EU merger control: European Commission takes stricter action against submission of incorrect, incomplete and misleading information

Some two years after the collapsed acquisition of Trimo by Kingspan, the European Commission now charges Kingspan over providing incorrect, incomplete and misleading information during the merger control review. The European Commission has issued a Statement of Objection which outlines its preliminary findings. The procedure may result in severe fines and once again highlights that companies need to check very carefully the information they provide in the context of merger control proceedings. This applies not only to the parties directly involved in the transaction (acquirer, target, joint venture partner) but also to any third parties questioned, such as competitors, customers or suppliers.

Background: Proposed acquisition

Kingspan, an Irish manufacturer of insulation panels, notified the European Commission about the proposed acquisition of its Slovenian competitor Trimo in March 2021. In the in-depth examination procedure, the Commission outlined its competition concerns: higher prices, lower quality and less choice on certain national building materials markets for mineral fibre sandwich panels which are used for the construction, renovation and insulation of industrial and commercial buildings. Kingspan and Trimo eventually abandoned the transaction.

Further investigation: Incorrect, incomplete and/or misleading information?

The European Commission did not leave it there. A few months later, it launched an investigation to determine whether Kingspan had intentionally or negligently provided incorrect, incomplete and/or misleading information during the merger control proceedings. The European Commission has now informed Kingspan that it considers its suspicion confirmed with regard to the following facts:

• Internal organisation,
• relevant aspects aimed at assessing the relevant product and geographical market,
• barriers to market entry and expansion,
• importance of innovation, and
• closeness of competition between Kingspan and Trimo and their competitors.

Kingspan will now comment on this preliminary assessment by the Commission.

Infringements may lead to significant fines

The obligation not to provide incorrect, incomplete and/or misleading information applies equally to European and German merger control proceedings. The scope of the obligation and the risk of a fine depends on the type of information request or transmission:

• Merger notification: The obligation comprehensively applies to information provided in the merger notification (including annexes, certifications, and supplements thereto). Infringements can be sanctioned with a fine. In addition, incomplete mandatory information also renders a filing not complete; the time limits provided for in the European Merger Control Regulation do not start to run.

• Simple oral questioning: Simple oral questioning, for example via telephone/video calls, is a tool often used by competition authorities to gather information quickly and easily. The obligation not to provide incorrect and/or misleading information also applies in this case. However, infringements cannot be sanctioned with a fine.

• Simple request for information: The vast majority of information requested in merger control proceedings is demanded by way of a simple request for information (RFI). The obligation not to provide incorrect and/or misleading information applies, but legally, there is no obligation to provide the information at all. The provision of incomplete information can only constitute an infringement if the partial information is misleading about the true facts. Infringements in the context of simple requests for information can be sanctioned with a fine in European merger control proceedings – unlike in German merger control proceedings.

• Formal request for information: The European Commission may also request information by way of formal decision to receive the requested information. In addition to the obligation not to provide incorrect and/or misleading information, there is an obligation to provide (complete) information within the time limit set, which can be enforced with coercive measures if necessary. Infringements can be sanctioned with a fine. Formal requests for information are often not necessary because the mere threat of them is sufficient to obtain a response to a simple request for information. Due to the principle of proportionality, a formal request for information must only be used if necessary. However, there is no strict priority of simple information requests. The European Commission has the discretion to directly use formal requests for information if it has reasonable grounds to assume that a simple request for information will not be sufficient.

The European Commission (as well as the German Federal Cartel Office) can impose a fine of up to 1% of the total (group) turnover of the company concerned in the last financial year for each infringement that is subject to a fine. Importantly, it does not matter whether the information provided has an impact on the outcome of the merger control proceedings. The nature, gravity, and duration of the infringement as well as any aggravating or mitigating circumstances – such as cooperating with the European Commission in the infringement proceedings – are taken into account when setting the fine. The fine must be both proportionate and deterrent.

The fines imposed by the European Commission for incorrect or misleading information illustrate the relevance: EUR 110 million in 2017 on Meta, EUR 52 million in 2019 on General Electric and EUR 7.5 million in 2021 on Sigma-Aldrich. The German Federal Cartel Office has also taken action in recent years, albeit with significantly smaller fines.

Assessment and practical implications

The Kingspan case is of great significance because it is the first time the focus seems to concern incorrect, incomplete and misleading information relating to relevant aspects of the qualitative market assessments. It must be acknowledged that for its merger control assessment, the European Commission is dependent on comprehensive and precise information, most of which can only be provided by the parties. The information provided by the parties to the merger and third parties questioned ensures the effectiveness of merger control. However, descriptions of the relevant markets, the barriers to market entry or the closeness of competition are in complex cases all but straightforward and not simply true or false.

Companies and their advisors should nevertheless always check information provided in merger control proceedings very carefully to avoid being accused of providing incorrect, incomplete, or misleading information. Given the far-reaching information obligations and requests for information, and the often very tight deadlines in merger control proceedings, this can be a considerable challenge for companies which can only be overcome by careful preparation of the filing and provision of sufficient resources.