The European Commission’s IF P&C/Topdanmark decision of September 23, 2013 illustrates that the acquisition or subsequent increase of a minority shareholding can in some cases be analyzed as a concentration which has to be notified to the competition authorities.
According to the Commission’s consolidated jurisdiction notice, a minority shareholder can be deemed to have sole control on a de facto basis, in particular “where the shareholder is highly likely to achieve a majority at the shareholders' meetings, given the level of its shareholding and the evidence resulting from the presence of shareholders in the shareholders' meetings in previous years”. To determine if this is actually the case, the Commission takes into account voting patterns in the company’s past general meetings and the position of the other shareholders.
In this case, the effect of the transaction was to cause IF P&C’s minority shareholding in Topdanmark to increase from 21.24% to 25.18% and its voting rights to increase from 22.75% to 26.51%. Given the history of voting in general meetings (particularly the low presence of shareholders in previous years) and other indicators, such as the dispersed nature of Topdanmark’s shareholder structure, the Commission reached the conclusion that, after the transaction and with 26.51% of the voting rights, IF P&C was highly likely to have a stable majority of the votes in general meetings. Given that a simple majority would allow IF P&C on its own to adopt a number of important decisions, such as the appointment of the members of the Board of Directors, and to block other strategic decisions, the Commission concluded that the transaction was a concentration as it resulted in IF P&C acquiring de facto sole control over Topdanmark, meaning that the transaction had to be notified.
The European Commission, which is currently looking into extending the merger control procedure to non-controlling minority shareholdings, seized the opportunity of this case to recall that a minority shareholding can also be subject to prior approval if it leads to the acquisition of de facto sole control.