Law360: Inside EU Rule On Acquisitions Of Minority Shareholdings


Law360, New York (January 07, 2014, 12:40 PM ET) -- In June 2013, the European Commission launched a consultation on its proposed reform of the EU Merger Regulation (EUMR), which included a proposal to extend the scope of the EUMR to cover acquisitions of noncontrolling shareholdings between undertakings. The consultation closed in September 2013. This article provides an overview of the commission’s proposal and the issues raised by the consultation, and sets out next steps in the legislative process.

The Commission’s Proposal

The EUMR entitles the commission to review, prior to completion, transactions that confer control by one undertaking over another, provided that the parties to the transaction meet certain turnover thresholds. As part of a wider revision of the EUMR, the commission proposes extending its jurisdiction to cover acquisitions of shareholdings that fall short of conferring “control” over the target, but which give the minority shareholder the ability to exercise sufficient influence over the target to reduce the intensity with which it competes, for example, by influencing pricing decisions.

In its proposal, the commission refers to such transactions as the acquisition of “structural links,” reasoning that some problematic structural links may not be detected and sanctioned under Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) — which prohibit, respectively, anti-competitive agreements between undertakings and the abuse of a dominant position.

In its discussion of the effects of such structural links, the commission refers at length to Ryanair/Aer Lingus, where the commission’s repeated prohibitions against Ryanair’s acquisition of full control of Aer Lingus did not prevent Ryanair from holding a 29.8 percent “noncontrolling” stake in Aer Lingus, Ryanair’s only competitor on certain routes. The rights attached to Ryanair’s stake, although falling short of conferring “control,” allowed Ryanair to block certain strategic decisions in the shareholders meeting of Aer Lingus, which allegedly weakened Aer Lingus’s ability to compete with Ryanair.

Responses to the Consultation

Respondents expressed widespread skepticism over the commission’s proposal to extend EUMR jurisdiction to cover structural links. Many pointed to studies and papers on theories of harm attached to the commission’s consultation papers showing that structural links rarely raise appreciable competitive concerns, and that most of these can be dealt with under Articles 101 and 102 of the TFEU. They argued that extending EUMR jurisdiction over structural links would blur the lines between different enforcement tools — confusing the system, creating uncertainty, posing a disproportionate burden on both undertakings and the commission, and ultimately hampering the financial liquidity market inappropriately.

In particular, several respondents argued that Articles 101 and 102 are better tools to address structural links, since these tools do not involve a static one-off prior assessment of the transaction and allow stakeholders to observe the actual effect of a structural link on competition over time.

In contrast, applying the EUMR to structural links would lead to either: (1) prohibiting a transaction on grounds of an irrefutable presumption that it would be anti-competitive; or (2) authorizing it once for all, making it difficult, if not impossible, for regulators or third parties to intervene afterwards in case the structural link is subsequently used for anti-competitive purposes. Thus, many suggested that the commission would do better by issuing guidelines to stretch the application of existing provisions over structural links rather than launching a drastic and burdensome legislative reform.

Some respondents also highlighted that if, as suggested by the commission, the reform is implemented adopting either a mandatory or voluntary notification system, it may discriminate against small and medium enterprises, which could not benefit from the advantages of the system — i.e., to obtain clearance that the transaction is unproblematic for competition — as they would fall below the jurisdictional thresholds required for mandatory or voluntary notification.

Moreover, almost all the respondents strongly recommended the commission precisely define what it means by “structural links”; for example, through setting shareholding thresholds from 10 percent to 25 percent, possibly coupled with certain special rights or interlocking directorates allowing for the creation of a safe harbor for shareholdings falling short of that definition. Finally, the current rules relating to the calculation of the EUMR jurisdictional thresholds would need to be tailored to noncontrolling stakes.

Procedure for Approval

The commission also asked stakeholders which system for review of structural links would be preferable, providing several options: (1) a mandatory prior-notification regime in line with that already applicable under the current EUMR; (2) a self-assessment regime under which it would be entirely up to undertakings whether to inform the commission of the transaction; or (3) a transparency system under which certain prima facie problematic transactions would have to be notified to the commission for information purposes, with the commission deciding whether to open a formal proceeding.

Almost all the respondents to the consultation came down in favor of a self-assessment system coupled with voluntary notification, which would allow undertakings to obtain certainty on whether the transaction is clear from antitrust concerns. In addition, those favoring a self-assessment system also favor the absence of a suspension obligation in case of voluntarily notified transactions. Finally, most respondents recommend a limitation period of two to six months from completion of the transaction beyond which the commission would no longer be entitled to investigate.


The consultation shows that the risk of creating a disproportionate burden on businesses and confusion between substantially different competition rules — ex post assessment under Articles 101 and 102 TFEU and ex ante review under the EUMR — is a very real issue, which will be difficult for the commission to ignore.

Almost all respondents recommend a self-assessment system coupled with voluntary notification, a precise definition of structural links, and clear safe harbors. A further impact study will be carried out and final proposals will need to be submitted to each member state and to the European Parliament before being adopted by the council. It is not anticipated that any changes are likely to come into effect before the end of the current parliamentary session in spring 2014.

The responses to the commission’s consultation are available here.

—By Enzo Marasà, Orrick Herrington & Sutcliffe LLP

Enzo Marasà is an attorney in Orrick's Brussels office.

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