What types of transaction are notifiable or reviewable and what is the test for control?
Merger Control (3rd 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.
As indicated above, the operations of concentration that will have effects in Chile and meet certain turnover thresholds indicated in answer number 6 below must be notified to the FNE.
DL 211 defines operations of concentration as facts, acts or agreements, or a combination thereof, that have as effect that two or more economic agents that are not part of the same group of companies and that are previously independent from each other, lose such independency in any scope of their activities by either:
(i) a merger, irrespective the corporate form of the merging entities or the entity resulting thereof;
(ii) an acquisition by one or more economic agents, directly or indirectly, of the rights to exercise, individually or jointly, decisive influence in the management of a third party;
(iii) an association, irrespective of the form, to establish an independent economic agent, distinct from them, that exercises their functions permanently; or
(iv) an acquisition by one or more economic agents of the control over the assets of another economic agent, irrespective of the legal title.
DL 211 doesn’t define ‘control’ or establishes explicitly a ‘control test’. The FNE’s Guidelines on Jurisdiction provide further guidance on the concept of control. The Guidelines indicate thereby that: (i) ‘control’ and ‘decisive influence’ are synonymous concepts; and (ii) both terms relate to the possibility, de jure or de facto, to determine – or veto – decisions regarding the strategy and competitive behavior of an economic agent. Control, therefore, include both positive and negative control, individual and joint control, and de jure or de facto control.
According to the Guidelines, positive control is verified when the controlling economic agent has the possibility to determine decisions about the strategy and competitive behavior of the controlled economic agent. For example, when the majority of votes can be assured at a shareholders’ or members’ meeting and appoint the majority of directors, administrators or legal representatives, depending on the type of company; or when are hold preferred shares with exclusive prerogatives allowing them to execute any of said actions. On the other hand, negative control is verified when it has the ability to veto or block decisions on the strategy and competitive behavior of the controlled economic agent. For example, blocking decisions related to the entrance to new markets, the business plan, the approval of the budget, the appointment of managers and main executives and the authorization of certain investments; or when are hold preferred shares with exclusive prerogatives allowing to veto any of these decisions. Agreements and acts that do not qualify as an operation of concentration, like nonstructural joint ventures and the acquisition of non-controlling minority shareholdings, fall under the general provision of Article 3, paragraph I, of the Competition Act, which prohibits facts, acts or agreements that prevents, restrains or impedes free competition, or that tends to produce such effects.
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 following types of transactions constitute a merger in Denmark:
- two or more previously independent undertakings amalgamating into one undertaking;
- one or more persons who already control at least one undertaking, or one or more undertakings, acquiring direct or indirect control of the entirety of, or parts of, one or more other undertakings by an agreement to purchase shares or assets or by any other means;
- or the establishment of a joint venture that will perform on a permanent basis all the functions of an independent business entity.
The decisive criterion in determining whether a transaction constitutes a merger is whether there is a lasting change or transfer of control in an undertaking, i.e. a shift in the decisive influence on the operating activity of a business for a period of at least one year. Intra-group mergers, i.e. internal reorganizations, do not constitute mergers within the relevant merger definition, as there is no change of control in such situations.
Control can be obtained through the transferal of rights or agreements or in other ways that will, either separately or in combination, make it possible to exert decisive influence over the operations of the undertaking. Control over an undertaking will often be achieved through the acquisition of shares or assets, but may also be obtained on a contractual basis, e.g. where the parties agree that one party is to exercise control over an undertaking without transferal of any shares or assets, or through rights attached to shares or contained in shareholder agreements. See further in Question 9 concerning full-function joint ventures.
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 Law is applicable to transactions resulting in a permanent change of control. Such transactions 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 in a permanent manner 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.
The Law provides for an exemption concerning investment companies, defined as those having as their exclusive object the acquisition of participation in other undertakings and the management and exploitation of this participation, without direct or indirect involvement in the management of these undertakings.
The following transactions qualify as a “concentration” and are notifiable provided that the turnover thresholds are met: (i) a merger between independent undertakings; (ii) the acquisition of sole or joint control by an undertaking over another undertaking (on a de jure or de facto basis); and (iii) the establishment of a “concentrative” joint venture (see question 9).
On the contrary, the following transactions do not qualify as “concentrations” and do not fall within the scope of Italian merger control rules:
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. Transactions that have as their main object or effect the coordination of the business conduct of previously independent undertakings;
iii. Intragroup transactions;
iv. Acquisitions of (or mergers between) companies that do not perform, directly or indirectly, any economic activity;
v. Acquisitions carried out by entities (e.g., a natural person) that neither perform any economic activity, nor control any undertaking.
The notion of control is defined very broadly. In particular, control occurs when an undertaking has – on a de jure or de facto basis – the possibility to exercise, alone or jointly with other undertakings, decisive influence over another undertaking.
Since the Law is applied and interpreted consistently with EU competition law and principles (as stated in Art. 1(4) of the Law), the notion of control is consistent with the indications provided by the EU Regulation No. 139/04 and EU Commission Consolidated Jurisdictional Notice. For a recent application of these principles, see , e.g., ICA’s decision of March 21, 2018, Case C12153 – Orefi Participation/Minetti, where the ICA confirmed that a casting vote over decisions concerning the strategic business of another undertaking (business plan, investments, and appointment of the management) confers sole control over that undertaking.
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.
3. 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.
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 (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% shares/voting 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 organisation) into possession, usage or ownership, if the book value of the acquired property exceeds 20 per cent of the book value of the fixed assets and intangible assets 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 on a corporate or a purely contractual joint venture) by competitors on the Russian market;
- establishment of new companies if their capital is paid by using shares/voting 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 corporate (e.g. holding of more than 50% of voting shares) or contractually. There is court practice that the acquisition of negative control by way of granting (even far-reaching) veto rights is not sufficient to trigger a filing requirement, although this has to be carefully evaluated on a case-by-case basis.
Apart from this, differing concepts of control and allocation to a group are used 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.
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.
When one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of a business of another firm, that transaction will constitute a merger.
There is no closed list of how control may be achieved. Broadly, a person controls another firm if that person, inter alia:
- beneficially owns more than one half of the issued share capital of the firm;
- is entitled to vote a majority of the votes that may be cast at a general meeting of the firm, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that person;
- is able to appoint or to veto the appointment of a majority of the directors of the firm;
- is a holding company, and the firm is a subsidiary of that company; or
- has the ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in the first four bullet points above.
The first four bullet points above set out what are referred to as instances of ‘bright line’ or ‘legal’ control. The last bullet point provides a ‘catch-all’ to the effect that a person controls a firm if that person “has the ability to materially influence the policy of the firm in a manner comparable to the person who, in ordinary commercial practice, can exercise an element of control,” referred to in the first four bullet points. This covers instances in which a firm, without acquiring ‘bright line’ control, may acquire de facto control by being able to materially influence the policy of another firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of ‘bright line’ or ‘legal’ control.
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 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 agreement, by which one or more undertakings acquire direct or indirect control of one or more previously independent undertakings or parts thereof (acquisition of control). This includes the acquisition of joint control by two or more undertakings over an undertaking which they have not previously 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 decisions of the organs of an undertaking.
As mentioned above, intra-group mergers are not notifiable.
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.
Although there is no formal threshold of influence or control under the Greek legal competition regime, guidance is provided by article 5 of the Competition Act and the Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (“Merger Regulation”). The concept of a concentration is defined, thus, in such a manner as to cover operations only if they bring about a lasting change in the control of the undertakings concerned and in the structure of the market; according to the Law and the Merger Regulation, a concentration shall be deemed to arise where a change of control on a lasting basis results from: (a) the merger of two or more previously independent undertakings or parts of undertakings, 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, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings. The distinction between a merger and the acquisition of control is not crucial for the substantive assessment of concentrations.
Concentration does exist when one or more (natural or legal) persons already controlling an undertaking acquire control over one or more undertakings or parts thereof. Provided that such criterion focuses on the substantive meaning of “control”, the existence of a concentration shall be assessed on a qualitative basis. Control shall be constituted by rights, contracts or any 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 (actual influence needs not be proved, the respective mere possibility suffices), in particular by: (a) ownership or the right to use all or part of the assets of an undertaking. This will be the case where these assets can amount to a presence in the market, the turnover of which can be definitely determined. For example, the transfer of clientele and the exclusive transfer of IP rights may qualify for concentration, provided that they constitute a business activity, which generated turnover in the market; (b) rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking. Control is acquired, directly or indirectly respectively, by persons or undertakings which: (a) are holders of the rights -such acquisition is deemed to provoke a permanent change to the structure of the undertaking involved, provided that such persons conduct business activities on their behalf or control at least one (other) undertaking; or (b) while not being holders of such rights or entitled to rights under such contracts, have the power to exercise the rights deriving therefrom- this is the case where the formal holder of a controlling interest is distinct from the person or undertaking having in fact the real power to exercise the rights resulting from this interest.
The acquired control can be either exclusive or joint: (a) Exclusive control is in principle acquired when a single undertaking can decisively influence another; usually the decisive influence on the strategic business resolutions is achieved through the acquisition of the majority of the voting rights (de jure exclusive control). If the majority of the voting rights is not acquired, the control is not secured, even if the majority of the company share capital is acquired. Relatively, in cases where the bylaws provide for super majority with respect to key business resolutions, the acquisition of simple majority of the voting rights may not suffice for the exercise of control. Exclusive control is also attained in cases where a single shareholder is vested with veto rights with regard to such resolutions; provided that such shareholder can cause a deadlock with respect to the management of the undertaking, it is deemed to exercise decisive influence as per art. 3 para. 2 of the Merger Regulation and art. 5 para. 3 of the Law- the so called “negative exclusive control”. Option rights themselves do not guarantee exclusive control. (b) Joint control is achieved when two or more undertakings or persons are able to exercise decisive influence on another undertaking. The key point with respect to joint control is the ability of two or more parent companies to cause deadlocks due to their ability to reject suggested business decisions. Joint control exists when: (a) two parent companies have equal voting rights in another undertaking (or representation rights before the governing bodies of such undertaking). This is the most mainstream case of joint control; the crucial aspect is that neither of the two parent companies can individually exercise control. (b) there is no equality in the rights mentioned under (a), however, the minority shareholder is vested with veto rights with respect to key business decisions. (c) two or more parent companies jointly exercise either pursuant to a legally binding agreement or even de facto the majority of the voting rights in another undertaking in cases where community of interests exists. In principle, when merely one of the parent companies is vested with a decisive vote, joint control cannot be the case, except if such right is indeed restricted by the terms of the agreement.
Law No. 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 No. 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 Bills have essentially the same test to determine the existence of control.
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, 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; 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 on 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.
Japanese merger control rules (i.e., Antimonopoly Act and its administrative rules) describe qualifying transactions without using the concept of control. A qualifying transaction occurs where:
- an undertaking acquires another undertaking’s shares and, as result of the acquisition, the holding ratio of voting rights governed by the buyer’s group in the target exceeds either 20% or 50% (“share acquisition”);
- two or more undertakings merge (“merger”);
- an undertaking acquires the whole, or an important portion, of another undertaking’s business or asset (“business/asset transfer”).
- an undertaking de-merges its business and transfers it to another undertaking through a measure called a “company split” (“company split”); or
- two or more undertakings jointly establish their ultimate parent company through a measure called a “share transfer” (“joint share transfer”).
A transaction made within the same corporate group does not constitute a qualifying transaction.
Combinations as defined above are notifiable to the CCI unless they can avail of any of the exemptions provided in Schedule I to the Combination Regulations, or in the various notifications issued by the Government of India through the Ministry of Corporate Affairs (“MCA”) from time to time.
A Combination structured as a merger or an amalgamation is notifiable by all the transacting parties once it is approved by the boards of directors of the transacting parties. A Combination structured as an acquisition is notifiable by the acquirer after the definitive transaction agreement(s) or any other binding document(s) is executed between the parties.
For the purposes of the Competition Act, “control” refers to joint control or single control over the management or affairs of an enterprise by one or more enterprises or groups. Control may be exercised by:
- One or more enterprises, either jointly or singly, over another enterprise or group; or
- One or more groups, either jointly or singly, over another group or enterprise.
At this stage, various concepts of control are still being developed in India. In a few CCI merger control orders, the CCI has provided guidance on what constitutes control. For example, the CCI considers that the “ability to exercise decisive influence over the management or affairs” of a target enterprise constitutes “control” over such enterprise. The CCI has also held that joint control can be inferred in situations where more than one person has the power to influence “strategic commercial operations”. Such joint control may arise as a result of shareholding, veto rights, or the right to block commercial decisions resulting in a deadlock. The CCI has also held that veto rights such as approval of business plans, approval of annual operating plans which includes the annual budget, approval for commencing a new line of activity or discontinuing an existing line of business, and approval for the appointment of key managerial personnel and their compensation, amount to control. The CCI may continue to develop the notion of “control” through future decisions and possibly issue a formal guidance.
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 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 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.
The definition of a "merger of companies" in section 1 of the Israeli Antitrust Law is an open definition, beginning with the word "including". According to the Antitrust 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 Antitrust 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 members of the board;
- Sharing 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.
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,
(1) merger of business operators;
(2) control over other business operators gained by a business operator through acquiring their shares or assets; and
(3) control over other business operators or the ability capable of exerting a decisive influence on the same gained by a business operator through signing contracts or other means, including establishment of joint ventures.
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 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 set out the following factors that should be taken into account in determining whether one business operator gains the control over another business operator:
(1) purposes of the concentration and future plans;
(2) the equity structure of the said another business operator both before and after the concentration and the changes thereof;
(3) 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;
(4) the composition and voting mechanisms of the board of directors or the board of supervisors of the said another business operator;
(5) the appointment and removal of the senior management personnel of the said another business operator;
(6) 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
(7) whether there exists significant business relationship, cooperation agreements, etc. between the business operator and the said another business operator.