December 17, 2012


On 12 December 2012, the General Court of the EU upheld a €20 million fine imposed by the European Commission (“the Commission”) on Electrabel, a Belgian company, for putting its acquisition of Compagnie Nationale du Rhone (“CNR”) into effect before receiving approval from the Commission. The Commission imposed this fine despite the fact that: (i) Electrabel was apparently unaware of it holding a controlling stake; (ii) it had approached the Commission of its own accord; and (iii) the transaction itself did not raise any competition issues. The Court agreed with the Commission and considered the fine to be proportionate.

This was the first time an EU court ruled on such a Commission decision, and the judgment was an affirmation of the European Commission’s severe approach to notifiable acquisitions that proceed without approval. It also highlights the fact that companies will need to think twice about any share acquisitions that may involve the assumption of de facto sole control of the target company for merger control purposes – especially where the other jurisdictional thresholds requiring notification are met.


Electrabel is part of the Gaz de France Suez group and is active in the production and sale of electricity, as well as the sale of natural gas. CNR is primarily a public-owned French company charged with producing and marketing electricity.

Under French law, a private company is prohibited from holding more than 50% of CNR’s shares. While adhering to this law, Electrabel made a series of incremental acquisitions of CNR shares, commencing with an acquisition on 24 June 2003 of 17.86% of CNR’s capital worth and 16.88% of the voting rights. On 23 December 2003, Electrabel increased its holding to 49.94% of CNR’s capital worth and 47.92% of the voting rights.

Three and a half years later, on 9 August 2007, Electrabel contacted the Commission to seek its opinion as to whether or not Electrabel had acquired de facto sole control of CNR under the European Merger Regulation.1 The Commission decided that Electrabel had indeed acquired de facto control for notification purposes, which led Electrabel to formally submit a notification of the transaction to the Commission on 26 March 2008. In approving the transaction, the Commission declared that the concentration did not create any difficulties from a competition point of view. However, on 10 June 2009, the Commission imposed a fine on Electrabel of €20 million for proceeding with the transaction without first notifying the Commission and receiving its approval.

The Court’s judgment

Electrabel appealed this Commission decision to the General Court of the EU (“the Court”), which delivered its judgment on 12 December 2012. The Court rejected the arguments made by Electrabel, and made a number of points in its judgment.

First, the Court confirmed the Commission’s ruling that Electrabel had obtained de facto control of CNR for merger control purposes. This was due to the fact that Electrabel could exercise decisive influence over CNR through its December 2003 acquisition of 49.94% of CNR’s capital and 47.92% of CNR’s voting rights. The Court held that this meant Electrabel was virtually certain of obtaining a majority at the CNR shareholders’ general meeting, due to the fact that the remaining shareholders were widely dispersed and did not regularly attend.

The Court also endorsed the Commission’s analysis that focused on the fact that Electrabel held a majority in CNR’s board of directors as well as the ability to maintain that majority. In both the Court’s and the Commission’s opinion, the fact that government officials were present on the supervisory board of CNR and the State auditor still had a role in CNR’s governance did not hinder Electrabel’s de facto sole control for Commission notification purposes. The Court also endorsed the Commission’s finding that Electrabel had gained a central role in the operational management of CNR.

In light of all these factors, the Court confirmed the Commission’s finding that Electrabel had breached its obligation to have its controlling acquisition approved by the Commission before completing the transaction.

Second, in rejecting various Electrabel arguments seeking a reduction of the fine, the Court made a number of notable points regarding the calculation of such fines. It agreed with the Commission in describing the infringement as a serious one, even if it was unintended. It held that the fact it was committed through negligence need not result in a reduction of a fine. Equally, the fact that the concentration itself did not create any competition issues was irrelevant for the purposes of calculating the fine. The Court instead noted that the infringement lasted for a significant amount of time, from 23 December 2003 until 9 August 2007, which supported the level of the fine. In considering the proportionality of the fine, the Court noted that the amount of the fine was at the lower end of the range of fines available to the Commission, and it was proportionate to the Commission’s objective of protecting the system of notification and prior approval of concentrations.

Finally, the Court endorsed the Commission’s finding that such a breach by Electrabel was not merely a breach of procedural rules, for which there is a 3 year limitation period, but instead amounted to a more serious infringement liable to bring about significant changes in the competition situation. Therefore the breach qualified for the longer 5 year limitation period.

Why this matters

This case is important for a number of reasons.

  • Very careful attention must be paid to the specifics of any share acquisition that may give rise to the acquisition of control (whether solely or jointly with other shareholders) under the Commission's notification standard. This may arise even where there is an acquisition of a minority shareholding.
  • The surrounding factors of the transaction must be scrutinised. For example, it ought to be carefully considered if there are any rights connected to the shareholding in the target company, the concentration and engagement of other shareholders in the target company, any contractual arrangements that may affect control, the representation of the acquirer on the board of directors, the influence of the acquirer in the operational or strategic management of the target, and any other factors that suggest that the acquirer may have control of the target for purposes of triggering the Commission notification and prior approval requirements.
  • Getting the assessment wrong carries significant risks. The fact that an acquirer is unaware that it has control in the target company is irrelevant. It is equally irrelevant if a concentration does not create any competition issues. Even when the company approaches the Commission of its own accord, it is unlikely to result in a light approach by the Commission.
  • Companies should also consider the broader definition of control in various European member states such as Germany and the UK, where control can be deduced from acquisitions involving even lower thresholds than those involved in the Electrabel case.

1 The Commission must be notified of all concentrations that meet the jurisdictional thresholds of the European Merger Regulation prior to the completion of a merger.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Marc Reysen, an O'Melveny partner licensed to practice law in Belgium and Germany, and Killian Kehoe, an O'Melveny associate licensed to practice law in Belgium and Ireland contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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