Minority shareholdings are attracting attention from European competition authorities. The UK Competition Commission decided that Ryanair will have to reduce its current (almost 30%) stake in rival Aer Lingus to a maximum of 5%. Earlier this month IF P&C notified the Commission of the fact that it had acquired control over Topdanmark on the basis of its minority shareholding of 25.18% after Topdanmark bought back a number of its own shares. These developments come at a time when the European Commission consultation on the reform of the EU Merger Regulation is pending. The Commission is considering introducing a system to monitor the competition law effects of non-controlling minority stakes.
Competition Commission decision on Ryanair / Aer Lingus
A Report from the UK Competition Commission of 28 August 2013 is the newest chapter in the Ryanair / Aer Lingus saga and is illustrative for the competition authorities' increased attention given to minority shareholdings.
In 2007 the EU Commission prohibited the intended acquisition of Aer Lingus by Ryanair. Aer Lingus then requested the European Commission to force Ryanair to divest itself of the minority shareholding in Aer Lingus. In a Decision of 11 October 2007 the Commission ruled that the minority shareholding did not constitute a concentration under the EU Merger Regulation and that it therefore did not have the power to require its divestiture. Both Commission decisions were upheld by the General Court. Ryanair made a second attempt to acquire Aer Lingus in December 2008 but abandoned this bid in January 2009. On 24 July 2012 Ryanair notified the European Commission for the third time of an intended acquisition of Aer Lingus. This plan was again prohibited by the European Commission in a Decision of 27 February 2013. Ryanair appealed the European Commission's decision. This appeal is pending before the EU General Court.
The UK Competition Commission now issued a Report on the minority stake of 29.82 per cent that Ryanair holds in Aer Lingus on the basis of UK law. The Competition Commission concludes that Ryanair's 29.82 per cent shareholding in Aer Lingus gave it the ability to exercise material influence over Aer Lingus. The Competition Commission took into consideration that Ryanair had the ability to block special resolutions and the sale of Heathrow slots under the articles of association of Aer Lingus. Ryanair's minority shareholding had the potential to impede or prevent Aer Lingus from combining with other airlines, which limited its possibility to increase the scale of its operations. This could reduce the effectiveness of the competitive constraint of Aer Lingus on Ryanair on the routes between Great Britain and Ireland. For these reasons, the Competition Commission concluded that Ryanair should partially divest its shareholding in Aer Lingus to 5 per cent, accompanied by an obligation on Ryanair not to seek or accept board representation in Aer Lingus. Ryanair stated that it intends to appeal the decision.
Notification of acquisition of control by IF P&C via a minority shareholding in Topdanmark
On 19 August 2013, the Swedish company IF P&C notified the acquisition of sole control over Topdanmark to the European Commission (Case COMP/M.6957). The company held a minority shareholding in Topdanmark since 2008. IF P&C stated that it unintentionally obtained control over Topdanmark as a result of a share buyback program that was running in the period from 2011 to 2013. Although IF P&C only owns 25.18% of the shares in Topdanmark, it would de facto have acquired control in the sense of the EC Merger Regulation.
The acquisition of a minority stake can indeed lead to control in the sense of the EC Merger Regulation. An example is the situation in which the remainder of the shareholdings is very dispersed. In the Electrabel Case the European Commission levied a large fine on Electrabel for failing to notify an increase in its minority shareholding in Compagnie Nationale du Rhone, and that fine was upheld by the General Court (Case T-332/09) , an appeal before the European Court of Justice is pending). Electrabel had acquired de facto control as its minority stake of 49.95% led to a stable majority on shareholders' meetings considering the attendance rates of these meetings. Acquisition of de facto control can even take place without active involvement of the 'acquirer' if the other shareholders become more dispersed as a result of another minority shareholder selling its shares to various small shareholders.
Review of EU Merger Regulation
On 20 June 2013, the European Commission began a public consultation for stakeholders to give their opinion on potential improvements for EU Merger Regulation. The consultation has a broader scope than the issue of minority interest stakes and includes, inter alia, the referral system to and from the European Commission to national competition authorities (see the European Commission website).
As far as minority shareholdings are concerned, the Commission consultation raises the question whether it should also be tasked with looking at non-controlling minority shareholding or "structural links". According to the Commission, also minority shareholdings could lead to a disruption of effective competition. Currently, in the absence of de facto control, minority shareholdings do not constitute a concentration under the EU Merger Regulation and the Commission therefore does not have the power to investigate such shareholdings.
The document describes two main options for notifying non-controlling minority stakes, one through an extension of the current procedure of ex-ante merger notification and the other through a self-assessment. Under the second option the Commission considers that an obligation may be imposed to file a short information notice to the Commission. Also, a possibility for a voluntary notification may be considered under the second option.
After having received the views of stakeholders in the consultation process the Commission will consider whether any improvements of the current merger notification framework are necessary.