What are the conditions on minority interest in your jurisdiction?
Merger Control (2nd Edition)
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 straightforward legal control is not generated, 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.
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].
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.
Consistently with EU competition law, the acquisition of a minority interest qualifies as a concentration 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.
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 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 this case, 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’ exemption is a narrow exemption 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.
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 has certain veto rights regarding strategic decisions (i.e. appointment of the senior management, decisions on the budget or the financial plan). The approach to assume 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).
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.
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.
For transactions that exceed the financial thresholds and involve the acquisition of voting shares or interests, there is an additional test known as the “size of equity” threshold that determines whether filing is mandatory. This may catch acquisitions that result in the acquirer holding more than 20 per cent of the voting shares of a public company or more than 35 per cent of the voting shares of a private company or voting interests of a non-corporate entity such as a partnership (or, in each case, more than 50 per cent of the voting shares, or interests in the case of a partnership, if the acquirer already owns the percentages stated above). As such, the Canadian merger control regime may require notification for transactions that would not amount to the acquisition of “decisive influence” for the purposes of the EU Merger Regulation.
Even if not subject to merger control (i.e., notifiable), the Bureau can still review (and challenge) an acquisition if the purchaser acquires a “significant interest” in the target. What constitutes a significant interest is described above.
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 because the interpretation of ‘control’ and ‘decisive influence’ is qualitative, and is not limited to the mere determination of the percentage of shares held.
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.
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.
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.
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 behavior 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 trigger for the Commission’s jurisdiction is a change of control. The concept of control under the EUMR covers both de jure and de facto types of control. If specific rights attached to a minority shareholding enable the shareholder to determine the strategic commercial behaviour of an undertaking, this may result in de jure control.
De facto control may exist when a minority shareholder is likely to achieve a majority at shareholders’ meetings due to certain circumstances such as the attendance of other shareholders at past shareholder meetings, past voting patterns, dispersed shareholdings etc., which permit the minority shareholder to exercise decisive influence.
Irrespective of the percentage held, the acquisition of a minority interest may be reportable if jurisdictional thresholds are met and if the minority interest is accompanied by controlling rights. Although there is no list of rights conferring control, the FCA notably takes into account direct or indirect veto rights on strategic decisions such as (but not limited to) budget, business plan, appointment and/or dismissal of senior management as indicia.
Minority interests are not expressly caught by the merger control regime applicable in Malta.
The definition of control corresponds to that under the EU Merger Regulation. Consequently, control may be achieved on the basis of a minority interest if the interest by rights, agreements or other means give, solely or in combination with other factors, the ability to exercise decisive influence over a corporation.
However, the NCA shall also intervene against “an acquisition of holdings in an undertaking even if the acquisition will not lead to control”, provided the acquisition will create or strengthen a significant restriction of competition. Such acquisitions are not subject to compulsory notification, but the NCA may order the parties to notify. The NCA has made use of this power only once.
If the acquisition of minority interest does not entail the acquisition of control over the target, then the operation is not characterized as an economic concentration and is not subject to obtaining the Competition Council’s clearance, irrespective of the concerned parties’ turnovers.
In certain cases, the acquisition of minority interest entails the acquisition of the possibility to exercise decisive influence over the target’s business, for instance de facto control, or the veto rights with respect to, for instance, the target’s budget, business plan, important investments or the appointment of senior management. In these cases, a concentration arises. There is no minimum percentage shareholding below which it is safe to assume the control will not arise. Given the complexity of situations that may arise in practice, a case-by-case assessment must be carried out.
KN: Minority interests conferring control are caught by the merger control rules and there is no set % of the minority shareholding. Similarly to the EU, an acquisition of a minority shareholding may trigger the mandatory merger filing if the minority shareholder would be able to exercise decisive influence i.e certain controlling rights that fall outside the scope of ordinary rights normally afforded to a minority shareholder. In practice, there have been cases where the ability of a minority interest to veto or block strategic commercial decisions has been identified as exercising decisive influence.
Given the lack of any specific local guidelines issued by the Commission, the Commission usually relies on the European Commission’s Consolidated Jurisdictional Notice and guidelines provided in applicable case law. The Commission is not, however, obliged to apply or follow EC guidelines and precedents therefore it is possible that it adopts wider or narrower approach in respect of minority shareholding.
The last bullet point 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.
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.
The acquisition of less than 25% of shares in a company does not require a merger control clearance, if such minority interest does not ensure the control to the acquirer (including the negative control via veto rights under a shareholders’ agreement or other similar instruments). Under Ukrainian competition law, control is a decisive influence over business activity of an entity, irrespective of the form that such influence takes (including informal de facto control).
The test for control is based on the ability to veto important decisions relating to the business activity of an entity (approval of the budget, business, strategic and development plans, appointment of senior management and key employees, ability to enter into certain types of agreements, etc.).
Even if a minority interest (in the range of 25-49%) is acquired that does not ensure the control, such transaction is still reportable to the AMC.
The conditions for minority interest are dictated in Articles 9 and 10 of CADE’s resolution No. 09/2014, to which the acquisition of parts of a company without acquisition of control -- either unitary or shared -- need to be notified to CADE if:
(I) the acquisition grants the owner direct or indirect ownership of 20% or more of the company’s share capital or voting capital;
(II) In cases where the company is a competitor or acts in a vertically related market:
- If the buyer, directly or indirectly, obtains 5% or more of the share capital or the voting capital;
- If the last acquisition, individually or aggregated to the previous ones, results in a participation of the investing company in the invested company of 5% or more, if the investing company already owns 5% or more of the share capital or the voting capital.
The CCA applies to any acquisition of shares or assets, even the acquisition of a minority interest. The CCA does not include a specific control test relevant to minority interests.
If the acquisition of a minority interest could give rise to a substantial lessening of competition in a market in Australia, that acquisition may require clearance by the ACCC.
Acquisitions of minority interests that do not result in direct change of control fall outside the scope of the LORCPM. There is not a given percentage of what is minoruty interest but in closed corporations will ussually be under the 51% of the shareholders voting rights.
When direct control is not generated, the Superintendency is requiered to analyze whether the acquirer has the means to exercise de jure or de facto control over the acquired undertaking (i.e: negative control through ancillary agreements, special rights attached to shares or contained in shareholders’ agreements, board representation or the control of productive assets).