Minority Shareholding: Towards More Effective EU Merger Control (?)
Minority Shareholding: Towards More Effective EU Merger Control (?)
Merger controls constitute a significant part of competition law and has an important impact on the operation of the internal market. The legal system of merger control is constantly developing to be an effective tool to prevent anticompetitive concentrations and to lower transaction costs. Within the EU, competition law has been consistently harmonized to ensure the protection of effective competition on the internal market. However, the rules on merger control at the EU level and individual EU member states continue to differ in certain regards.
1. Minority Shareholdings: Austrian Merger Control
Mergers and other similar transactions are subject to the Austrian merger control. Austria has established a system for transaction notifications to meet certain thresholds to maintain and secure an effective competitive market. The relevant legal provisions are laid down in the Austrian Cartel Act (Kartellgesetz) and the Austrian Competition Act (Wettbewerbsgesetz).
In contrast to the European Commission (“EC”), the Austrian Federal Competition Authority (Österreichische Bundeswettbewerbsbehörde) examines the acquisition of minority shareholdings irrespective of whether the concentration confers control over another undertaking. The Austrian regime of merger control catches, inter alia, any direct or indirect shareholding which meets or passes the threshold of 25% within an undertaking. However, according to the jurisdiction, the threshold may also be triggered when 25% of the voting rights are met or similar rights of those of a shareholder with a participation record of 25%.
2. Minority Shareholdings at the Level of the EU: Regulation Gap
At the level of the EU, merger control is regulated by the EU Merger Regulation (Council Regulation [EC] No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ L 24/1). The EU Merger Regulation applies to situations which are deemed to arise when a change of control on a lasting basis results from the respective transaction. Thus, transactions are subject to merger control if either sole or joint control (i.e. control together with other shareholders) over the target is conferred to the acquirer. Therefore, in general, the EU Merger Regulation does not catch the acquisition of (non-controlling) minority shareholdings. The respective concentration does not fall under the jurisdiction of the EC, as long as, the minority shareholder is not authorized to determine the strategic commercial behavior of the target company.
The EC must be notified of any merger that fulfills the criteria of the EU Merger Regulation. In this regard, the merger undertaking has to reach certain turnover thresholds, because only larger mergers are examined by the EC. Smaller mergers which do not have an EU dimension may fall under the scrutiny of the national competition authorities. As a result, the EC only has the possibility to control and examine the acquisition of non-controlling minority shareholdings in connection with the examination of notified mergers.
Merger control for minority shareholdings can only be triggered if the acquisition gives the acquirer the majority vote in the shareholders’ meeting or results in other control rights for the minority shareholder based on an agreement. In certain case law (e.g. Ryanair/Aer Lingus), the EC is of the opinion that there is an enforcement gap related to minority shareholdings that should be closed.
3. White Paper: Towards More Effective EU Merger Control
In White Paper (White Paper, Towards more effective EU merger control, COM  449 final), the EC proposed a system for controlling certain acquisitions of non-controlling minority shareholdings at the level of the EU, which would be implemented in the existing procedures of merger control. The objective of the initiative is to prevent any harm to consumers and their competitors caused by the acquisition of non-controlling minority shareholdings. It is essential to the EC that the new regime is designed to ensure that the reliable interaction between the merger control at the level of the EU and the EU member states is maintained.
The EC has also taken into consideration the regulation gap for minority shareholding, which can be covered by the competition rules on restrictive agreements and the abuse of a dominant position under Articles 101 and 102 TFEU. However, the uses of these rules to intervene against anti-competitive acquisitions of minority shareholdings are limited and even when they could be applied, they are not the best way of addressing the purchase of non-controlling minority shareholdings. Thus, due to an in-depth assessment, the EC proposed a "targeted transparency system" which would be the most appropriate option for dealing with acquisitions of minority shareholdings. It would allow potentially problematic transactions to be targeted from the outset, namely through the identification of transactions which would create a "competitively significant link". It would ensure that identified transactions could be effectively controlled by the EC, even without full notification. The shareholders would self-assess whether a transaction creates a "competitively significant link" and notify the EC. The notice would contain information relating to the parties, their turnover, a description of the transaction, the level of shareholding before and after the transaction, any rights attached to the minority shareholding, and some limited market share information.
The following transactions would fall within the definition of a "competitively significant link": (1) acquisitions of a minority shareholding in a competitive or vertically related undertaking (i.e. there needs to be a competitive relationship between acquirer and target), and (2) the competitive link would be considered significant if the acquired shareholding is (i) around 20% or (ii) between 5% and around 20%, but accompanied by additional factors such as rights that give the acquirer a de facto blocking minority, a seat on the board of directors, or access to commercially sensitive information about the target.
On a case-by-case basis, the EC would decide whether further investigation of the merger is required and the EU member states would consider whether to request a referral on the basis of this notice. The shareholders concerned would be required to submit a full notification if the EC decided to initiate an investigation. The EC will only issue a decision if it has initiated an investigation. In order to provide legal certainty, the submission should be voluntary and permissible.
This new system of EU review of mergers for minority shareholdings will create a one-stop shop for assessing acquisitions and minority stakes at the EU level instead of having to get approval in each EU member state.
4. Roadmap of the European Commission
The EC launched public consultations to receive feedback about the initiative from both public and private stakeholders. Generally, the majority of private stakeholders do not think there is a gap of sufficient scope to call for new regulations and therefore consider the proposal of the EC unnecessary.
Margrethe Vestager, Commissioner of Competition, concluded recently that the balance between the concerns that this issue raise and the procedural burden of the proposal in the White Paper may not be the right one and that the issues need to be examined further. She indicated that there is no need to rush and that it will be essential for the new rules, as the case may be, to work well and create a solution that is proportionate to the problem (see "Thoughts on merger reform and market definition", Keynote address at Studienvereinigung Kartellrecht [Brussels] 12 March 2015).