In which circumstances is an acquisition of a minority interest notifiable or reviewable?
Merger Control (3rd edition)
As noted above, also the acquisition of non-controlling shareholdings can qualify as a concentration under Austrian law.
In general, acquisitions of less than 25% of the shares in a company do not constitute a concentration. However, where such minority shareholding is combined with rights which are normally only given to shareholders holding at least 25%, there can still be a notifiable concentration.
DL 211 provides for the obligation to inform the FNE ex-post of the direct or indirect acquisition of a non-controlling stake in excess of 10% in a competitor, within 60 working days after materialization of the acquisition, in case the thresholds indicated in answer number 6 below are met.
After the notification, the FNE may open an investigation in order to verify whether the transaction violates the general provision prohibiting anticompetitive facts, acts or agreements.
The FNE’s Guidelines on Jurisdiction state that where a minority interest constitutes an operation of concentration, i.e. where the minority interest allows the acquirer to exercise decisive influence or control over the competitor, an ex-ante notification is required. This is the case because the interpretation of ‘control’ and ‘decisive influence’ is qualitative and is not limited to the mere determination of the percentage of shares held.
Acquisition of a minority shareholding can amount to a notifiable transaction, if and to the extent it leads to a change in the control structure of the target entity. In other words, if minority interests acquired are granted certain veto rights that may influence management of the company (e.g. privileged shares conferring management powers), then the nature of control could be deemed as changed (from sole to joint control) and the transaction could be subject to filing. As specified under the Guideline on the Concept of Control, such veto rights must be related to strategic decisions on the business policy and they must go beyond normal “minority rights”, i.e. the veto rights normally accorded to minority shareholders to protect their financial interests.
The Competition Board’s approach to voting and negative control rights is very similar to, if not the same as the European Commission’s position. For there to be a change in the target’s control structure, the voting and/or veto rights should be sufficient to enable the acquirer to exercise decisive influence on the strategic business behaviour of the target. Under Turkish merger control regime, veto rights on the business plan, appointment of the senior management, budget, and strategic/major investments are typical examples of veto rights that confer joint control (Aksa Akrilik Kimya Sanayi 12-14/410-121, 29.03.2012; Medikal Park, 09-57/1392-361, 25.11.2009; Tarshish, 06-59/780-229, 24.8.2006).
Control can be constituted by rights, agreements or any other means which, either separately or jointly, de facto or de jure, confer the possibility of exercising decisive influence on an undertaking. These rights or agreements are instruments which confer decisive influence; in particular, by ownership or right to use all or part of the assets of an undertaking, or by rights or agreements which confer decisive influence on the composition or decisions of the organs
of an undertaking.
As described above, the acquisition of a minority shareholding may constitute a merger in so far as the acquirer obtains decisive influence on the strategic commercial behaviour of the undertaking. Apart from situations where legal or de facto control is obtained, the merger control rules do not apply to acquisitions of minority shareholdings.
The position on minority interests under the Competition Act is similar to the position under the EUMR. The acquisition of a minority interest in an undertaking will only amount to a merger or acquisition for the purposes of the Competition Act where the minority interest is sufficient to give the undertaking involved joint or sole control. The approach to assessing whether control is acquired through veto rights or on a de facto basis is the same as set out under the CJN.
Minority interests are caught by Cyprus merger control where they confer, either severally or jointly with other rights, the possibility of exercising decisive influence over an undertaking. The contractual arrangements arising from the transaction documents and envisaged by-laws of the target are of tantamount importance in determining whether any rights resulting in a permanent change of control are in place.
De facto control can satisfy the control test, while the ability to veto certain types of decision relating to the target can indeed fall under such rights conferring the possibility of exercising decisive influence over an undertaking.
Consistently with EU competition law, the acquisition of a minority interest qualifies as a concentration only if it allows the acquiring party to exercise (sole or joint) control over the target undertaking. This happens, e.g., when the shareholding is widely dispersed, so that the acquiring party can exercise sole control even with a minority interest, or when the acquiring party holds veto rights over the target’s strategic decisions (approval of the business plan, appointment of senior management, etc.).
Conversely, if the acquisition of a minority interest does not allow the acquiring party to exercise any means of control, the transaction falls outside the scope of the Italian merger control regime and is not subject to any duty to notify.
Minority transactions which do not bring about a change of control are not covered by the mandatory notification requirement (note, however, that there may be a change of control even if less than 50% of the shares change hands based on e.g. a shareholder's agreement setting out that the buyer has an option to "veto" strategic decisions). However, the NCA may impose filing by decision also for minority transactions which do not bring about a change of control. Such decisions must be rendered by the NCA at the latest three months after the acquisition has become public, or the agreement was entered into.
A transaction which exceeds the Size of Party and Size of Transaction Thresholds is subject to compulsory notification notwithstanding the fact that it is merely an acquisition of a minority interest.
The acquisition of a minority interest in a Russian entity can be notifiable. The percentage of shares triggering a filing depends on the type of entity: thresholds are 25, 50 or 75 per cent of voting stock of a Russian joint-stock corporation, or 33.3, 50 or 66.6 per cent of the voting shares in a Russian limited liability company. The shares to be taken into account into the calculation include all shares held or to be acquired in the envisaged transaction by the acquirer or any other company of the acquirer’s group.
The acquisition of a minority interest in a foreign company is generally not notifiable; as a rule only the acquisition of more than 50 per cent of shares/voting stock of a non-Russian company triggers a filing requirement. An exception from this rule can, for example, apply in case of a joint venture between competitors.
An acquisition of a minority interest is notifiable as long as it qualifies as a "merger", i.e. if it leads to a change of control (see question 4 above) over the considered undertaking, provided that the French thresholds are met.
Acquisitions of non-controlling minority interests are not subject to merger control.
The last bullet point in 4 above is a catch-all, intended to catch minority and other interests, but only to the extent that they have the effect described in that point. Specifically, de facto control can be acquired where a less than 50% shareholder has the ability to materially influence the policy of the firm in a manner comparable to a majority shareholder.
Minority protections or veto rights which typically confer control are those relating to the determination of the budget and business plans or the appointment and remuneration of senior management.
Since the test for “material influence” is largely comparable to the “decisive influence” test for purpose of the EU Regulation, in the ordinary course acquisitions of minority interests that do not amount to “decisive influence” need not be notified.
Under the HSR Act, an acquisition of voting securities that meets the monetary filing threshold is reportable even if the acquiring person does not obtain control of the acquired entity. However, the HSR Act exempts certain acquisitions of voting securities if made ‘solely for the purpose of investment.’ This ‘investment-only’ exemption is available if, as a result of the acquisition, an acquiring person holds 10% or less of the voting securities of the target issuer and has only passive investment intent (i.e., under rule 801.1(i)(1) has ‘no intention of participating in the formulation, determination, or direction of the basic business decisions of the issuer’). In addition, acquisitions made directly by certain institutional investors, where the institutional investor holds less than 15% of the target issuer as a result of the transaction, may be exempt if the acquisition is made in the ordinary course of business and the institutional investor has only passive investment intent. In each of these cases, the acquisition is exempt even if the dollar value of the acquired voting securities is above the filing threshold. As a practical note, the ‘investment-only’ exemptions are narrow exemptions, and determining whether specific conduct is inconsistent with a claim of investment-only purpose is a fact-specific endeavour that requires careful scrutiny.
For acquisitions of interests in non-corporate entities (like an LLC or LP) that meet the notification thresholds and are not exempt, only acquisitions that confer control require notification.
As mentioned above, the acquisition of control is the decisive factor. Therefore, the acquisition of a minority interest must also be notified if it allows the undertaking to exercise control over another undertaking.
Minority interests are caught by German merger control in certain situations.
First, the acquisition of a minority interest may trigger German merger control if the minority shareholder acquires sole or joint control in the target company. This requires usually that the minority shareholder disposes of certain veto rights regarding strategic decisions (i.e. appointment of the senior management, the budget or the financial plan). The approach to assessing control is comparable to the EU law (see Test 2 above).
Secondly, the acquisition of 25 % or more of the shares or voting rights triggers German merger control (see Test 3 above).
Finally, the acquisition of competitively significant influence may trigger German merger control (see Test 4 above).
Minority interests are indeed caught by the merger control rules both within the Greek and Community legal regime.
Although there is no specifically defined percentage shareholding below which it could be safely assumed that control will not arise, it can be concluded from both theory and case law that shareholding below twenty five per cent (25%) does not suffice for the acquisition of control absent any structural links between the parties or any other controlling means, such as agreements containing vote withholding provisions, or vested rights with respect to the appointment of a number of managers or the majority of managers, which secure the determination of the business and commercial policy for such right holder.
Only redacted versions of the Decisions issued by the HCC are made public; shareholding percentages are classified as confidential information, therefore, percentage-specific minority shareholding data is not available. However, in the field of the EU case law (Case No IV/M.258 -CCIE / GTE), a minority shareholding, amounting to only nineteen percent (19%) of the voting rights, has been found to suffice for the acquisition of control, since such shareholder (CCIEL) was also vested with various rights/privileges: veto rights over all board decisions, a permanent seat on the board of the target and right to appoint the Chairman and the CEO (whereas the remaining investors were entitled to one seat on the board), CCIEL’s prior written consent for all significant decisions (such as appointment and removal of senior employees, engagement and disposal of significant assets, material capital expenditure, disposal of significant assets and approval of annual budget).
As already stated above, veto rights are related to the concept of joint control. Veto rights that are granted to minority shareholders in order for their financial interests in their capacity as investors to be secured usually do not suffice for the joint acquisition of control; for this purpose, such veto rights shall be associated with strategic business decisions. Therefore, the exercise of influence on the mere everyday function of the undertaking is not required for the control test; on the contrary, it is essential that such veto rights sufficiently enable veto right holders to have decisive influence on strategic business issues; the mere ability of the veto right holders to exercise such influence suffices. Therefore, veto rights with regards to the share capital increase or decrease, the dissolution or liquidation of the joint undertaking do not suffice; on the contrary, according to the EC past practices it has been classified that veto rights related to (i) approval and/or determination of the budget, (ii) the approval of the business plan, which, however, must incorporate specific goals and measures and not be vague and include mere guidelines, (iii) any major investments and (iv) the appointment and the removal of senior management of the undertaking do suffice for the ascertainment of acquisition of control.
The control test can be also satisfied in cases of an acquisition by a minority shareholder of de facto control; this will happen especially when such shareholder can boast plenty of chances (according to the projections regarding the vote allotment following the consummation of the concentration) to secure majority in the shareholder assemblies due to the level of his participation and the intertemporal presence of the other shareholders at the assemblies in the past years. Various other criteria, such as the wide dispersion of the remaining shares, any structural, financial or family bonds of any of the other shareholders with the minority one or any strategic or purely financial interests of such shareholders in the undertaking, shall be taken into account, too. As long as the minority shareholder is likely to obtain consistent majority at the assemblies, based on his participation, the usual allotment of the votes and the position of the remaining shareholders, then such minority shareholder can be deemed as de facto exercising exclusive control [see Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (2008/C 95/01) para. 59].
Only if the acquisitions confer direct or indirect control over the target company, in terms of the Resolution SBS No. 5780-2015. In the case of the Bills, the regulation is essentially the same.
Acquisitions of minority shareholdings or other interests which do not result in a change of control fall outside the scope of the Competition Act.
When there is not straightforward legal control, the PCA analyses whether the acquirer has the means to exercise de jure or de facto control over the acquired undertaking, e.g. through special rights attached to shares or contained in shareholders’ agreements, board representation and/or the ownership and use of commercially strategic assets.
However, the PCA remains attentive as regards minority interests, as results from its recent contribution to the OECD with the note “Common ownership by institutional investors and its impact on competition”, of December 2017.
A share acquisition constitutes a qualifying transaction if the holding ratio of voting rights governed by the buyer’s group in the target exceeds 20% as result of the acquisition.
Item I of Schedule I to the Combination Regulations, stipulates that an acquisition of less than 25% of the total shares or voting rights of an enterprise is exempt from the notification obligation in so far as the acquisition is made solely as an investment or in the ordinary course of business, and does not result in the acquisition of control.
The explanation to Item I, Schedule I of the Combination Regulations provides that any acquisition of shares below 10% is considered to be made solely as an investment, subject to certain conditions provided here. Firstly, by way of the transaction, the acquirer should be able to exercise only such rights that are enjoyed by the ordinary shareholders of the target enterprise. Secondly, the acquirer should neither be a member of the board of directors of the target enterprise, nor have a right or intention to nominate a director on the board of directors of the target enterprise. Thirdly, the acquirer should not intend to participate in the affairs or management of the target enterprise.
An acquisition will be reviewable if it confers, at a minimum, the ability to exercise 'material influence' over the competitive conduct of the target. This is a lower threshold than the 'decisive influence' test under the EU Merger Regulation. As a general rule, a shareholding of more than 25% is likely to be viewed as giving rise to material influence, and shareholdings of as low as 10-15% (with no board representation or other governance rights) might be viewed as conferring material influence, depending on the circumstances.
For acquisitions of public companies, a shareholding that would allow the holder to veto a 'special' resolution (taking into account typical levels of shareholder attendance and voting at shareholder meetings) will usually be sufficient to confer material influence.
For example, an acquisition by BSkyB of a 17.9% interest in ITV was found to have satisfied the material influence test, a finding that was upheld on appeal by the Competition Appeal Tribunal (CAT). However, in practice the CMA is unlikely to exercise jurisdiction over an acquisition resulting in such a low shareholding unless the transaction gives rise to substantial potential competition concerns.
Minority shareholdings are not currently caught at the EU level, unless they confer (joint) control. The Commission has in the past examined this issue and considered proposing a change to the EUMR to be able to review acquisitions of minority shareholdings. The Commission has not formulated concrete proposals, as Commissioner Vestager recognized the excessive burden such an expansion of jurisdiction would represent for companies.
However, the Commission is currently investigating whether “common ownership” may cause competition concerns which merit intervention.
As mentioned, any acquisition of more than 25% of even one of the rights outlined above constitutes a merger of companies. In the past, the Israeli Antitrust Authority has not seen a "mergers of companies" transaction where less than 25% of the above rights were acquired, unless other factors existed, such as the appointment of company officers or actual involvement in the company's activities.
Nonetheless, when made between competitors, an acquisition or holding of less than 25% may be considered a "restrictive arrangement", which, under certain circumstances, also requires clearance according to Israeli Antitrust Law.
An acquisition of a minority interest is notifiable if it confers the acquiring party control over the target business operator and meets the notification thresholds. In other words, a test for control (see answers to question 4) is also necessary for an acquisition of a minority interest. In particular, if a party acquiring a minority interest obtains veto rights, at the level of shareholder’s meeting, at the level of board of directors, or otherwise, over strategic commercial behaviors of the target business operator, including but not limited to decisions relating to the latter’s business plan, budget, and appointment and removal of senior management, the party may be considered to obtain sole or joint control over the target business operator.
If an acquisition of a minority interest exceeds any of the thresholds listed in question 6, the transaction needs to be cleared. Nonetheless, sometimes it is possible to avoid having to obtain clearance for a transaction (for instance, in corporate restructures), and sometimes a fast-track procedure may apply (please see question 21).