What are the conditions on minority interest in your jurisdiction?
There is no shareholding percentage safe harbour in China below which control is deemed not to arise (in the absence of other structural links between the parties).
Based on our experience, there are a great number of situations where the acquisition of minority interests fall under the merger control rules, and for which notification to MOFCOM is required for a merger review. Based on some notification cases whose decisions were released by MOFCOM, the lowest shareholding that was found to amount to control was 10%, which was the case of Teijin Frontier’s proposed acquisition in 2015 of a stake in Zhejiang Johnson Controls Wanfang Textile Technology Co., Ltd.
The assessment of control or decisive influence with respect to the acquisition of minority interests requires a case-by-case analysis. Based on the relevant MOFCOM regulations and the Anti-monopoly Bureau’s practice, an undertaking may be deemed to have control over another undertaking if it has veto rights over the other undertaking with respect to the following matters:
- the nomination, appointment and removal of senior executives;
- financial budgets;
- business plans;
- significant capital expenditures; and/or
- other rights that may influence the other undertaking’s day to day business operations.
Control or decisive influence can be excluded if the minority shareholders’ rights are deemed to only amount to so-called “minority protection rights.” Based on our experience, veto rights over the following matters are usually classified as minority protection rights: amendments to the articles of association, increases or decreases in registered capital, mergers and spin-offs, liquidation or winding up, etc.
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 position on minority interests under the Competition Act is similar to the position under the EU Merger Regulation and the European Commission’s Consolidated Jurisdictional Notice. 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 European Commission’s Consolidated Jurisdictional Notice.
As mentioned, any acquisition of more than 25% of even one of the rights outlined in paragraph 3.1 above will constitute a merger of companies. In its past practice, 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 done 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.
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.
Minority interests are not expressly caught by the merger control regime applicable in Malta.
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). In Medikal Park (09-57/1392-361, 25.11.2009).
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.
Acquisitions of voting securities that meet the HSR Act numeric thresholds are reportable even if they do not confer control of the acquired entity. Thus, for example, an acquisition of 20% of the voting securities of an acquired corporation would be reportable if the size-of-person and size-of-transaction tests were met, even though the acquisition would not confer control over the acquired company. The HSR Act does recognize an “investment-only” exemption in certain circumstances. If, as a result of an acquisition, the acquiring party will hold 10% or less of the outstanding voting securities of the acquired company, and if the acquiring party has purely passive investment intent, then the acquisition is exempt regardless of the dollar value of the acquired voting securities.
Minority interests are also covered by the Russian merger control regime in certain cases. In the absence of specific structural links between the shareholders and also any specific circumstances connected with, e.g., de facto control, 33% in a Russian limited liability company and 25% in a Russian joint stock company are the lowest shareholdings that might trigger clearance in Russia.
Acquisitions of interests amounting to “decisive influence” might be covered by the merger control regime if such acquisition could be regarded as acquisition of control. Please note, however, that control generally means the ability to make (pass) certain decisions, so the possibility of blocking decisions should not, as a general rule, be regarded as such.
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.
The acquisition of a minority interest will require notification if it results in a change of control on a lasting basis and the jurisdictional thresholds are met. There is no minimum percentage shareholding below which it is safe to assume that control will not be acquired: the issue should be determined on a case-by-case basis.
As noted above, control can be acquired on a de facto basis. This can be particularly relevant in relation to minority interests. For example, In the case of Picanol NV/Tessenderlo Chemie NV, the Belgian Competition Authority ruled in 2013 that the buyer acquired de facto control over the target when it purchased a 27.6% interest because the remaining shares were dispersed among a large number of shareholders and the minority interest was, in practice, sufficient to exercise a decisive influence over the target. Decisive influence, for these purposes, relates to strategic business decisions such as approving the budget and appointing or dismissing members of the board.
The acquisition of a minority interest which does not result in a change of control will not be notifiable.
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.
The control test is a question of fact with regard to relevant circumstances and there is no percentage shareholding below which it is safe to assume that control will not arise
Minority interests are caught by the merger control rules in the following circumstances:
- where shareholdings are diffuse and historical voter turnout at general meetings indicates that the minority interest is likely to amount to a majority of votes typically cast;
- where minorities have entered into a voting pool or similar arrangement, or where there is evidence of structural links or a clear alignment of interests and the combined shareholdings constitutes a controlling interest; or
- where the holder has "material influence" arising out of rights attaching to the shareholdings. The question of material influence is one of fact taking all circumstances into account. However, a convention has developed based on the application of the EU Competition Law Merger Control Guidelines in terms of which certain minority protections (veto rights) are treated as a form of material influence. In particular, the ability to veto the approval of the budget and business plan, appointment or dismissal of senior management or key investment decisions in the ordinary course of business would typically confer control. More generally, veto rights that go beyond those purely designed to protect the financial investment of the minority shareholder will need to be analysed in context to determine whether material influence is conferred.
Currently, the Commission does not require notification of acquisitions of interests that do not amount to control (although it should be noted that the acquisition of a non-controlling interest in a competitor raises competition law risks under the prohibited practices provisions of the Competition Act).
The acquisition of a minority interest is subject to merger control only if it leads to a change of control on a lasting basis and the jurisdictional thresholds are met. There is no minimum percentage shareholding below which it is safe to assume that control will not arise. Each situation should be analysed in its specific context.
In particular, de facto control may arise with the acquisition of a minority interest. For the purpose of analysing whether a company acquires de facto control of another entity, the FCA will, among others, consider whether that company acquires veto rights over strategic decisions, such as the budget, the business plan and the appointment and removal of senior management. For instance in the CGST-Save/Domoservices decision (2002), the GDF group was deemed by the Minister of Economy (the authority authorising concentrations in France at that time) as exercising decisive influence over CGST, although its shareholding was limited to 20% of CGST’s capital. The GDF group was indeed the sole industrial operator with an interest in the capital and had a pre-emption right as well as 2 seats out of 5 on the board of directors.
As stated before, all concentrations or transactions that reach statutory thresholds require mandatory filing. However, there are specific cases where even if statutory thresholds are reached, mandatory filing could be exempted. Therefore, acquisition of minority interests become of no relevance if statutory thresholds are surpassed and the specific transaction does not falls into one of the afore-mentioned exception cases.
For this specific scenario, it is important to highlight that the change of control falls under the scope of what the FECL considers to be a concentration. Yet, considering the wide definition provided in the local competition statute and that a “concentration” includes any acquisition of assets or shares even when not granting control, the Mexican Supreme Court of Justice rendered a decision in the past addressing a the notion of control upon analysing the term “economic agent” and “economic group of companies” for purposes of competition law, considering both legal and de facto control.
In this case, the Supreme Court (head of the Mexican judiciary) made reference to different circumstances to define whether or not a company or individual has or exercises a decisive influence over others. The Supreme Court recognized that decisive influence can be found when a company or individual acquires the majority of the shares of a company (de iure), or if it has the authority to manage a company or to appoint the majority of the members of the board, among others (de facto).
The precedent rendered by the Supreme Court serves as guidance as to under which scenarios, certain transactions should be analysed in regard to merger control regulations.
Acquisitions of minority interests often are subject to German merger control. With respect to a share deal, even the acquisition of 25% of shares or voting rights constitutes a concentration.
In addition, unlike many other merger control regimes, the ARC does not require the acquisition of direct or indirect control: in some instances even a share transfer below 25% can trigger a filing requirement if it gives rise to an acquisition of competitively significant influence. The precise scope of what constitutes a competitively significant influence often reflects a grey area.
For instance, an acquisition of less than 25% of shares has been deemed to confer competitively significant influence in a case where the acquirer had the contractual right to designate a specified number of members to the target’s supervisory board and enjoyed certain prerogatives with regard to capital increases of the target. In some instances, the FCO has reviewed acquisitions of shareholdings below 10% in concentrated industries as potentially giving rise to a competitively significant influence to the extent the acquirer was given additional contractual rights. In practice, the FCO is most likely to review non-controlling minority interests in cases of significant competitive overlap.
Italian merger control rules apply to the acquisition of minority interests only if the transaction leads to the acquisition of sole or joint control of the target company (e.g., by virtue of a shareholders agreement providing for veto rights over strategic business decisions of the purchased company such as the approval of the budget and/or the business plan; if the remaining shares are widely dispersed).
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.
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.
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.