Danish Merger Sanctions Draw Skeptical Court Eye

(CN) – An EU magistrate sided with Ernst & Young on Thursday as the auditor defends actions taken by a Danish branch of KPMG in advance of their merger.

Ernst & Young brought the underlying action with the Maritime and Commercial Court in Denmark to annul a 2014 decision by the Danish Competition Council. In December that year, the council took issue with the manner by which KPMG DK had terminated its relationship with KPMG International so that it could merge with Ernst & Young.

Because KPMG DK gave notice to end its cooperation agreement with KPMG International before its merger with Ernst & Young had been approved, the council said KPMG DK had infringed what is known as the standstill obligation, a requirement not to implement transactions unless they have been notified and cleared.

The Maritime and Commercial Court in Denmark asked the European Court of Justice whether EU law proscribes the termination of the concentration agreement in advance of approval of the merger.

Advocate General Nils Wahl is an adviser to this court in Luxembourg. In a nonbinding opinion Thursday, Wahl said EU lawmakers had no intent of letting the standstill obligation apply where a concentration has not yet materialized.

“Requiring merging undertakings to wait until clearance is given even in respect of measures which are not in themselves inextricably linked to the transfer of control would be excessive and might cause unnecessary delays,” he wrote.

Wahl later argued that there was no shift in control between KPMG DK and Ernst & Young owing to the termination.

“Although the termination might have had some effect on the market, it would not have meant that KPMG DK would no longer have been a competitor for EY,” he wrote, abbreviating Ernst & Young’s name.

“Indeed, accepting such a line of argument would mean that any measure implemented by EY or KPMG DK between signing the merger agreement and the competition authority’s approval potentially could have been caught by the standstill obligation,” Wahl continued. However, for the reasons given … the mere intention to effect a concentration does not give rise to the standstill obligation.”

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