What are the conditions on minority interest in your jurisdiction?
Merger Control (4th 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.
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.
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 constitutional documents of the target undertaking or joint venture are of tantamount importance in determining whether any rights resulting in a change of control are in place.
De facto control could satisfy the control test, while the ability to veto certain types of decision could also be deemed fall under such rights conferring the possibility of exercising decisive influence over 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.
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.
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.
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).
The Combination Regulations exempt acquirers from notifying an acquisition if the acquisition (i) does not entitle the acquirer to hold twenty five per cent (25%) or more of the total shares or voting rights of the target company; (ii) is made “solely as an investment” or in the “ordinary course of business”; and (iii) does not lead to acquisition of control over the target company.
In interpretation of the terms “solely as an investment” and “ordinary course of business”, the CCI’s decisions hold that the Item 1 Exemption does not apply to transactions where there are overlaps between the activities of the target and the acquirer (directly and indirectly).
An acquisition of less than ten per cent of the total shares or voting rights of an enterprise shall be treated as “solely as an investment”, provided that the following conditions are met:
- The acquirer has ability to exercise only such rights that are exercisable by the ordinary shareholders of the enterprise whose shares or voting rights are being acquired to the extent of their respective shareholding;
- The acquirer must not be a member of the board of directors of the enterprise whose shares or voting rights are being acquired and does not have a right or intention to nominate a director on the board of directors of the enterprise whose shares or voting rights are being acquired and does not intend to participate in the affairs or management of the enterprise whose shares or voting rights are being acquired.
The test for control for applicability of Item 1 Exemption is the same as mentioned in Q.4 above.
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 gives rise to joint or sole control. The approach to assessing whether joint or sole control is acquired through veto rights or on a de facto basis is similar to that set out under the CJN.
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 Competition Authority has not seen a "merger 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 Competition Law.
An acquisition of a minority interest is subject to notification if the filing thresholds are met (please refer to question 4). For example, for an acquisition or ownership of another company's shares, the party that acquires or owns at least 20% of another company (or at least 15% for companies listed on the Korea Exchange) must notify the merger with the KFTC even if such party is a minority shareholder.
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).
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 minority buyer has an option to "veto" strategic decisions. Furthermore, 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.
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 to minority interests, as evident from its recent contribution to the OECD: “Common ownership by institutional investors and its impact on competition”, of December 2017.
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 in-clude all shares held or to be acquired in the envisaged transaction by the acquirer or any other entity 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 subject to the merger control rules only if it involves a de facto acquisition of control, for example by veto rights, and provided that the thresholds are met. Acquisitions of non-controlling minority interests are not subject to merger control.
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.
Only if the acquisitions confer direct or indirect control over the target company, in terms of the Resolution SBS N° 5780-2015.
In case of the Bill, the regulation is essentially the same and defines control as the possibility of exerting a decisive and continuous influence on an economic agent through property rights over its assets, rights or contracts that allow influencing decision-making, directly or indirectly determining the competitive strategy of said company.
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.
Direct or indirect acquisition, obtaining ownership in another manner or obtaining a management of shares (participation interests), ensuring achievement or exceeding 25 per cent of votes in the highest governing body of the undertaking in question amounts to a merger and in the case of meeting the thresholds described in question 4.4 above triggers merger control filing obligations.
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.
The acquisition of a minority interest qualifies as a concentration if it allows the buyer to exercise (sole or joint) control over the target (for instance, when the acquiring party holds veto rights over the target’s strategic management (approval of the budget and/or business plan, appointment of senior management, etc.) or when the target’s shareholding is widely dispersed.
Acquisition of minority participation can be caught by the Merger Control Legislation if accompanied by rights conferring “de jure” or “de facto” control. De jure control can be established when a minority shareholder of an undertaking is vested with special rights that allows it to determine the business behavior of the undertaking, for example by being entitled to appoint its CEO or executive Board members.
The HCC follows the Jurisdictional Notice Guidelines in this respect. Moreover, a minority shareholder can be deemed to exercise sole control on a ‘de facto’ basis. De facto control can be established when the shareholder can achieve a majority in the entity’s GM Minutes, based on the factual evidence resulting from the voting patterns of the previous years. For instance, a quite dispersed shareholding structure may lead to a passive acquisition of control by a minority shareholder. Joint control may also occur on a de facto basis, when, for instance, the minority shareholders have strong common interests to refrain from acting against each other in exercising their rights in relation to the joint venture. Veto rights granted to minority shareholders, associated with important strategic decisions, as mentioned above, may suffice for the acquisition of control. The ability to create a “deadlock” in the decision-making procedure is deemed to prove the exercise of decisive influence in the sense of Art.5 of the Merger Control Legislation. Such veto rights may be incorporated in a shareholders’ agreement or in the company’s Articles of Association.
The HCC has investigated numerous cases of acquisition of minority participation conferring control over an undertaking. In particular, in a decision published in 2017, the HCC ruled that a concentration could result in the acquisition of joint control, albeit one company held a minority participation in the joint venture, given that an increased BoD majority was required for strategic decision-taking (HCC Mevgal SA/"Delta FoodsSA" and Hatzakos family 650/2017).