Antitrust Law Daily Canon filed by EC for implementing Toshiba merger before approval
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Thursday, June 27, 2019

Canon filed by EC for implementing Toshiba merger before approval

By Jody Coultas, J.D.

The procedural breach of the European Commission merger review rules resulted in a €28 million (U.S. $31.8 million) fine.

Canon Inc. has been ordered by the European Commission (EC) to pay €28 million (approximately U.S. $31.8 million) for implementing its acquisition of Toshiba Medical Systems Corporation (TMSC) from Toshiba Corporation before notification to and approval by the EC, in breach of EU Merger control rules. Earlier this month, the companies each agreed to pay a $2.5 million civil penalty to settle U.S. charges that they violated the premerger notification and waiting period requirements of the Hart-Scott-Rodino Act.

In August 2016, Canon notified the EC of its proposed acquisition of TMSC. The transaction was cleared the following month. Canon used a so-called "warehousing" two-step transaction structure involving an interim buyer. As a first step, the interim buyer acquired 95% in the share capital of TMSC for €800 ($909), whereas Canon paid €5.28 billion ($6 billion) for the remaining 5% of the shares and share options over the interim buyer's stake. Following approval of the merger, Canon exercised its share options, acquiring 100% of the shares of TMSC.

A year later, the EC sent a Statement of Objections based on Canon implementing the first step of the transaction prior to notifying the EC and obtaining approval. EU merger rules require that merging companies notify planned mergers of Union dimension for review by the EC prior to their implementation ("the notification requirement") and do not implement them until notified to and cleared by the EC ("the standstill obligation").

The EC concluded that the first and second steps in the transaction structure formed together a single notifiable merger. The first step contributed to the acquisition of final control over TMSC, which occurred with the second step, and the first step was necessary for Canon to gain control over TMSC. By carrying out the first step, Canon partially implemented its acquisition of TMSC before both the notification and the Commission's approval. As a result, Canon breached the notification requirement and standstill obligation.

Because Canon was aware of its obligations under the EU Merger Regulation, the breach of procedural obligations was, at least, negligent. The fact that the transaction was cleared unconditionally is also taken into account for the gravity of the infringements. On the basis of these factors, the Commission concluded that an overall fine amount of €28 million is both proportionate and deterrent.

Companies: Canon Inc.; Toshiba Corp.; Toshiba Medical Systems Corp.

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