What are the conditions of the test for control?
Merger Control (4th edition)
The Cartel Act defines the term “concentration” legally and foresees five cases in which a concentration is realised.
A concentration always requires the involvement of two undertakings. The term “undertaking” is a very broad one. It is to be understood as an entity engaged in an economic activity irrespective of its legal form and means of funding. Even an insolvent and already closed business can be an undertaking. A natural person (shareholder) qualifies as undertaking if it can exert decisive influence over a company’s economic planning.
A concentration is considered to arise in the case of:
- An acquisition of an undertaking, wholly or to a substantial part, by another undertaking. A substantial part is acquired, if an existing market position is transferred. This can include business units, production sites, branches, and also established trademarks.
- An acquisition of management contracts or the like by an undertaking with regard to the business of another undertaking, which leads to a lasting change in the market structure.
- A direct or indirect acquisition of 25% or more, or 50 % or more of a company’s shares by another undertaking. A concentration is also brought about if particularly voting rights are acquired that resemble such as a 25% or 50% (capital) participation would normally confer. It should be noted that in case of the acquisition of minority shareholdings of at least 25%, the possibility to control is not required. If the 25% shareholding already confers control, however, the later acquisition of further shares does not need to be notified. If it does not, the subsequent acquisition of 50% or more of the shares constitutes a separate concentration.
- “Cross-management or supervision”: Acts that bring about the identity of at least half of the members of the executive or the supervisory board of two or more undertakings.
- Any (other) acquisition of a direct or indirect controlling influence over another undertaking. According to jurisprudence, already the opportunity to exercise controlling influence on the activities of another undertaking is sufficient. Whether a controlling influence is actually exercised is irrelevant. It should also be noted that the shifting from joint to sole control constitutes a concentration. Sole control means that the acquirer is able to decide on its own over the strategic competitive behaviour of the target undertaking. This can also be the case where there are veto rights concerning strategic decisions (“negative sole control”). Joint control is gained, if two or more undertakings together exert a controlling influence on what is then commonly referred to as a joint venture. Each undertaking must have the opportunity to influence strategic decisions in the sense that such decisions cannot be made without it. Strategic decisions typically are decisions on the budget, important investments, the business plan and the composition of the management.
As noted, intra-group transactions do not have to be notified.
Further, there are some noteworthy exemptions in the financial sector:
- Under certain circumstances, a bank does not need to notify the acquisition of shares of a target company for the purpose of selling those, doing a restructuring against the background of an insolvency situation or in case it acquires shares for the purpose of securing its claims.
- Undertakings the only purpose of which is to acquire shares and to exploit these shareholdings may also benefit from an exemption. However, jurisprudence has made it clear that the exemption only applies if the investment entity does not intervene in the operative management of the target company, but merely holds the shares as financial assets.
Concentration of business operators which meets the thresholds determined by the State Council is notifiable. Concentration of business operators includes the following three types of transaction,
- merger of business operators;
- control over other business operators gained by a business operator through acquiring their shares or assets; and
- control over other business operators or the ability to exert a decisive influence on the same gained by a business operator through signing contracts or other means.
As to the test for control, the Guiding Opinions on Declaration of Concentration of Business Operators (“Guiding Opinions”), as amended by SAMR in September 2018, provides that control referred above includes sole control and joint control and that the determination of control depends on various legal and factual factors, including not only concentration agreements, e.g. share purchase agreement and articles of association of the target business operator, but also other factors like the dispersed ownership of the target business operators which may result in de facto control. The Guiding Opinions sets out the following factors that should be taken into account in determining whether one business operator gains the control over another business operator:
- purposes of the concentration and future plans;
- the equity structure of the said another business operator both before and after the concentration and the changes thereof;
- the matters for voting by the general meeting of the said another business operator, and the voting mechanisms, historical attendance and voting records of the general meeting;
- the composition and voting mechanisms of the board of directors or the board of supervisors of the said another business operator;
- the appointment and removal of the senior management personnel of the said another business operator;
- the relationship among shareholders and directors of the said another business operator, e.g. whether proxies are entrusted to exercise voting rights, whether there are parties acting in concert, etc.; and
- whether there exists significant business relationship, cooperation agreements, etc. between the business operator and the said another business operator.
The Law is applicable to concentrations between undertakings resulting in a change of control on a lasting basis. Such concentrations include mergers of two previously independent undertakings or parts thereof, and acquisitions by one or more persons already controlling at least one undertaking, or by one or more undertakings, directly or indirectly, whether by purchase of securities or assets, by agreement or otherwise, of control of one or more other undertakings. Joint ventures performing all functions of an autonomous economic entity ion a lasting basis are caught under the Law.
‘Control’ is defined as control stemming from any rights, agreements or other means which, either severally or jointly, confer the possibility of exercising decisive influence over an undertaking through:
- ownership or enjoyment rights over the whole or part of the assets of the undertaking; or
- rights or contracts that confer the possibility of decisive influence on the composition, meetings or decisions of the bodies of an undertaking.
For the purposes of the Antitrust Law, economic concentration is understood as the change or taking of control of one or more companies or economic operators through acts such as:
- The merger between companies or economic operators
- The transfer of the totality of the effect of a merchant
- The acquisition, directly or indirectly, of the property or any right over shares or equity holdings or debt securities that give any type of right to be converted into capital shares or participations
- Affiliation based on common administration
- Any other agreement or act that transfers in fact or legal form to an economic person or group the assets of an economic operator or gives in the control or decisive influence in the adoption of decisions of ordinary administration or extraordinary of an economic operator.
The EUMR applies to transactions which lead to a change of control (or change in the quality of control) over a company on a lasting basis. Control is exercised “positively” when a parent company enjoys the power to determine the strategic commercial decisions of the target by, for example, having sufficient votes in the decision-making bodies to pass all crucial decisions without the need to be supported by potential other parent companies. Control can also be exercise “negatively”, which happens when one shareholder is able to veto strategic decisions in the target, but does not have the power, on its own, to impose such decisions. Two or more parent companies can “jointly control” a target when they both have the power to exercise decisive influence over the target (either positively or negatively).
Control is also possible on a “de facto” basis when a minority shareholder is likely to represent a majority of registered votes at the shareholders' meetings, mainly because shareholder presence at past meetings was low enough for the minority shareholding to actually amount to a majority of the registered votes.
Pursuant to Article L.430-1 of the Code, the French merger control regime applies to "concentrations", i.e. situations where either:
- two or more formerly independent undertakings merge; or
- one or several persons or undertakings acquire, directly or indirectly, control of all or part of one or several other undertakings, whether by (i) the acquisition of securities or assets, (ii) a contract or (iii) any other means.
Joint ventures are also subject to French merger control (see question 9).
The concept of "control" under French legislation is consistent with the definition set out in the EU Merger Regulation (“EUMR”): control arises from rights, contracts or any other means that grant one (sole control) or several persons or undertakings (joint control) the ability to exert a decisive influence over the conduct of another undertaking on a lasting basis.
There are several types of transactions which qualify for a concentration to be notified:
Test 1 – Acquisition of all or a substantial part of the assets of another undertaking: The acquisition of all assets of a company constitutes a concentration pursuant to ARC. If not all assets of an undertaking are acquired, the test is met if the assets acquired represent a competitive position of the seller on the market (e.g. the sale of a dedicated business or an outlet of the seller) and this position is transferred to the acquirer. The actual means of acquisition, e.g. by merger, acquisition of assets or universal succession is irrelevant. Obligatory rights to use (e.g. by licensing or long time renting or similar transfer mechanisms) are not sufficient for this test but may confer control (see below).
Test 2 – Acquisition of control: The acquisition of direct or indirect control by one or more undertakings over the whole or parts of one or more other undertakings constitutes a concentration under German merger control. The assessment is very similar to the European merger control regime. Similar to EU law, the test covers both the acquisition of sole and joint control.
Control means the possibility to exercise a decisive influence on the activity of an undertaking. The mere possibility to exert control is sufficient. Control can be acquired by rights, contracts or other means which, individually or jointly, allow to exercise decisive influence. It has to be noted that control does not require ownership of the assets; mere long-term contractual agreements may be sufficient (e.g. the lease of a business) to confer control. In this context, all factual and legal circumstances have to be taken into account, in particular: ownership or rights in a whole or in part of the assets of the company, rights or contracts which confer a decisive influence on the composition, deliberations or decisions of the management bodies of the undertaking. The typical case for the acquisition of control is the purchase of a majority shareholding. However, control can also be acquired by minority shareholders (below 25%) if they hold certain veto rights regarding strategic decision like the appointment of the senior management, the budget and/or the investment decisions of the target company.
The switch from sole control to joint control or vice-versa is also considered a concentration triggering merger control. The situation where only the number of companies jointly controlling the target is reduced, but the target will still be jointly controlled after the transaction is, to some extent, unclear. According to the publication of the FCO, it seems to tend to consider such reduction of the number of companies jointly controlling the target company to constitute a change of control requiring a notification.
The object of the acquisition of control can either be a whole undertaking or parts thereof. If the acquirer buys only parts of another company, the test is fulfilled if the part acquired represents a competitive position of the seller on the market (e.g. the sale of a dedicated business or an outlet of the seller). This is equivalent to test No. 1.
In practice, a minority shareholding can confer (sole) control if the minority shareholder disposes of a secured majority in the annual general meeting of a stock company. Such a situation is very common if there is a high degree of free float. In such cases, shareholdings below 50 % may be sufficient to exercise control in an annual general meeting where usually (i.e. within the last three years) the participation in such meeting is below 100 % and it can be assumed that the shareholding of the acquirer will also enable him to dispose of a majority in the annual general meeting.
Test 3 – Acquisition of 25 % or 50 %: The acquisition of either (i) 50 % or (ii) 25 % of the shares or the voting rights in another undertaking constitutes a concentration under German merger control. Shares or voting rights previously held by the acquirer have to be added when applying this test. Further, shares which are owned by another company but held on behalf of the acquirer are also taken into consideration. This test is of high relevance in practice, since it is one of the tests that cover the acquisition of minority shareholdings. The test is also fulfilled in case of a formation of a new company, as long as the shareholding meets the threshold of 25 % or 50 % respectively.
Test 4 – Acquisition of competitively significant influence: This type of concentration covers the acquisition of minorities of less than 25 % of the shares or voting rights. The actual percentage of shares to be acquired is not decisive in this context, so that even the acquisition of very minor shareholdings (e.g. less than 10 %) can trigger merger control. It has to be noted that competitively significant influence is less than control. But it requires – in addition to the acquisition of shares – some “plus-factors” which confer this competitively influence. Such plus factors could be: e.g. the right to appoint a member of the supervisory board, superior knowledge of the market and the business of the target by the acquirer, information rights or similar factors that significantly strengthen the acquirer’s influence. In practice, this test usually requires a detailed analysis of the circumstances of the transaction and the competitive relationship between the acquirer and the target.
Test 5 – Creation of a joint venture: Apart from the acquisition of sole or joint control which is already caught by test No. 2, the German merger control regime provides for another provision dealing with the creation of a joint venture. According to this test, the acquisition of 25 % or more of the shares or voting rights in the target will be considered a (partial) merger of all undertakings which hold 25 % or more of the shares or voting rights in the target company after the transaction. One of the effects of this test is that not only the acquirer and the target, but all other undertakings with a shareholding of 25 % or more are considered as undertakings concerned. Therefore, for the assessment of the financial thresholds, their turnover has to be taken into account as well.
German merger control covers both full-function and non-full-function JVs. Therefore, the creation of a non-full-function JV can also be notifiable in Germany.
If credit institutions, financial institutions or insurance companies acquire shares in another company for the purpose of reselling them, this does not constitute a merger as long as they do not exercise the voting rights of the shares and if they are sold within one year. This deadline may be extended by the Federal Cartel Office upon request, if there is sufficient proof that the sale would have been unreasonable within the time limit.
Under the Competition Act, ‘control’ is defined to include ‘controlling the affairs or management by (i) one or more enterprises, either jointly or singly, over another enterprise or group, (ii) one or more groups, either jointly or singly, over another group or enterprise’. There is no ‘bright line’ test prescribed by the Competition Act or the CCI to define control. The CCI has examined the scope of ‘control’ in several cases and a brief over view is briefly set out below:
- A bundle of affirmative rights including in relation to approval of business plan, commencement of a new line of business, discontinuing any existing line of business, approval of budget and any other strategic business decision is being viewed as amounting to control (Century Tokyo Leasing Corporation/Tata Capital Financial Services Limited).
- Right to recommend candidates for senior management constitutes as ability to participate in the managerial affairs (Jet/Etihad).
- To ascertain control, an enterprise must show that it has the ability to exercise ‘decisive influence’ either by way of positive or negative control rights. (Piramal Enterprises Limited/ Shriram Transport Finance Company/Shriram Capital Limited/ Shriram City Union Finance Limited).
- Control includes ‘material influence’ in addition to de facto and de jure control. The ability to manage the affairs of the other enterprise may be inferred from special rights/ veto rights, status and expertise of an enterprise or a person. (Ultratech JAL)
For the purposes of the Competition Act, a merger or acquisition arises if any of the following events occurs:
- Two or more undertakings, previously independent of one another, merge;
- One or more individuals who already control one or more undertakings, or one or more undertakings acquire direct or indirect control of the whole or part of one or more other undertakings;
- The acquisition of part of an undertaking, although not involving an acquisition of a corporate legal entity, involves the acquisition of assets (including goodwill) that constitute a business to which a turnover can be attributed.
Control, for the purposes of the Competition Act, is generally commensurate with the concept of decisive influence under the EUMR, i.e. that it gives the acquiring undertaking the ability to affect the strategic commercial direction of the acquired undertaking or asset. Although not bound to do so, the CCPC generally follows the approach to the concept of control as set out in the CJN.
The definition of a "merger of companies" in section 1 of the Israeli Competition Law is an open definition, beginning with the word "including". According to the Commissioner's Guidelines for Reporting and Evaluating Mergers under the Restrictive Trade Practices Law, 1988 (the "Guidelines"), this implies that the "merger of companies" definition has a "wide and general aspect", which a) does not expressly appear in the definition, and b) includes "any transaction that creates (or significantly strengthens) a substantial and continuous influence link between the decision-making mechanisms of the companies involved in the transaction, either directly or indirectly".
In addition to this general aspect, the Israeli Competition Law includes a presumption that the following create a "merger of companies":
- the acquisition of most of the assets of one company by another;
- the acquisition of shares in one company by another, whereby the acquiring company is accorded more than a quarter (25%) of one of the below:
- The nominal value of the issued share capital;
- The voting power;
- The power to appoint more than 25% of the members of the board
- The right to participate in more than 25% in the company's profits.
The merger of companies definition applies whether the acquisition is direct or indirect or by way of rights accorded by contract.
Under Article 12 of the MRFTA, the following types of transactions constitute business combinations that are subject to notification to the KFTC:
- acquisition of 20% or more of the shares of an existing company (or 15% for companies listed on the Korea Exchange);
- acquisition of additional shares in a company where the acquiring party already holds 20% or more of the shares in the company (15% for companies listed on the Korea Exchange) and the acquisition results in the acquiring party becoming the largest shareholder;
- statutory merger;
- acquisition of all or a substantial part of the target company’s business or fixed assets;
- participation as the largest shareholder in the establishment of a new company or a joint venture; and
- interlocking directorate, that is, occupation by a director, an officer or an employee of a large company (a company which has total assets or annual turnover greater than KRW 2 trillion) of a position as a registered director or its equivalent of the target company, while such person maintains his or her position in the acquiring company (except for an interlocking directorate between affiliated companies).
Even if a transaction does not fall under any of the above-mentioned categories subject to notification, the KFTC may ex officio investigate whether or not such transaction is an anticompetitive business combination.
Meanwhile, control is not a factor that is considered in determining whether a particular business combination is subject to the reporting obligation. There are cases where a business combination may still be subject to the reporting obligation even if the acquiring party cannot control the target company after the business combination as a result of not acquiring enough shares. However, control is a factor that is considered in determining whether anticompetitiveness exists. That is, a business combination that does not involve acquisition of control in principle is presumed as not being anticompetitive. A business combination that does not involve acquisition of control qualifies for a simplified review and will be granted clearance from the KFTC within 15 days from the date of the merger filing in principle. Control is determined based on the following standards.
- A statutory merger or acquisition of a business in itself will be regarded as control.
- In the case of stock acquisition and participation in the establishment of a new company, ownership ratio of 50% or more will be regarded as control. In addition, even though the acquiring party’s ownership ratio in the target company is below 50%, the acquiring party will be regarded as having control over the target company if the acquiring party may have substantial influence on the general management of the target company.
- In the case of an interlocking directorate, control is recognized if the number of interlocking directors is one-third or more of total directors of the target company, or one or more of the interlocking directors is appointed as a representative director who may have substantial influence on the general management of the target company.
- Even though the acquiring party cannot exercise sole control over the target company, if it has the ability to exert material influence over the target company jointly with a co-acquiring company or the incumbent shareholding company, the acquiring party is deemed to have control over the target company. The KFTC will identify joint control by weighing in various factors including without limitation: ownership stake, power to designate directors and officers, power to veto key business decisions, and a contractual commitment to jointly exercise voting rights.
Mexican law defines transactions as concentrations, which by definition are mergers, acquisitions of control, or acts in which companies, associations, capital stock, partnership interests, trusts or assets in general are consolidated, regardless of whether the participants are competitors, suppliers, customers, or any other entity or individual.
All concentrations involving change of control are notifiable insofar as the turnover thresholds are met. A concentration shall be deemed to arise where: (a) two or more previously independent undertakings or parts of undertakings merge; or (b) one or more persons already controlling at least one undertaking or one or more undertakings acquire direct or indirect control on a lasting basis of the whole or parts of one or more other undertakings. Asset purchases are also notifiable insofar as the assets constitute a business with a market presence to which a turnover can be clearly attributed. Control is obtained through any form of rights, contracts or any other means, which either separately or in combination, confer the possibility of exercising decisive influence on an undertaking by:
(a) ownership or the right to use all or parts of the assets of an undertaking; or
(b) rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking.
The following types of transactions are subject to notification or review by the PCC:
- 1. Mergers — the joining of two (2) or more entities into an existing entity or to form a new entity;
- 2. Acquisition — the purchase of securities or assets, through contract or other means, for the purpose of obtaining control by:
(i) one (1) entity of the whole or part of another;
(ii) two (2) or more entities over another; or
(iii) one (1) or more entities over one (1) or more entities.
- Joint Ventures —refers to a business arrangement whereby two or more entities or group of entities contribute capital, services, assets, or a combination of any or all of the foregoing, to undertake an investment activity or a specific project, where each entity shall have the right to direct and govern the polices in connection therewith, with the intention to share both profits and risks and losses subject to agreement by the entities. A joint venture can be either:
(i) a contractual or unincorporated joint venture where the partnership between the joint venture partners is governed by contract and no legal entity is created; or
(ii) an incorporated joint venture where a legal entity which is separate and distinct from the joint venture partners is formed and organized.
Transactions which constitute an abuse of a dominant position or an anti-competitive agreement may be investigated by the PCC in a motu proprio investigation. The following acts are prohibited:
- 1. Abuses of Dominant Position —acts that take advantage of market dominance with the intent of substantially preventing, restricting, or lessening competition such as but not limited to:
(i) Predatory pricing;
(ii) Imposing barriers to entry;
(iii) Refusal to deal; or
(iv) Discriminatory pricing.
- 2. Anticompetitive agreements —contracts entered into with the object or effect of which is to substantially prevent, restrict, or lessen competition, such as:
(iii) Setting, limiting, or controlling production, markets, technical development, or investment;
(iv) Dividing or sharing the market, whether by volume of shares or purchases, territory, type of goods or services, buyers or sellers, or any other means; and
(v) Other agreements that have the object or effect of substantially preventing, restricting, or lessening competition.
Section 4(f) of the PCA defines “control” as the “ability to substantially influence or direct the actions or decisions of an entity, whether by contract, agency or otherwise.” Under the Merger Review Guidelines, control of an entity may either be legal or de facto. By way of example, the PCC recognizes that control can be exercised through acquisition of another entity’s assets, including goodwill, brand, or licenses.
Pursuant to Section 25 of the PCA, “control is presumed to exist when the parent owns directly or indirectly, through subsidiaries, more than one half (1/2) of the voting power of an entity.”
Section 25 of the PCA also provides that control exists even when an entity owns exactly one half (1/2) or less of the voting power of another entity but is attended by the following circumstances:
(a) There is power over more than one half (1/2) of the voting rights pursuant to an agreement with investors;
(b) There is power to direct or govern the financial and operating policies of the entity under a statute or agreement;
(c) There is power to appoint or remove the majority of the members of the board of directors or equivalent governing body of the entity;
(d) There is power to cast the majority votes at meetings of the board of directors or equivalent governing body of the entity;
(e) There exists ownership over or the right to use all or a significant part of the assets of the entity; or
(f) There exist rights or contracts which confer decisive influence on the decisions of the entity.
 Rep. Act No. 10667 (2015), sec. 4 (j).
 PCC Merger Review Guidelines (2017), par. 3.5.
 PCC Merger Review Guidelines (2017), par. 3.6.
A concentration between undertakings is deemed to exist when a lasting change of control over the whole or part of an undertaking occurs as a result of: i) a merger between two or more previously independent undertakings or parts of undertakings; ii) the acquisition, directly or indirectly, of control of all or parts of the share capital or parts of the assets of one or various undertakings (to which a market turnover can be clearly attributed), by one or more persons or undertakings already controlling at least one undertaking; or iii) the creation of a full-function joint venture.
Control arises from any act, irrespective of the form it takes, that implies the possibility of exercising a decisive influence over the activity of an undertaking on a lasting basis, either solo or jointly. Control can be exercised on a de jure or de facto basis, in particular through: i) the acquisition of the whole or a part of the share capital; ii) the acquisition of ownership rights, or rights to use the whole or a part of the assets of an undertaking; or iii) the acquisition of rights or the signing of contracts which confer a decisive influence on the composition, voting or decisions of the undertaking’s corporate bodies.
Veto rights over the appointment of senior management or the determination of the budget typically confer the power to exercise decisive influence over the undertaking concerned. Veto rights over a business plan will normally also confer the same power if the business plan sets out details on the company’s aims and measures for achieving them. Veto rights over the company’s investment policy are also considered to confer control if the investments in question constitute an essential feature of the market in which the company is active.
Internal restructurings or reorganizations are not covered by the Competition Act, provided they do not result in a change of control.
The following types of transactions require pre-transaction clearance:
- acquisition of voting stock of another company, resulting in the acquirer and its group holding in total more than 25, 50 or 75 per cent of voting stock of a Russian joint-stock corporation or resulting in the acquirer and its group holding in total more than 33.3, 50 or 66.6 per cent of the voting shares in a Russian limited liability company;
- acquisition of rights to determine the business activities of a Russian entity (e.g. management agreement, trust agreement, joint venture agreement, agency agreement; or by way of acquisition of more than 50% of shares in the major shareholder of a Russian entity);
- acquisition of more than 50% voting shares/stock in, or otherwise control over, a company registered outside Russia if its (and its subsidiaries) Russian turnover in the preceding year exceeded 1 billion rubles;
- acquisition of fixed assets located in Russia (except for plots of land and non-industrial finished and unfinished buildings, constructions, premises and parts of premises) and (or) intangible assets of an entity (except for a financial organisa-tion) into possession, usage or ownership, if the book value of the acquired prop-erty exceeds 20 per cent of the book value of the fixed assets and intangible as-sets of the entity which is selling or transferring the property;
- various forms of corporate restructuring (mergers, accessions) of companies;
- entering into a an agreement on joint activities (whether in connection with a cor-porate or a contractual joint venture) by competitors on the Russian market;
- establishment of new companies if their capital is paid by using voting shares/stock or assets of other companies.
The specific trigger events are largely formal criteria rather than a universal concept of control.
To the extent the events triggering a filing requirement are based on the acquisition of "control", such control is broadly determined and refers to the ability of an individual or a legal entity to determine, directly or indirectly, the decisions to be taken by another legal entity by any means, whether of corporate (e.g. holding of more than 50% of voting shares) or contractual nature. There is court practice that the acquisition of negative con-trol by way of granting (even far-reaching) veto rights is not sufficient to trigger a filing re-quirement, although this has to be carefully evaluated on a case-by-case basis.
Apart from the determination of control as described above, differing concepts of control and allocation to a group are used at other instances in the Competition Law. For example, when determining an acquirer’s or target’s group, the necessary link between two group entities can be established even by them having one and the same CEO. In contrast, for the application of an intragroup privilege from horizontal or vertical restrictions, control is limited to holding more than 50 per cent of the voting shares in an entity or acting as a sole executive body of such legal entity.
The Swedish merger control rules apply to transactions which lead to a change of control (or change in the quality of control) over a company on a lasting basis, as a result of;
(i) two or more independent undertakings being merged, or
(ii) one or more persons already controlling at least one other undertaking, or one or more companies which by purchasing securities or assets, by agreement or in another way acquires direct or indirect control over one or more undertakings or parts thereof.
Furthermore, the establishment of a joint venture which on a lasting basis fulfills the functions of an independent economic unit constitutes a concentration in accordance with the Competition Act.
The concept of “control” under the Competition Act is consistent with the definition set out in the EUMR and the SCA also refers to the European Commissions Consolidated Jurisdictional Notice for guidance in the assessment of control. Control thus encompasses both the power to determine the strategic commercial decisions of the target (“positive control”) and the possibility to exercise a decisive influence of an undertaking and the power to veto strategic decision of the target (“negative control”).
The Cartel Act defines concentration of undertakings as follows:
- the merger of two or more previously independent undertakings;
- any transaction, in particular the acquisition of an equity interest or the conclusion of an agree-ment, by which one or more undertakings acquire direct or indirect control of one or more previ-ously independent undertakings or parts thereof (acquisition of control). This includes the acqui-sition of joint control by two or more undertakings over an undertaking which they have not pre-viously jointly controlled (joint venture) and which fulfils in the long term all the functions of an autonomous economic entity.
Acquisition of control means that an undertaking is able to exercise a decisive influence over the activities of the other undertaking by the acquisition of rights over shares or by any other means. The means of obtaining control may in particular involve the acquisition of the following, either individually or in combination:
- ownership rights or rights to use all or parts of the assets of an undertaking
- rights or agreements which confer a decisive influence on the composition, deliberations, or de-cisions of the organs of an undertaking.
As mentioned above, intra-group mergers are not notifiable.
Law N° 26876 includes all vertical and horizontal concentrations taking place in the generation, transmission and/or distribution activities of the electricity sector. Concentration, according to Peruvian Law, is the realization of any of the following actions: mergers; setting-up of a company in common; direct or indirect acquisitions of control of other companies through the acquisition of stock shares, participation, through any contract or legal act that confers direct or indirect monitoring of a company including joint ventures, association agreements, use of shares or participations, management contracts, shares syndication contracts or any act with an effect akin to a business collaboration contract. Likewise, the acquisition of productive assets of any company that develops activities in the sector; or any other legal act or contract including agreements concluded between competitors, suppliers, clients, shareholders or any other economic operators by which companies, associations, shareholdings, partnerships, trusts or assets in general, are formed or concentrated.
On the other hand, according to Supreme Decree 017-98-ITINCI, the control test is defined by the regulation established by the Superintendence of Banking, Insurance and AFP (SBS). According to SBS Resolution N° 5780-2015, control is understood as the preponderant and continuous influence in the decision making of the governing bodies of a company. Control is direct when a person or company exercises more than half of the voting power in the general meeting of shareholders or partners of a company, and indirect when a person or company has the power to appoint, remove or veto the majority of the members of the board of directors or equivalent body, to exercise the majority of the votes in the meetings of the board of directors or equivalent body, to approve the operational and/or financial policies, to approve the decisions on dividends and other distributions, to designate, remove or veto the general manager or the manager who is authorized to manage the funds; even if it does not exercise more than half of the voting power in the general meeting of shareholders.
The Bill has essentially the same test to determine the existence of control.
Turkey is a jurisdiction with a suspensory pre-merger notification and approval requirement.
Much like the European Commission regime, concentrations that result in a change of control are subject to the Competition Board’s approval, provided that they reach the applicable turnover thresholds. The turnover thresholds given in Communiqué No. 2010/4 are stated more fully in the upcoming sections.
Communiqué 2010/4 and the Guideline on Cases Considered as Mergers and Acquisitions and the Concept of Control provide a definition of ‘control’ which does not fall far from the
definition included in Article 3 of Council Regulation 139/2004. According to Article 5(2) of
Communiqué 2010/4, 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 have decisive influence – in
particular, in terms of ownership or the right to use all or part of the assets of an undertaking, or rights or agreements which confer decisive influence on the composition or decisions of the organs of an undertaking.
Pursuant to Article 6 of Communiqué 2010/4, the following transactions do not fall within the scope of Article 7, and are therefore exempt from board approval:
- intra-group transactions and other transactions that do not lead to a
change in control;
- temporary possession of securities for resale purposes by undertakings whose normal activities involve conducting transactions with such securities for their own account or that of others, provided that the voting rights attached to such securities are not exercised in a way that affects the competition policies of the undertaking issuing the securities;
- acquisitions by public institutions or organisations further to the order of law, for reasons such as liquidation, winding-up, insolvency, cessation of payments, concordat or privatisation; and
- acquisition by inheritance, as provided by Article 5 of Communiqué 2010/4
The UK merger control regime applies to transactions that result in two or more businesses – referred to as 'enterprises' – 'ceasing to be distinct', and which meet the jurisdictional thresholds set out in section 6 below.
Businesses will cease to be distinct if they are brought under common ownership or control. This covers three distinct stages of control:
- Acquisition of a legal, controlling interest in the target. This will be the case where, for example, there is an acquisition of all, or the majority of the shares in the target.
- Acquisition of an ability to control the policy (i.e. the competitive conduct) of the target. This broadly corresponds to the concept of decisive influence under the EU Merger Regulation, and can arise on a de facto basis, e.g. where a 40% shareholding in a public company would allow the holder to exercise the majority of the voting rights because only 60% of the shareholders attend and vote at shareholder meetings.
- Acquisition of an ability to exercise 'material influence' over a target. The test for material influence is described in section 5 below.
An acquisition which causes the purchaser to move from one stage of control to a higher stage of control will be caught by the merger control regime, and will therefore be reviewable by the UK merger control authorities. So, for example, if a purchaser is able to exercise material influence over the target and then increases its stake so that it then has a controlling interest, that acquisition will be reviewable (provided the jurisdictional thresholds are met), irrespective of whether the earlier acquisition of material influence was reviewed by the CMA.
The following transactions shall be notified to the AMCU provided that the financial thresholds are met:
- the merger of undertakings or the takeover of one undertaking by another one
- an acquisition, (directly or through other entities) of control over other undertakings, or parts thereof, inter alia, by means of:
a. direct or indirect acquisition or any other acquirement of assets ownership in the form of an integral complex of assets or a structural subdivision of an undertaking; acquirement of the right to use assets in the form of an integral complex of assets or a structural subdivision of an undertaking via management, lease, rent, concession or any other means, including acquisition of assets of an undertaking under liquidation;
b. appointment or election of a person as the head, deputy head of the supervisory board, the executive board or other supervisory or executive bodies of an undertaking if that person already occupies one or several of the mentioned positions in other undertakings; or the creation of the situation, where more than half of the offices of the members of the supervisory board, executive board, other supervisory or executive bodies of two or more undertaking(s) are occupied by the same person;
- Establishment of an undertaking by two and more undertakings, engaged in business activities independently over a prolonged period of time if such an establishment does not encourage the competition coordination among the established undertakings or between the undertakings and the newly established undertaking (joint venture);
- Any other direct or indirect acquisition of, or the acquirement of control over shares which ensure the acquirement of or over 25 percent, of or 50 percent of the votes, in the highest managing body of a particular undertaking (stock purchase).
As for the main test for whether or not a transaction shall be notified prior of its enforcement, the AMCU applies only the financial thresholds of the participant of the concentration. Until 2016, it was also a market share (35% and more) of at least one of the participant, however after the Law Amendments as of 2016 such test is not applied by the AMCU. For more details regarding the test for control, see question 13 below.
A transaction is potentially reportable under the HSR Act if either party to the transaction is engaged in commerce or in any activity affecting commerce, and the ‘size-of-person test’ and the ‘size-of-transaction test’ are satisfied. The HSR Act covers various types of transactions including mergers and acquisitions of assets, voting securities, exclusive licenses to certain intellectual property, or a controlling interest in a non-corporate entity (e.g., a limited liability company or partnership). The formation of joint ventures is also covered by the HSR Act. In addition, the FTC and DOJ have jurisdiction to review the competitive effects of all transactions under the antitrust laws, even those that are not reportable under the HSR Act.
Under the HSR Act, acquisitions of interests in non-corporate entities that meet the notification thresholds and are not exempt must be reported only if the acquisition results in ‘control’ of the entity. The control test for non-corporate interests is whether, as a result of the acquisition, the acquiring party will have the right to 50% or more of the profits or 50% or more of the assets upon dissolution of the non-corporate entity.
For acquisitions of voting securities, the HSR Act and associated rules do not use a control test for determining reportability. However, in order to determine whether a corporate entity is controlled (i.e., is part of an acquiring person or acquired person), the HSR Rules define control of a corporate entity as holding 50% or more of the voting securities of the issuer or having the contractual power to designate 50% or more of its board of directors.
Determining whether a non-US entity is a corporation or a non-corporate entity requires an examination of the shareholder rights. If the entity issues securities that allow the holders to vote for the election of a supervisory board of directors, then the entity is treated as a corporate entity for HSR purposes. If it does not, then the entity is treated as a non-corporate entity for HSR purposes.
The test for control reflects the definition set out in EU Regulation no. 139/2004 and the Commission Consolidated Jurisdictional Notice.
The notion of control is therefore defined very broadly. In particular, control occurs when an undertaking has – de jure or de facto – the possibility to exercise, alone or jointly with one or more other undertakings, decisive influence over another undertaking’s strategic management.
Transactions qualifying as concentrations under Italian merger control rules can be either a merger between two or more independent undertakings, the acquisition of control of whole or part of one or more undertakings or the creation of a full function joint venture.
The following transactions do not qualify instead as a “concentration”, given that they do not give rise to a change of control on a lasting basis:
i. Purely financial acquisitions of shares by banks or financial institutions, provided that: (a) the shares are acquired, with a view to reselling them, when a company is incorporated or its share capital is raised; (b) the shares are resold within 24 months; and (c) the voting rights are not exercised;
ii. cooperative (non-full function) joint venture;
iii. Intragroup transactions;
iv. Transactions between companies that do not perform, directly or indirectly, any economic activity;
Under the Μerger Control Legislation, which is aligned with the EU Merger Regulation, a concentration subject to the mandatory notification regime shall be deemed to arise in case of a change of control on a lasting basis resulting from: (a) a merger of two or more previously independent undertakings or parts of undertakings thereof or (b) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets that constitute a turnover-generating business, by way of an agreement or by any other means, of direct or indirect control over the whole or parts of another or a number of other undertakings.
The definition of control is identical to that in the EU Merger Regulation. In particular, control relates to rights, contracts or other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking. In light of the above, control is acquired by persons or undertakings that (i) are holders of the rights or entitled to rights under the contracts concerned, or (ii) while not being holders of such rights or entitled to rights under such contracts, have the actual power to exercise the rights deriving therefrom.
The acquisition of control may be in the form of sole or joint control. Sole control is acquired when one undertaking is capable of exercising substantial influence on another undertaking, either on a legal basis (de jure control) or on a factual basis (de facto control). This is mainly accomplished by the acquisition of the majority of voting rights by the acquirer or when a minority shareholder is vested with special rights allowing it to define the business strategy of the acquiring entity. Likewise, joint control exists, where two or more undertakings have the possibility to exercise, directly or indirectly, decisive influence over another undertaking. Decisive influence, in this sense, generally refers to the power of several controlling undertakings to block actions that determine the strategic commercial behavior of another undertaking. In other words, joint control usually exists whereby several undertakings can create a “deadlock” in the decision-making procedure of the jointly controlled undertaking either because they have equal voting rights or because the minority shareholder is vested with veto rights as regards strategically important decisions.
It is noted that for the assessment of control, the possibility of exercising decisive influence on an undertaking is critical, and not the actual exercise of influence. Merger Control Legislation also provides for situations where a concentration shall not be deemed to arise, which are aligned with Art.3 par.5 of EU Merger Regulation.