On 23 July 2014, the European Commission announced that it had fined Scottish salmon producer Marine Harvest €20 million for acquiring de facto control of a competitor, without the Commission’s approval. The case is of significance in affirming that minority stakes can constitute de facto control and therefore require prior clearance.
Under Article 4(1) and 7(1) of the EU Merger Regulation, any merger which meets certain EU turnover thresholds (as this one did) must not be implemented until the acquisition has been cleared by the EU Commission. In the case in question, Marine Harvest acquired a 48.5% in its Norwegian rival Morpol. Although it later acquired all of the voting rights in Morpol, it was the acquisition of only 48.5% that was of relevance to the Commission in this present case.
As Marine Harvest acquired this stake before the acquisition was notified to the Commission by the parties on the 9 August 2013, the Commission considered the minority stake acquisition gave de facto sole control to Marine Harvest of Morpol by reason of acquisition of the largest single block of voting rights in the target company. Marine Harvest had therefore breached Articles 4(1) and 7(1) of the Merger Regulation by not pre-notifying the acquisition of the shares.
What was of crucial importance in this case was the relative allocation of the voting rights in Morpol between Marine Harvest and the other shareholders. Marine Harvest held the largest block of voting rights by a considerable margin to other shareholders. Consequently, Marine Harvest’s acquisition of a 48.5% shareholding had given them effective control of the company.
It is important for both companies and legal advisors alike to note that although clearance was eventually given, the clearance decision did not exonerate the company’s failure to notify the Commission before de facto control was established. Through this decision, the Commission is keen to emphasise through the large size of the fine for a procedural infringement, that notification is a strict liability infringement of the EU Merger Regulation. Failure to notify when required is not exonerated by the circumstances of the case and indeed other mitigating circumstances except in the most exceptional circumstances. This policy decision is designed to safeguard the Commission from opening the floodgates to many non-contentious acquisitions seeking retrospective clearance.
Some could argue on the other hand that the size of the fine seems unjust given that a clear majority stake was not acquired by Marine Harvest. It is arguable that it is not Marine Harvest’s fault or problem if the majority of the other shareholders through internal disagreement and fracture bestow on them control indirectly. The present case therefore creates commercial uncertainty as to when regulatory notification and clearance is required in minority acquisitions. Caution in all cases is therefore advised.
Also of note and perhaps as further evidence of the rather rough justice applied to Marine Harvest is the fact that the de facto control that they acquired in the form of voting rights, were not even exercised by Marine Harvest before the Commission gave its later clearance.
The case is timely given recent recent EU Commission interest in extending the remit of the Merger Regulation to cover certain minority share acquisitions short of decisive influence or control.
In a similar and complimentary US case, the Federal Trade Commission (FTC) have fined Berkshire Hathaway an amount equal to $16,000 per day for failing to file share acquisitions under the HartScott-Rodino Antitrust Improvements Act 1976.
Berkshire are alleged to have failed to make the necessary filings during their acquisition to hold a total of 28% of USG Corporation stock. They were fined heavily by the FTC on the basis of several grounds including the fact that this behaviour was a repeat offence by Berkshire. Full details of the case including lessons learned and the danger all investment companies face can be found in our full summary accessible here.