Acquisition of minority shareholdings is off the DG COMP’s table

The Commission is likely to abandon the proposed merger control reform that would place minority shareholdings under the Commission’s scrutiny. During the ABA 2016 spring meeting, Commissioner Vestager recognized the excessive burden such an expansion of the Commission’s competences would represent.

Whether or not the European Commission should extend its competence to review the acquisition of non-controlling minority shareholdings was a much-debated subject in the Commission’s initial 2013 merger reform public consultation. The competition watchdog expressed concerns that certain acquisitions of non-controlling minority shareholdings, which could in some cases lead to anti-competitive effects, escaped her scrutiny.

It was the Commission’s position that harm could arise not only from acquisitions of control but also from a “structural link”. Such a structural link could exist if a company acquires a minority stake in a competing company. Arguably, competitors could influence strategies or at least have access to confidential information.

The initiative seemed to be the direct consequence of a specific and traumatic case. The Ryanair / Aer Lingus merger was notified to the European Commission. When the Commission prohibited the merger, Ryanair subsequently acquired a 29.4% stake in its competitor. The European Commission had no enforcement power under those circumstances, even though it found that the transaction impeded competition.

In order to fill this enforcement gap, the Commission proposed several options that would allow it to intervene against so-called anti-competitive structural links. The first option was a “notification system” under which all relevant structural links would have to be notified. The notification would be followed by a standstill period during which the Commission would or would not authorize the transaction. Under the second option, the “self-assessment system”, the parties would not need to notify the transaction but the Commission would have the option to open an investigation. Finally, a “transparency system” was proposed under which the parties to a prima facie problematic structural link would be obliged to file a short information notice.

A White Paper published in July 2014, followed by another round of consultations, eventually suggested a “targeted transparency system” under which companies would need to submit an information notice to the Commission if certain thresholds were met. Many practitioners and investors remain concerned about the potential chilling effect of this initiative on transactions.

Competition Commissioner Vestager now seems to have abandoned her predecessor Joaquín Almunia’s ambitious plan. During the 2016 ABA spring meeting, Commissioner Vestager announced that “the amount of red tape and the administrative burden it would put on businesses would not give you the benefit of a more competitive market” (GCR, 8 April 2016). Instead, the Commissioner wants to consider easier solutions for clearing mergers, for instance by using the vehicle of block exemptions. Undoubtedly to be continued.

Kim Gillade (kim.gillade@cms-db.com)