M&A transactions — legitimate non-compete or market-sharing

While in most M&A transactions it is standard practice for a Purchaser to insist on non-compete and non-solicitation restrictions from the Vendor, one does need to ensure they are drafting within what is deemed permissible to ensure they are enforceable and avoid risk fines under EU competition law.

The European Commission has imposed fines of €79 million on Telefónica and Portugal Telecom for including a non-compete clause relating to their home markets in a transaction.

Vivo, the Brazilian mobile joint venture, was established and jointly owned by Telefónica and Portugal Telecom. In 2010, as part of Telefónica’s multi billion euro acquisition of Portugal Telecom’s stake in Vivo, the parties included a clause which prevented them from competing in Spain and Portugal for a period from September 2010 to the end of 2011. The Commission opened antitrust proceedings at the beginning of 2011 on its own initiative (there was no complaint made bringing it to the Commission’s attention), and the parties terminated the non-compete agreement in February 2011…

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