What is proposed?
Currently, EU merger control rules only apply to acquisitions of “control” in a target company. Subject to turnover thresholds, those acquisitions must be pre-notified to the European Commission and may only be completed if cleared by the Commission. The Commission plans to extend the EU merger control rules to acquisitions of non-controlling minority stakes, albeit using a lighter touch system than full notification.
The consultation period on the European Commission proposal, which was issued in a White Paper last July, ended on 3 October 2014.
What are the proposed requirements?
The Commission calls the proposed regime a “targeted transparency system”, in order to distinguish it from the full notification system which applies to acquisitions of controlling stakes. Parties would be required to submit an Information Notice to the Commission, to include details of their turnover, a description of the transaction, the level of shareholding before and after the transaction, any rights attached to the shareholding and limited market share information. There would then be a 15 day standstill period before the parties could close, during which Member States could decide whether or not to seek a referral to a national competition authority. In addition, there would be a period of 4-6 months following submission during which the Commission could open an investigation.
Scope of new rules
The proposed rules would not apply to all acquisitions of non-controlling minority stakes (hence the word “targeted”). They would only apply where:
- The target is a competitor or a vertically related company of the buyer
- The acquisition is of:
- 20% or more of the shares; or
- 5 – 20% of the shares combined with additional rights such as a seat on the board, a de facto veto right or access to confidential information
Why is the Commission introducing this?
The Commission believes that the acquisition of minority stakes can sometimes harm competition. The highest profile case on minority shareholdings is the Ryanair / Aer Lingus case. Although the Commission prohibited Ryanair’s outright acquisition of Aer Lingus, it was not able to order Ryanair to reduce its 29.82% minority stake in Aer Lingus (as the UK authorities subsequently did), as this is too low a stake to be caught by the current EU merger control rules. It is this perceived “enforcement gap” which the Commission is seeking to close.
What will the impact of the new rules be?
The Commission says that the rules will only catch a limited number of cases and would not, for example, affect investments made by private equity investors or banks in unrelated industries. However, there is concern that the proposed rules may result in legal uncertainty and unnecessary regulatory burden for investors.
The Commission will now consider responses to the consultation and is likely to adopt legislation to amend the EU Merger Regulation. Any such amendments would need to be approved by the Council of Ministers and as such the actual introduction of the new rules is likely to be some years away.