1. No category

Joint Ownership of Undertakings
without Joint Control
Minority shareholdings at a crossroad in
competition law
Luís Silva Morais1
Version of April 2015
Do not quote at this stage without authorization of the author
To be included in
LIBER AMICORUM – IAN FORRESTER
(publication to occur in the course of 2015
1
PhD in Law – Lisbon Law University (Faculdade de Direito de Lisboa – FDL), Professor of FDL, Jean
Monnet Chair of EU economic regulation, Chairman of CIRSF (Research Centre of Regulation and
Supervision of the Financial Sector, in scientific cooperation with the Bank of Portugal and the
Portuguese Authority of Supervision of Insurance and Pension Funds. Attorney-at-law – Founding
Partners of Luis Silva Morais/Sérgio Gonçalves do Cabo, Law Firms, rl (based in Lisbon, Portugal, with
representatives in Brazil, Angola and China/Macau)
Table of Contents
1 – Introduction and Comprehensive Remarks
1.1. – General Overview
1.2. – Key Competition Law Issues in this Domain and the Evolving
Case Law – The Special Importance of the Financial Sector in this
Field
2. – Analytical Criteria for Assessment of Effects on Competition
Arising from Ownership of Undertakings Short of Individual or Joint
Control
2.1. – Identifying Relevant Situations Which Inherently Lead to
Potential Restrictions of Competition
2.2. – Anticompetitive Effects Arising from Minority Shareholdings –
How to Build a Reliable Analytical Grid in this Domain vis a vis the
Option of Expanding the Scope of the MCR Envisaged in the
Commission 2014 Proposals
2.3. – The Desirability of Flexible Solutions for Dealing with Minority
Shareholdings
3. – Concluding Remarks
2
List of Abbreviations
A – Author
As - Authors
CJEU – Court of Justice of the European Union
EC – European Community
EEC – European Economic Community
Esp - Especially
EU – European Union
MCR – Merger Control Regulation
TFEU – Treaty on the Functioning of the European Union
3
Joint Ownership of Undertakings without Joint Control
Minority shareholdings at a crossroad in competition law2
Luís Silva Morais
1 – Introduction and Comprehensive Remarks
1.1. – General Overview
1.1.1. - In the context of competition law analysis we may identify some
critical issues associated with the potential relevance of anticompetitive
coordination arising from shareholdings in certain undertakings which
allow the exercise of influence over the behavior of those entities. To some
extent, such issues and their effects on competition bear resemblance to the
competition law framework of joint ventures (and a host of situations of
cooperation between undertakings comparable thereto).3 More precisely,
these cases correspond to situations of acquisition or holding by an
undertaking of shareholdings in a third undertaking which, without
exceeding the threshold required for the acquisition of control, whether
jointly or individually, may, nevertheless, influence the competitive
relationships between the concerned undertakings.
This type of minority shareholdings, due to the absence of any kind of
control - as this concept has been perceived in EU competition law -4 does
not lead to the emergence of concentration operations, nor to the creation
of joint ventures, as such.
Anyhow, its potential impact on the relationship between the involved
undertakings may, under certain circumstances, raise issues of distortion of
2
This Paper was finalized on March 31, 2015. No developments subsequent to that date, either
concerning the development of the Commission 2014 proposals on the reform of the MCR or further
evolving case law in this domain have been considered.
3
On this parallel and its significance see in general Luís Silva Morais, Joint Ventures and EU
Competition Law, Hart Publishing, 2013, point 1.5., Chapter 2, pp 182 ff and especially, point 6, Chapter
3, pp 481 ff.
4
See on the concept of control over undertakings under EU competition law Luís Silva Morais, Joint
Ventures and EU Competition Law, cit. This concept has already been extensively analyzed and dealt
with and, as such, it will not be further addressed here. See in particular for that analysis and relevant
references points 3.1., 4.2., and 5 of Chapter 1 of Joint Ventures and EU Competition Law, cit.
4
competition, to some extent comparable, as aforementioned, to those
associated with certain joint ventures.
1.1.2. - Furthermore, given this potential for competition law problems, the
European Commission, through its DG Competition, has launched a public
consultation to deal with an hypothetical ‘enforcement gap’ concerning
these minority shareholdings and to find adequate normative solutions for
any problems identified in this area. In the wake of the comments received,
the Commission has recently presented specific proposals in its White
Paper “Towards more effective EU merger control” published in July
2014.5 The underlying rationale of these proposals concerning minority
shareholdings is to widen the scope of EU merger control in order to
systematically address potential harm to competition arising from the
acquisition of non-controlling minority shareholdings. Conversely, the
envisaged review purports to avoid undue burdens to businesses, both by
targeting only transactions that are, prima facie, problematic from a
competition point of view and by adopting a system for the control of such
situations that would be lighter than currently foreseen under the Merger
Regulation for full mergers.6 While this proposal is certainly anchored on
understandable concerns in terms of competition law, the procedural
framework it contemplates is, to my view, debatable (as I shall put forward
briefly infra, 2., esp 2.2.3.)
Anyhow, whatever the final outcome of these reform proposals may be, the
competition law treatment of minority shareholdings is definitely at a
decisive crossroad in the context of EU competition law. Irrespective of the
future rules that will be procedurally applicable de iure condito in the
wake of a future reform of EU merger control rules, the substantive
analysis of these situations and the relevant hermeneutical parameters to
be retained in order to ensure an adequate level of legal predictability to
undertakings and economic operators are of the essence now in this field.
Hence, the current thoughts developed in this short paper, which purport
to kindle a much needed discussion in this sensitive field; a discussion
focused on the substantive problems to be addressed to deal with the
actual competition law issues underlying minority shareholdings, no
matter the specific procedural regime applicable thereto in the wake of
the incoming reform of the EU merger control rules. Such intentional
focus on substantive issues, regardless to some extent of the procedural
5
White
Paper
“Towards
more
effective
EU
merger
control”
available
at
http://ec.europa.eu/competition/consultations/2014_merger_control/.
6
See on this overall perspective pursued by the Commission in the proposals it has presented in the wake
of the 2013 public consultation, e.g., Competition Policy Brief, Issue 15, October 2014, Minority Power –
EU Merger Control and the Acquisition of Minority Shareholdings.
5
framework currently in flux, implies, somehow, an incursion in
uncharted waters. Accordingly, this also represents, in my view, the best
way to pay a modest tribute to the outstanding contribution of Ian
Forrester for the development of competition law, always paving new
analytical avenues and new areas of discussion that have fructified and
led to a qualitative upgrade of competition law enforcement (and even to
better normative solutions in certain areas of this complex and very
dynamic body of law) – A fundamental contribution to which we are all
indebted, competition law scholars and practitioners, courts, enforcement
agencies and all the economic stakeholders in general who have some
sort of interest in the enforcement of competition law.
1.2. – Key Competition Law Issues in this Domain and the Evolving
Case Law – The Special Importance of the Financial Sector in this
Field
1.2.1. – A particular concern with the competition law assessment of
situations concerning minority shareholdings and related cases is, in my
view, particularly relevant, given the rather high frequency with which they
occur in the current context of business relationships in various economic
sectors7 and considering that the potential impact on the competition
process8 arising therefrom has not been appropriately dealt with in terms of
enforcement of EU competition rules (hence evidencing a substantive
enforcement gap, while not necessarily a procedural one, in this legal
system).
7
In a worldwide context of relations between undertakings characterized by an increasingly complex set
of interdependencies, even when these do not assume the more traditional forms of concentration between
undertakings, one is confronted not only with the proliferation of more flexible processes of cooperation
between undertakings carried out through joint ventures, but also of multiple cross-shareholding
relationships. On the importance of these situations in modern industrialized economies, illustrating the
most recent advances in this field, see, David Gilo, “The Anticompetitive Effect of Passive Investment”,
in Mich L R., 2000, pp 2 ff.
8
The still relatively recent development in EU competition law of models of economic analysis of the
functioning of markets in order to materialize or ensure a proper densification of legal parameters for the
assessment of various situations, has been gradually allowing a deeper grasping of such type of
repercussions, depending on the circumstances, of these cases of acquisition of shareholdings in third
undertakings which do not imply transfers of control. See, in general, on the new perspectives disclosed
by the advances in theoretical economic analysis of certain relationship nexus between undertakings,
Robin A. Struijlaart, “Minority share acquisitions below the control threshold of the EC Merger Control
Regulation: An economic and legal analysis”, in W Comp., 2002, pp173 ff.
6
Somehow, the insufficient attention granted to these situations of minority
shareholdings may have resulted from some confusion between them and
the situations relating to concentration operations in a given stage of
evolution of EU competition law, prior to the adoption of the MCR (a
‘confusion’ in which, somehow paradoxically, the recent 2014 reform
proposals of the Commission may have incurred again, although from a
different normative standpoint).
In this context, the assessment of a situation concerning the acquisition of a
shareholding in a third undertaking without obtaining control thereof, made
by the CJEU in its landmark “Philip Morris” ruling9 may have contributed
for these rather grey areas (this judicial precedent being for a long time the
only one dealing specifically with such matters until the recent ruling of the
GC “Aer Lingus v. Commission”, of 201010).
As far as the “Philip Morris” precedent is concerned, and regardless of the
contrasting readings of the case, I understand that the CJEU has not
sustained in this ruling the application of article 101.º TFEU to
concentrations.11 What strikes me is the terminological vagueness of the
content of this ruling, that should still be highlighted.12 Indeed, this relative
vagueness should be regarded, in itself, as the main source of the intense
9
I refer here to the 1987 ruling of the CJEU normally identified and designated as “Philip Morris” – as it
will also be referenced herein and throughout this analysis of competition law problems related with
minority shareholdings short of joint control - corresponding actually to the ruling “BAT and Reynolds v.
Commission”, Cases 142/84, 156/84.
10
See the ruling of GC “Aer Lingus v. Commission”, case T-411/07.
11
On the many contrasting hermeneutical readings proposed for the “Philip Morris” ruling following its
adoption by the CJEU, see Willem Calkoen, J. Feenstra, “Acquisition of Shares in other Companies and
EEC Competition Policy - The Philip Morris Decision”, in The International Business Lawyer, 1988, pp.
167 ff; E.-J. Mestmäcker, “Fusionskontrolle im Gemeinsamen Markt zwischen Wettbewerspolitik und
Industriepolitik”, in EuR., 1988, pp. 349 ff, with these As. sustaining a reading of the ruling as
acknowledging the applicability of the then article 85 EEC, currently article 101.º TFEU, to operations of
concentration; sustaining the opposite view, albeit with not entirely coincident readings of the “Philip
Morris” ruling, see, inter alia, V. Korah, P. Lasok, “Philip Morris and Its Aftermath – Merger Control?”
in CMLR, 1988, pp. 333 ff; Bellamy, Mergers Outside the Scope of the New Merger Regulation Implications of the Philip Morris Judgment, in Annual Proceedings of the Fordham Corporate Law
Institute - European/American Antitrust and Trade Law – 1988, Editor Barry Hawk, Fordham Corporate
Law Institute, Matthew Bender, 1989, pp. 22-1 ff.
12
There is no room here to recast the depiction of the complex situation covered in the “Philip Morris”
case, nor the outline of the analysis carried out by the ECJ. This case involved the acquisition by Philip
Morris of a non controlling stake in a competitor (Rothmans International) with various related
contractual engagements that might influence the structure of control of Rothmans International and its
future evolution. However, there were some considerable ambiguities that could even be construed as
conceptual flaws in the Court analysis in this case, as regards the use in the ruling of essential categories
for the interpretation and application of article 101.º TFEU as the ones of “undertaking”, “legal or de
facto control” on the activity of enterprises, “economic independence”, or “enterprise business behavior”.
The not entirely clear use of these categories contributed to the ambiguity of the actual reach of the ruling
in terms of contemplating the scrutiny under article 101.º TFEU of mere acquisitions of significant
holdings in another independent competitor undertaking, short of acquisition of effective control, or
comprehending also in that scrutiny acquisitions leading to effective control.
7
controversy among scholars concerning the reach of the precedent.13 Also,
in the historic context in which the CJEU decided the case, the fluctuations
in the terminology employed by the Court were, to a certain extent,
“exploited” by the Commission in the long and troublesome process of
negotiation of the Proposal for a then Community Regulation on
concentration control, which had been on the table since 1973, in view of
fostering the final adoption of the MCR.
In fact, as the reach of that ruling was not completely clear, the
Commission came to the point of considering, in that light, the possibility
of reviewing the position it had initially adopted in its Memorandum on the
problem of concentration in the common market, dated December 1, 1965,
where it had sustained in principle the non applicability of article 101.º
TFEU (then article 85.º EEC) to concentration operations14 thus paving the
way, if that hypothetical reversal of hermeneutical reading was adopted, to
a submission of certain categories of concentrations to that article 101.º
regime. Although the subsequent approval of the MCR, has set aside the
particular significance that was initially attached to the issue of a possible
application to concentrations of the regime of article 101.º TFEU,15 the
confusion thus created between these operations of concentration and
situations of acquisition of minority shareholdings without obtaining
control has lingered beyond this precedent in the context of EU
competition law.
1.2.2. - Moreover, during the first stages of enforcement of the MCR, the
problems originated by the duality of treatment of joint ventures, depending
on whether they were qualified, or not, as concentrations, and the
procedural issues concerning the definition of criteria for distinguishing
these two basic subcategories of joint ventures16, continued somehow to
13
As referred in a previous footnote, various authors held that the “Philip Morris” ruling would stand for
the application of article 85 EEC Treaty (current article 101.º TFEU) for purposes of direct control of
certain concentration operations among, while other authors denied that this case law would have such a
broad reach (besides various intermediate and composite views).
14
I refer here to the Memorandum of the Commission of 1 December 1965 - “Le Problème de la
Concentration dans le Marché Commun”, Collection Etudes Serie Concurrence nº 3, Bruxelles, 1966 –
corresponding to the first ‘ex professo’ analysis by the Commission of the issues related with direct
control of concentrations. This 1965 Memorandum was adopted in the wake of a Report prepared by
independent experts, the majority of which, curiously, had sustained the applicability of then article 85.º
EEC to some concentrations (while the Commission diverged from that position and only contemplated
the applicability under certain conditions of then article 86.º EEC - current article 102.º TFEU - to some
concentration operations). See on that controversy putting it into historical context in terms of EU
competition law, Aurelio Pappalardo, “Le Règlement CEE sur le Controle des Concentrations”, in Rev
Int’l Dr Econ., 1990, pp. 3 ff.
15
See again on such developments and interplay, Luís Silva Morais, Joint Ventures and EU Competition
Law, esp points 4.2., 4.3. and 4.4. of Chapter 1 , in which an appreciable part of this analysis, particularly
as regards the historical framework and preceding normative developments, relies
16
I have previously highlighted the disproportionate relevance of procedural issues concerning the
distinction between concentrative joint ventures and cooperative joint ventures during the period whilst
8
downplay a consistent autonomous treatment of potential problems of
distortion of competition arising from situations of acquisition of minority
shareholding without gaining control (situations not fitting nor the category
of concentration, nor the category of joint ventures). Also, the importance
attached by the Commission to the organization of an efficient EU merger
control procedure, pursuant to the adoption of the MCR, and the
administrative burden of the prior notification procedures within the
context of the application of article 101.º TFEU (prior to the adoption of
Regulation Nº 1/2003), further and decisively contributed to the relative
“oblivion” of the issues of minority shareholdings which do not confer
control.17
This relative substantive enforcement “gap” in the system of enforcement
of EU competition rules, although undoubtedly less serious then has been
in the past the lacuna in terms of direct control do concentrations (until
1989), should not linger on. In fact, several reasons contribute, in my view,
the MCR was in force prior to its first reform (1997 amendment to the MCR). See, on this, and on the
competition law analytical distortions associated with this distinction, Luís Silva Morais, Joint Ventures
and EU Competition Law, esp point 4.4. of Chapter 1. Again a disproportionate focus on procedural
issues and frameworks may be emerging with the new 2014 proposals of reform of the MCR in order to
address the issues related with minority shareholdings. History may be repeating itself here.
17
In the US antitrust law system, a greater deal of attention has been, for some time now, devoted to this
type of issues, by such influent authors as Philip Areeda and Donald Turner in the classical study,
Antitrust Law (1980). Therein, these authors sustained that the “noncontrolling acquisition has no
intrinsic threat to competition at all” (op. cit., par. 1203 d, 322). However, this understanding has been
opposed by many US antitrust scholars, mostly after the adoption of the revised Merger Guidelines of
1982. See, for all, in regard of the development of such perception of the potential of distortion of
competition inherent to the acquisition of minority shareholdings not granting their acquirer the control of
the participated entity, Daniel O’Brien, Steven Salop, “Competitive effects of partial ownership: financial
interest and corporate control”, in ALJ, 2000, pp 559 ff. Significantly, the importance attached to issues of
distortion of competition that may be associated with this type of minority holdings has even led some
scholars to propose adjustments to the traditional formula of the Herfindahl-Hirschman Index (HHI), in
order to consider the variables pertaining to situations of holding of stakes in third undertakings without
obtaining corporate control. I refer, namely, to the so-called “modified HHI” proposed by Timothy F.
Bresnaham and Steven Salop (see the cit. authors in “Quantifying the competitive effects of production
joint ventures” in International Journal of Industrial Organization, 1986, pp 155 ff). Furthermore, the US
1992 Horizontal Merger Guidelines (revised in 1997 and comprehensively reformed and replaced in
2010) contained a brief reference to issues associated with the holding of holdings in the share capital of
undertakings, although such reference seem to be made to cross-shareholdings in undertakings
participating in joint ventures (see the aforementioned Guidelines, cit., in paragraph 3.34 (c): “the
Agencies also assess direct equity investments between or among the participants. Such investments may
reduce the incentives of the participants to compete with each other”). In the new 2010 US Horizontal
Merger Guidelines, its Section 13 on “Partial Acquisitins” covers specifically and more broadly these
situations and acknowledges that such acquisition of minority shareholdings (or “partial acquisitions”)
when “not resulting in effective control” may anyhow “present significant competitive concerns and may
require a somehow distinct analysis from that applied to full mergers (…)” (if originating effective
control, in my view, those cases should be deemed equivalent to concentration operations under EU
competition law and will not correspond as such to these particular situations that I am herein considering
and that justify autonomous treatment because these imply a change of competitive conditions short of
control). The 2010 Guidelines, however, do not go to the point of specifying, as regards such “distinct
analysis” of those minority acquisitions – that I consider bearing significant parallelisms with the analysis
of partial function joint ventures under EU competition law – a “modified HHI” (in terms of structural
analysis to be applied to such situations).
9
to the development of a new analytical treatment of that matter, to which I
attach paramount importance (as confirmed by the aforementioned very
recent developments of the “Aer Lingus v. Commission” case and of other
cases18).
In first place (i), the proliferation of these situations of acquisition of
shareholdings without obtaining control in various business sectors and the
consequent relevance of such cases for the practical operation of these
sectors will lead to a predictable increase of its effect of restriction of
competition and should trigger reactions from affected undertakings (and
relevant affected stakeholders).
Thus, in this area, a virtuous effect of circular type could occur, to the
extent the filing of complaints by affected enterprises will tend to
strengthen and render more systematic the Commission scrutiny (or, as the
case may be, from EU Member States Competition Authorities) concerning
these situations. Complementarily, once this increased attention from the
Commission and other Competition Authorities is raised, the willingness of
affected undertakings to react through the submission of complaints will
also be greater. Also, a renewed attention of the Commission and on the
part of other Competition Authorities may also arise from issues related
with acquisition or holding of minority shareholdings that are brought
forward in the context of concentration control proceedings or as sideeffects of some concentrations.
1.2.3. - Such a proliferation of cases of acquisition of minority
shareholdings occurs, in particular - as highlighted in the context of US
antitrust law - in the most dynamic business sectors, namely
telecommunications, electronic communications, in general, or other hightech industries.19
18
See, in general, on these very recent developments in this domain, Enrique González-Diaz, Minority
Shareholdings and Creeping Acquisitions: The European Union Approach, in 2011 Competition Law
Institute - International Antitrust Law & Policy, Fordham University School of Law, Editor, Barry Hawk,
cit, pp 423 ff. Complementarily, on the renewed analytical attention given to situations of acquisition of
shareholdings without obtaining control, see, inter alia, Laurent Flochel, “Les Effets Concurrentiels des
Prises de Participation Minoritaires”, in Concurrences, N.º 1-2012, pp 1 ff; Nadine Mouy, “Participations
Minoritaires et Contrôle des Concentrations”, in Concurrences, N.º 1-2012, pp 10 ff; David Spector,
Jacques-Philippe Gunther, David Bosco, Peter Kalbfleisch, Bernaerd van de Walle de Ghelcke, Peter
Freeman, Andreas Bardong, “Merger Control and Minority Shareholdings: Time for a Change?”, in
Concurrences, N.º 3-2011, pp 14-41.
19
Daniel O’Brien and Steven Salop refer to that fact in the context of the US antitrust law system ,
emphasizing, e.g., among other cases, the Federal Trade Commission’s decision on the case “Time
Warner/Turner” (“Time Warner Inc., 61 Fed Reg. 5, 0301 – Sept. 25, 1996”). See, in that sense, As. cit.,
“Competitive effects of partial ownership: financial interest and corporate control”, cit., pp 560 ff.
10
The practice of acquiring and holding this type of shareholdings in
competing undertakings is also extremely common in the financial sector
currently under focus in the wake of the recent international financial crisis
(maxime in the banking and insurance sub-sectors). Moreover, I consider
symptomatic of the importance of those situations, the fact that, on several
decisions on concentration operations in the financial sector, such as, inter
alia, in the “Allianz/Dresdner” or “Nordbanken/Postgirot”,20 decisions, the
Commission’s assessment has not only been focused upon the main aspects
of the acquisition of corporate control itself, that encapsulated the
concentrations at stake and corresponded to direct object of the
proceedings, but also on the repercussions stemming from the networks of
minority shareholdings held by the undertakings involved in the
concentrations in other undertakings.
I even believe that, at EU level, beside the traditional importance of such
cross-shareholdings among financial institutions, as a general feature of
several of the most developed financial systems,21 other factors have also
accrued, contributing to a remarkable weight of these situations in the
portfolio of several institutions. Such factors are related with the
development of a complex integration process in the various sub-sectors of
the financial system, leading to the gradual creation of EU-scale financial
conglomerates, or groups with a significant position in certain areas of the
EU that already surpass the thresholds of domestic markets. This process
has involved some concentration operations between financial institutions,
which have increased with the implementation of the EU single currency.22
However, due to the issues that such transactions tend to raise in the
financial sector, either for prudential reasons, or by particularities of the
domestic markets - particularly in the segments of retail activities - such
integration process may involve, as intermediate stages, the acquisition of
minority shareholdings in financial institutions of other EU Member States.
20
See the “Allianz/Dresdner” and “Nordbanken/Postgirot”decisions, dated, respectively, 19 July 2001
(case M.2431) and 8 November 2001 (case M.2567). Symptomatically, it was the Commission itself who
raised the relevance of this type of analysis concerning minority shareholdings in those decisions relating
to concentrations in the financial sector, in analyses produced in the context of the Competition Policy
Newsletter, 2002, February (See in that Newsletter, the paper of Enzo Moavero Milanesi and Alexander
Winterstein, “Minority shareholdings, interlocking directorships and the EC competition rules – recent
Commission practice” (Newsletter, cit,. pp 15 ff).
21
See on the frequent situations of minority cross-shareholding in financial institutions in the more
developed financial sectors, the Paper Competition in UK banking – a report to the Chancellor of the
Exchequer, Don Cruickshank, cit. For a more general outlook of the global changes in EU financial
systems, in the context of which the acquisition of minority shareholdings has proliferated, see The
transformation of the European financial system, Editors, Vitor Gaspar, Philipp Hartmann, Olaf Sleijpen,
European Central Bank, 2003.
22
On the increase of the number of cross-border concentrations associated with the implementation of the
Euro and with the completion of the last stages of the monetary union, see Banking Integration in the
Euro Area, European Central Bank, Occasional Paper Series, N.º. 6, December 2002, Ines Cabral, Franck
Dierick, Jukka Vesala.
11
Conversely, the consolidation of domestic markets, which is also a reaction
to these background movements within the EU national financial systems,
is subject to natural constraints, dictated by the application of competition
rules and national prudential standards so that, rather often, financial
institutions unable to proceed further with certain concentration processes,
choose to maintain various cross-shareholdings in other national entities.23
1.2.4. - At another level, and in second place (ii), the overcoming of this
substantive enforcement gap in the EU system of enforcement of
competition rules concerning the scrutiny of acquisition of minority
shareholdings, not subject to merger control, may also, in principle, result
from the very process of “decentralization” triggered by the adoption of
Regulation (EC) No. 1 / 2003.
Indeed, as I have already had occasion to highlight, one of the main reasons
for this option, with the undeniable risks that it entails, corresponds to the
creation of conditions for the Commission to focus on the treatment of
most serious situations of potential breach of EU competition rules, as well
as on the analysis and clarification of legal issues that, until now, have not
been adequately or sufficiently discussed.24
23
On these acquisitions and holdings of stakes in financial institutions incorporated in other EU Member
States and in domestic financial institutions, for different reasons, but related with the very same
movement of integration of the financial sectors within the EU, evidencing yet unknown reach and
boundaries, see, inter alia, Banking Integration in the Euro Area, European Central Bank, Occasional
Paper Series, N.º 6, December 2002, cit. and Bank Mergers, Competition and Liquidity, European Central
Bank, Occasional Paper Series, N.º 292, November 2003, Elena Carletti, Philip Hartmann, Giancarlo
Spagnolo.
24
See various incidental references to these aspects related with the so-called “modernization” process of
EU competition law, in my book Joint Ventures and EU Competition Law, cit., Chapters 1 and 2 (e.g.
point 1.1. of Chapter 2). The process of decentralization of application of EU competition law carries with
it some unavoidable risks in terms of legal predictability and consistency, which, in spite of the
undeniable practical success of the first stage of implementation of Regulation (EC) N.º 1/2003 that
decisively contributed to set aside initial doubts about the overall feasibility and consistency of such
model, may have remained up to this date somehow overlooked by the Commission (see for a balance of
this experience in the course of the first years of application of Regulation N.º 1/2003, albeit
oversimplifying some critical issues in my view, Report of the European Commission to the Parliament
and the Council - Report on the functioning of Regulation 1/2003, COM(2009) 206 final; Commission
Staff Working Paper accompanying the Report on the functioning of Regulation 1/2003, SEC(2009) 574
final - their publication was mandated by article 44 of Regulation 1/2003). See, in general, on this
modernization and decentralization process developed since 2003 considering its significant
achievements but also the risks involved, Damien M. B. Gerard, The ECN – Network Antitrust
Enforcement in the European Union, in D Geradin, I Lianos (eds.), Research Handbook on EU
Competition Law, E Elgar, 2013.; F. Cengiz, “Multilevel Governance in Competition Policy: the
European Competition Network”, Eur. L. Rev., 2010 pp 660 ff; H.F. Koeck and M.M. Karollus (eds),
FIDE XXIII Congress: The Modernization of European Competition Law – Initial Experiences with
Regulation 1/2003, Vienna: Nomos/facultas, 2008. Anyhow, the chief reason for incurring such legal
uncertainty risks – however transitory these may be – is the creation of the conditions for a more
demanding application of EU competition rules by the Commission, extending not only to the more
obvious situations, more often addressed, of control of cartels bearing a high potential of distortion of
competition, but also focusing on types of problems less frequently addressed which need hermeneutical
12
It happens that, in my view, the competition law scrutiny of such situations
of acquisition of minority shareholdings, to which the Commission had not
devoted systematic attention, despite this potential for disruption of
competition in some situations, corresponds precisely to one of these
fundamental issues, deserving further clarification and new hermeneutical
definitions.
1.2.5. - It should, in any case, be acknowledged that the issues of distortion
of competition associated with such situations have not been completely
ignored by the Commission in the wake of the fundamental “Philip Morris”
case (which originated the key aforementioned judicial precedent)25 and
until the recent aforementioned 2014 reform proposals. In several cases, the
Commission even sought to address these problems through the adoption of
commitments by the undertakings involved in certain transactions.26 It did
so, however, in the context of analysis of notifications of projects of
creation of joint ventures under article 101.º TFEU and, above all, of
notifications of concentrations within the context of the MCR, incidentally
addressing these aspects as side issues in wider analytical processes.
The new developments that I believe possible and desirable in this regard,
on the contrary, relate to the substantive scrutiny and autonomous
assessment of potential effects of restriction to competition associated with
this type of situations of acquisition of minority shareholdings (to be
undertaken by the Commission on its own initiative or following
complaints filed by affected entities).27 Such developments may, of course,
guidance and clarification, as is the case of an enhanced scrutiny the analysis of effects of restriction of
competition inherent to certain situations of acquisition of minority shareholdings.
25
I shall further mention some situations addressed by the Commission in this regard. Anyhow, as
mentioned, the key judicial precedent up to now has been the “Philip Morris” ruling, cit., recently
supplemented by the GC ruling “Aer Lingus v. Commission”, cit.
26
I refer both to commitments of a structural and behavioral nature, in particular concerning rules and
procedures on the flow of information between undertakings holding cross-shareholdings, as referred to
below.
27
I herein refer to developments in the field of the interpretation and application of article 101.º TFEU. It
should, however, be noted that the Commission pondered, in the Green Paper concerning the revision of
the Merger Control Regulation, dated of 2001, cit., - and anticipating here the 2014 reform proposals the possibility, in the wake of related doctrinal suggestions, of extending this system of merger control to
the acquisition of minority shareholdings, irrespective of the acquisition of control, likewise happens in
some jurisdictions (see 2001 Green Paper, cit., para. 108). Nevertheless the Commission came to consider
at that time disproportionate to submit all the acquisitions of minority shareholdings to the ex ante control
set out in the MCR and – appropriately, in my opinion – such an option, mentioned in the 2001 Green
Paper, was not enshrined in the second reform of the MCR. Conversely, I do not subscribe the positive
view stated by the Commission in that 2001 Green Paper where it holds that only a very limited number
of transactions (of the aforementioned type) prone to raise issues of distortion of competition would not
be adequately dealt with within the framework of application of articles 101.º and 102.º TFEU (see 2001
Green Paper, cit., para. 109). As far as I am concerned, while the normative program enshrined in those
provisions is, indeed, fit to cover the problems of restriction of competition usually generated by these
situations of acquisitions of minority shareholdings (and cross-shareholdings or interlocking directorates
13
benefit from the experience gained in the past in the context of analysis of
notification procedures ex vi article 101.º TFEU and the MCR, but must be
subject to a more developed and systematic analytical treatment. Such a
treatment should, in turn, be largely influenced by the analytical parameters
developed in connection with joint ventures subject to the regime set out in
article 101.º TFEU. 28
2. – Analytical Criteria for Assessment of Effects on Competition
Arising from Ownership of Undertakings Short of Individual or Joint
Control
2.1. – Identifying Relevant Situations Which Inherently Lead to
Potential Restrictions of Competition
2.1.1. - The key problems of restriction of competition that I deem
potentially associated with situations of acquisition of minority holdings in
third undertakings, without obtaining control thereof, essentially relate with
the development of behavioral coordination processes between the
undertakings involved in these situations (falling as such under the
prohibition set out in article 101.º TFEU). This applies especially to cases
where such relationships are established between competitors.
It may be, somehow, considered that in such situations there are conditions
for the occurrence of what I have designated in the context of joint venture
analysis as spill over effects in broad sense, impacting on the competitive
behavior of undertakings bound by such participation relationships. In the
case of non-full function joint ventures I have depicted in past analyses
such spill over effects in broad sense as effects on effective or potential
competition between participating undertakings in any given joint venture,
construed or apprehended as the occurrence of repercussions triggered at a
or bodies of the entities involved in those transactions), no systematic hermeneutical framework has,
nonetheless, been consolidated so far on the basis of those provisions and oriented for that purpose; and
hence, a substantive “gap” – not necessarily a procedural one - may be identified in the EU system of
application of competition rules in this domain.
28
I believe that minority shareholdings in third undertakings – maxime cross-shareholdings between two
or more undertakings – may generate effects of distortion of competition very similar to those associated
with some types of joint ventures subject to the legal regime set out in article 101.º TFEU, which may be
scrutinized in light of such legal regime, thus explaining my brief reference to this issue. The treatment of
this subject requires, however, an ex professo analysis of these matters. For that reason, I merely identify
and depict, in extremely succinct terms, some of the most relevant issues which may arise in this field and
which would justify a greater deal of attention from the Commission and, through the hermeneutical
guidance of this institution, from EU Members States Competition Authorities.
14
level of cooperation limited to certain entrepreneurial functions and which
extend to the competitive behaviour, globally considered, of parent
undertakings in the markets of final goods in which they operate and within
which the specific functions pursued through the joint venture are projected
to impact or to be performed. 29 30
Bearing in mind the potential relevance of these situations for the
application of article 101.º TFEU, it is appropriate, in my view, to identify
in a more systematic manner some paradigmatic situations of minority or
joint shareholdings which do not involve the acquisition of control, but
which should be brought in a more manner under the radar of competition
law scrutiny. I am also assuming here that the substantive test of the article
101.º TFEU would largely be a consistent one for that purpose and that, in
such normative context, one should not necessarily require a submission of
those situations to the procedural framework of a reformed MCR, even if
under the so called ‘targeted’ form of a ‘transparency system’ envisaged in
the July 2014 White Paper (through which parties would be required, under
reformed merger control rules, to produce a limited information notice on
some acquisitions of non-controlling shareholdings provided these would
give rise to a “competitively significant link”).31
Thus, I acknowledge that at least four types of situations should be
identified, such as, namely:32
29
See the overall depiction of this type of effects of distortion of competition made in my book Joint
Ventures and EU Competition Law, cit., esp p 251 ff.
30
Those situations of acquisition of minority shareholdings, whenever the acquirer possesses a high
degree of market power may as well raise issues of abuse of dominant position, which may be challenged
in the context of the application of article 102.º TFEU. However, these situations are very specific and not
particularly relevant in relation to the similarity I herein seek to emphasize between the analysis of some
types of joint ventures and these cases of acquisition of minority shareholdings which may originate
anticompetitive behavioral coordination. This similarity obviously concerns the application of article101.º
TFEU – and accordingly my very brief foray in the field of minority shareholdings is limited to such
article 101. regime (on the basis of the assumption that certain issues of anticompetitive behavioral
coordination do not exclusively result from joint control situations, usually associated with joint ventures,
but may also be originated by joint shareholdings, regardless of the existence of joint control). Anyhow,
on eventual issues pertaining to the application of article 102.º TFEU related to that type of holdings, see,
in general, Robin Struijlaart, “Minority Share Acquisitions Below the Control Threshold of the EC
Merger Control Regulation: An Economic and Legal Analysis”, cit., pp 173 ff.
31
Again, the limited purview of this paper does not involve as such a comprehensive or even a specific
analysis of the proposals put forwards by the Commission under the July 2014 White Paper. Conversely
my focus here is to address the potential for an effective competition law scrutiny under the substantive
test of article 101.º TFEU regardless of changes of the procedural framework with the necessary
regulatory cost these entail (also considering the substantive approximation or interplay between the
substantive test of article 101.º TFEU and the substantive SIEC test under the MCR, as I have purported
to evidence through the specific analysis of joint ventures in my book Joint Ventures and EU Competition
Law, cit. (esp Chapter 2, points 1.2. and ff)
32
I take into consideration to some extent in this depiction of the most paradigmatic situations, the
characterization set forth by John Temple Lang in International joint ventures under community law, in
Annual Proceedings of the Fordham Corporate Law Institute – International Antitrust Law & Policy –
1999, Editor Barry Hawk, Fordham Corporate Law Institute, 2000, pp. 381 ff, esp. paragraph V. – Joint
15
- (i) Situations in which joint shareholdings with some impact in a given
entity result from an agreement between the undertakings owning those
shareholdings;
- (ii) Situations in which such shareholdings are the result of agreements
established between these undertakings, holding the shareholdings at stake,
or between several undertakings controlled thereby;
- (iii) Joint shareholdings resulting from of an agreement between an
acquirer undertaking and the undertaking which is the object of such partial
acquisition (provided the acquisition does not involve the transfer of
control over that acquired undertaking);
- (iv) Joint shareholdings in a given undertaking, held by two other
undertakings, which did neither result from an agreement between these
entities, nor from an agreement between any of such undertakings and the
targeted undertaking.
As regards the first three aforementioned types of situations, I think that the
application of article 101.º TFEU is, in general, appropriate, with the
possible apprehension of effects of restriction of competition scrutinized in
light of this provision depending upon several factors, related with the
actual conditions of operation of the markets at stake and with the variable
layout of the involved undertakings, in a rather similar manner to that
outlined in the framework of my study of the different functional types of
joint ventures (that may not be qualified as concentrations).33 In this field
of minority shareholdings, however, one particular factor may be of
paramount importance in assessing the occurrence of adverse effects on
competition and their expected intensity. I refer to the existence of
representatives of undertakings holding shareholdings in third companies in
the corporate bodies of these latter entities. Even more noteworthy and
problematic at this level will be the combination of cross-shareholdings
with reciprocal representation in the corporate bodies of the concerned
undertakings.34
ownership and joint dominance – pp 423 ff). However, I do not fully agree with the systematization
proposed by Temple Lang and I depart from some aspects of his analysis concerning the typical
consequences of some of these situations in the context of the application of article 101.º TFEU.
33
See on this, referring to a proposed framework focused on four key functional sub-types of joint
ventures, my book , Joint Ventures and EU Competition Law, cit., esp Chapter 3.
34
Notwithstanding the fact that I am recurrently taking into consideration the concept of undertaking with
the very broad contours that it presents under EU competition law, undertakings using a corporate form
deserve a particular attention. It should be noted that the above mentioned representation may assume a
variety of legal forms. See, in that regard, and providing examples of such diversity, Enzo Moavero
16
2.1.2. - As regards the fourth (aforementioned) type of situations, the
possibility of these cases falling under the regime of article 101.º TFEU has
raised more controversy. Thus, authors such as John Temple Lang sustain
that the absence of an element of agreement between the involved
undertakings would not really be compatible with the application of article
101.º TFEU to those situations (merely acknowledging that, under certain
circumstances, those cases may be subject to article 102.º TFEU).35
However, I do not share this view. While I consider that this type of
situations corresponds, in principle, to legitimate acquisitions of
shareholdings, given the absence of any initial agreement between the
involved undertakings - relevant, as such, for the purposes of application of
article 101.º TFEU - I believe, nonetheless, that the continued holding of
such shareholdings may, under certain conditions, come to originate
restrictions of competition caught under the prohibition set out in that
provision. Such situations of acquisition of significant shareholdings in
certain undertakings, without involving any agreement between the
acquirer and the existing shareholders are more common than one might
suppose. These may result, inter alia, from the acquisition of shareholdings
in securities markets or from the acquisition of control over another
undertaking which, in turn, holds a minority shareholding in the concerned
participated undertaking.36
Some authors also consider certain additional legal qualifications or
characterizations as regards the set of situations of acquisition of minority
interests involving an agreement between the concerned undertakings.
Indeed, authors such as Thompson and Meadowcroft and, more recently,
Moavero Miolanesi and A. Winterstein37, acknowledge that, in some cases,
minority interests in certain undertakings are acquired as an alternative to
agreements with such undertakings that would be prima facie deemed as
restrictive of competition (in other words, such purchasing agreements,
Milanesi and Alexander Winterstein, “Minority shareholdings, interlocking directorships and the EC
competition rules – recent Commission practice”, cit, pp15 ff.
35
See, in fact, in this regard, the cited A. in International joint ventures under community law, cit, 424:
“If joint ownership of one company by two others comes about without any agreement between any two of
them, Article 81 does not apply (…)”.
36
These most blatant situations of joint shareholdings not resulting from agreements between the
involved undertakings are, e.g., mentioned by John Temple Lang, who draws competition law corollaries
there from that I do not entirely subscribe, as aforementioned (see A. cit., International joint ventures
under community law, cit, p 424).
37
See S. Meadowcroft, D. Thompson, Minority share acquisition: the impact upon competition, Office
for official publications of the European Communities, Luxembourg, 1986. See, also, Moavero Milanesi,
A. Winterstein, Minderheitsbeteiligungen und personelle Verflechtungen zwischen Wettberwerben –Zur
Anwendung von Artikel 81 und 82 EG-Vertrag, in Handbuch der Europäischen
Finanzdienstleistungsindustrie, Rolfes, Fisher, Fritz Knapp Verlag, Frankfurt, 2001.
17
under the conditions in which they occur, would have a similar effect to
cooperation agreements, restrictive competition, to be entered into with the
participated entity - “nichtangriffdenken”, in the qualification put forward
by Milanesi and Winterstein).38
As far as I am concerned, I have some reservations to that legal
qualification. In the event elements of cooperative agreement exist between
the parties, they somehow prevail in the assessment of these situations and
the aspects concerning minority interests which may occur, are ancillary
elements in this process of cooperation between undertakings, to be
perceived as a whole. I, therefore, reject in this domain, an analytical logic
comparable to the one that leads to the identification of dissimulated
cartels, construed under an apparent joint venture format and essentially
oriented towards the price-fixing by the participating undertakings. 39
Indeed, in these latter cases there is ab initio a specific process of
cooperation, explicitly undertaken between the participating undertakings,
which can be actually used to serve other collusive non-specified purposes,
of a serious anticompetitive nature. Conversely, in a significant proportion
of cases of acquisition of minority shareholdings in third undertakings,
even in cases that involve somehow an agreement between the involved
undertakings, the parties do not assume, as such, any cooperation process
to be developed beyond the mere acquisition acts in themselves. Such
cooperation may, in particular, be induced by acquiring and keeping those
shareholdings, but in that case, I sustain that the analysis of these situations
should be carried out in order to ascertain possible negative effects of
behavioral coordination between the involved undertakings and should not
be oriented towards the qualification or characterization of such situations
as alternative options to the establishment of ‘stricto sensu’ cooperation
agreements between the parties (“nichtangriffdenken”, as suggested by
Milanesi and Winterstein).
The mere identification of effects of behavioral coordination induced by
keeping certain minority shareholdings will be sufficient to lead to a
competition law scrutiny in the context of the application of article 101.º
TFEU, and any other complementary legal qualifications further
complicate, unnecessarily, the proper analysis of these situations. Thus, I
do not agree either with the analytical perspective of authors such as D.
38
See, in this regard, the cit As., in Minderheitsbeteiligungen und personelle Verflechtungen zwischen
Wettberwerben –Zur Anwendung von Artikel 81 und 82 EG-Vertrag, cit.
39
On these situations of use of the joint venture legal format to establish (dissimulated) cartels, oriented
towards the joint fixing of prices, see again my book Joint Ventures and EU Competition Law, cit., esp
points 4.1.2. ff of its Chapter 3. Also in that book I acknowledged the possible use of purchasing joint
ventures for the formation of buyers’ cartels (see esp , points 5.2.1. ff of its Chapter 3, cit.).
18
Reittman, who claim to identify certain situations in which undertakings
acquire minority interests for the sole purpose of strengthening their market
power.40
This effect of strengthening the market power of the undertakings
concerned may indeed occur, through incentives for coordination, and, in
the event it interferes, beyond a certain degree, in the competition process
in certain markets, it should actually be scrutinized (in the field of article
101.º TFEU and, as such, autonomously from the field of merger control
covered by the MCR). However, the rationale for the scrutiny of these
situations by the competition authorities lies, in my view, in the
identification of such type of predictable effects (and should be focused on
such effects), rather than on a negative assessment intrinsically associated
with a supposed project for strengthening the market power on the part of
undertakings holding joint shareholdings short of joint control.
The potential anticompetitive effect at stake, of reinforcement of market
power interfering with the due functioning of the competition process of
certain markets may, inter alia, occur, as suggested by the analysis of
O’Brien and Salop, through unilateral effects due to the ability to influence
a competitor’s behavior, which, in itself, will vary according to the degree
of influence over the partially owned competitor (since these authors
rightly emphasize the various possible degrees of influence, short of control
‘stricto sensu’, that an undertaking might exercise over its partially owned
competitors and producing, accordingly, different corollaries, to be
properly assessed, as regards its strengthening and correlative excessive
projection or exercise of market power).41
40
On this analytical perspective, see D. Reitman, “Partial ownership arrangements and the potential for
collusion”, in J. Ind. Ec., 1994, pp 313 ff.
41
See on this enhanced perspective of an antitrust theory of harm associated with minority shareholdings,
D. O’Brien, S Salop, “Competitive effects of partial ownership: financial interest and corporate control”,
in ALJ, 2000, pp 559 ff. See also on such perspective, A. Ezrachi, D Gilo, EC “Competition Law and the
Regulation of Passive Investments Among Competitors”, in Oxford Journal of Law Studies, 2006, pp 327
ff.
19
2.2. – Anticompetitive Effects Arising from Minority Shareholdings –
How to Build a Reliable Analytical Grid in this Domain vis a vis the
Option of Expanding the Scope of the MCR Envisaged in the
Commission 2014 Proposals
2.2.1. - In overall terms, I consider that the risks of distortion of
competition associated with these situations of acquisition and holding of
minority shareholdings correspond, to a large extent, to two of the
categories of potential risks that I have identified previous analyses in
relation to joint ventures subject to the regime of article 101.º TFEU.42 I
refer to the risks of collusion concerning prices or quantitative output
levels of goods or services and to risks of anti-competitive coordination at
the level of the quality of those goods or services.
In reality, such situations particularly when rather sizable holdings in third
undertakings are at stake, lead to the emergence of specific and substantive
interests in the results of these undertakings, which, in turn, may induce or
influence either concerted actions or tacit “non-aggression” arrangements
between the involved undertakings, with a view to maximizing the joint
results of the same undertakings.
Moreover, this incentive for the collusion of commercial behaviors or
business “non-aggression” arrangements may be especially enhanced in
situations of cross-shareholdings between competitors, coupled with
reciprocal representation in the management of these undertakings. That
results from the conditions that are hence objectively created for the flow
of commercially sensitive information between these undertakings and for
the inherent reduction of the levels of uncertainty concerning the behavior
of competitors (this relative uncertainty on third party commercial
behavior, it should be noted, constitutes the foundation of the whole
competition process43). The probability of the occurrence of cases of
42
I refer here once more to my comprehensive analysis of joint ventures, especially non full function joint
ventures, covered by article 101.º TFEU, developed in my recent book Joint Ventures and EU
Competition Law, cit., and to the overall analytical framework and corresponding key risks for
competition in connection with such joint ventures depicted in such book. In fact, those joint ventures
seem to bear considerable affinities with minority shareholdings (and in any case more affinities to such
joint ventures than with full mergers covered by the MCR as, in a different sense and in a somewhat
contradictory manner, the July 2014 White Paper proposals seem to imply). See esp Joint Ventures and
EU Competition Law, cit., Chapter 3, point 6.
43
The manner in which this uncertainty may come to materialize, or not, or, conversely, the strategies or
perspectives of anticipation of strategic behaviors of competing undertakings is, as I have highlighted in
my recent analysis of joint ventures (see, again Joint Ventures and EU Competition Law, cit., esp, points
2.3.2. ff, Chapter 3, and several footnotes included therein) at the centre of the new analytical models
20
collusion will also tend to be more intense in cases in which an undertaking
holds minority stakes in more than one competitor, as this broadens the
horizon of converging business interests and creates conditions for an
additional significant decrease of competition between involved
undertakings.
2.2.2. - Although the criteria and models of economic analysis that may
influence the competition law assessment of effects of restriction of
competition arising from the acquisition and holding of minority stakes are
still rather flawed or not duly consolidated44, one may argue that the
combination of cross-shareholdings, with a high level of concentration in
the potentially affected markets,45 as well as the existence of significant
barriers to entry in those markets, creates optimal conditions for the
coordination of behaviors between undertakings (or even for the
‘cartelization’ of such behaviors). 46
In fact, this set of factors significantly contributes to reduce the incentives
of undertakings to depart, for their own benefit, from the converging
business orientations in the context of cartels or of situations of business
cooperation comparable thereto.47 Such a reduction of the incentives to
depart from convergent approaches reinforces, in turn, the viability and
effectiveness of such anti-competitive coordination processes. Conversely,
it is possible to consider as usually permitted situations, therefore not
leading in principle to appreciable effects of restriction of competition,
those in which minority stakes are held in markets with low degrees of
proposed in the context of the so called game theory (somehow overcoming the former theoretical clashes
between structuralist trends and the criticism of the Chicago School thereto).
44
These flaws of economic analysis will be, anyhow, wider in the EU competition law framework than
those in the US antitrust law context. On these shortcomings of economic analysis, albeit smoothened by
developments in economic theory in the latest two decades, see Robin A. Struijlaart, “Minority share
acquisitions below the control threshold of the EC Merger Control Regulation: An economic and legal
analysis”, cit., esp. pp 183 ff. As regards new advances in economic theory in this area, see K. Morasch,
“Strategic alliances as stackelberg cartels – concept and equilibrium, alliance structure”, in International
Journal of Industrial Organization, 2000, 257 ff. and Enrique González-Diaz, Minority Shareholdings and
Creeping Acquisitions: The European Union Approach, in 2001 Competition Law Institute - International
Antitrust Law & Policy, 2012, cited, above. Also referring to recent advances in this domain, see, esp. the
Report commissioned by the OFT, Minority Interests in Competitors, 2010, and the much relevant OECD
Policy Roundtable Concerning Minority Shareholdings, 2008. Conversely, some recent proliferation of
economic analytical models in this domain, strikes me as overly theoretical and unfit to support an
adequately foreseeable legal assessment.
45
In the “Philip Morris” case the CJEU already emphasized that the competition authorities’ scrutiny of
minority shareholding acquisitions should be particularly stringent in markets evidencing a high level of
concentration or an oligopolistic structure.
46
Furthermore, these cross-shareholding situations in markets featuring a high level of concentration and
involving enterprises with significant market power may, also, as briefly pondered above, contribute to
the creation of positions of collective dominance.
47
For a characterization of these mechanisms, termed in Anglo-Saxon doctrine as “incentive to cheat on
cartel agreements”, see, for all, Josepf Brodley, “Joint Ventures and Antitrust Policy”, in Harv L. Rev.,
1982, pp. 1523 ff, esp. pp 1544 ff.
21
concentration, involving undertakings with limited market shares and
originating limited forms of representation in the management bodies of
participated undertakings.
Other relevant factors for the assessment of possible effects of distortion of
competition resulting from this type of minority shareholdings are those
concerning the nature and extent of the rights attached to such
shareholdings.48 Hence, even when not conferring control of the
participated undertakings, such shareholdings may, under certain
circumstances, provide their owners with effective means in order to
oppose to certain major decisions, or an influence that, in proportional
terms, ranks beyond the quantitative dimension of the same shareholdings
(very diverse factors, such as the degree of dissemination of the remaining
share capital of the participated entity or the existence of certain rights that
are contractually enshrined, e.g. in shareholders’ agreements in the case of
corporate undertakings, may be taken into account in this context).
Moreover, the association between these minority shareholdings and any
cooperative agreements between the undertakings involved, even if these
ones have a very limited scope or a very general nature, may also
contribute to render more intense the incentives towards abstaining from
competitive conduct, (which, in turn, may affect the competitive position of
any one of these undertakings inter-connected through those nexus).
These incentives may work twofold in the relationships between participant
and participated undertakings. Indeed, not only the undertaking holding an
appreciable shareholding in a third undertaking may be induced to
coordinate its behavior with the latter, so as to safeguard the value of its
investment – especially if both undertakings hold considerable market
power – but also, the participated undertaking may be induced to avoid a
more aggressive commercial interplay in relation to the participant
undertaking in order to prevent any reactions from the latter that could
significantly affect its activity (e.g. reactions in the sense of increasing the
degree of interference in the activity of the participated undertaking or,
conversely, in the sense of disposing of the shareholding, thus creating
conditions of instability for the activity of the participated undertaking).
48
On this factor and on the preceding factor (dealt with above), enhancing or not, as the case may be, the
possibility of partial acquisitions lessening competition, particularly by giving the acquiring undertaking
the ability to influence the competitive conduct of the target undertaking, see the already mentioned
Section 13 on “Partial Acquisitions” of the new US 2010 Horizontal Merger Guidelines (thus providing
in the context of the US antitrust system a specific hermeneutical guidance in this domain that is still
lacking in terms of the EU competition law system, both as regards Commission Guidelines on merger
control or relevant Guidelines related with the application of article 101.º TFEU).
22
Moreover, in markets evidencing a significant degree of concentration and
a substantial mutual interdependence of the undertakings involved therein,
- as it frequently happens in the financial sector in terms that would
accordingly justify greater attention on the part of Competition Authorities,
particularly in the wake of the recent international financial crisis - the
acquisition of minority shareholdings, even if they apparently are of an
utmost passive nature, may, in itself, trigger a movement towards the
strengthening of this interdependence (with ability to influence, in a dual
sense, the behaviors of both the participating and participated
undertakings).49
Ultimately, however, all relevant factors of assessment herein referred to –
which, desirably, should be gradually consolidated in a systematic and
foreseeable way in the enforcement practice of the Commission and of EU
Member States Competition Authorities - must be properly weighed in the
specific market context concerned. I also acknowledge, in any case, that the
assessment of these situations tends to be subject to a greater degree of
unpredictability than the analysis of the impact of joint ventures on the
competition process.
2.2.3. – Given this relative lack of consolidation of the analytical criteria
oriented towards competition law assessment of effects of restriction of
competition arising from minority shareholdings - although as I tentatively
envisage supra a comprehensive analytical framework for the assessment
of those effects must be gradually delineated - the option of systematically
covering the acquisition of these shareholdings through its submission to
the EU merger control procedure, as currently contemplated for purposes
of reform of the MCR in the wake of the July 2014 White Paper proposals,
is to a large extent debatable.
Conversely, it must be acknowledged that the Commission has somehow
retreated from more far reaching options in terms of possible submission of
the acquisition of minority shareholdings which had been pondered in the
2013 public consultation on changes to merger control rules (while, at the
same time, also putting aside a diverse option, pondered in 2013, that
would not imply regulatory burdens and costs to undertakings, since it
would be based on a “self-assessment system” in which no filing under the
MCR would be required and the Commission would simply be free to open
ex officio investigations about certain acquisitions of minority
shareholdings).
49
See on that type of influence induced by shareholdings of an apparently passive nature, and providing
several relevant examples, David Gilo “The anticompetitive effect of passive investment”, cit., 2 pp ff.
23
The retained normative option in the July 2014 White Paper proposals
involves a variant of the so called “transparency system” that had been
pondered in the 2013 public consultation (through which entities acquiring
minority shareholdings would have to file a short information notice
leading to a subsequent Commission decision on whether or not to
investigate the acquisition at stake). It may be characterized as a ‘targeted’
or ‘selective’ form of the transparency system that would require parties to
submit an information notice under the MCR, but restringing such
mandatory requirement to cases of acquisitions giving rise to a
“competitively significant link”. Relevant transactions would in turn be
deemed to originate a “competitively significant link” under a combination
of three criteria.
These would comprehend a first parameter based on the competitive
relationship between the acquiring entity and the target of the acquisition
(this latter one being either a competitor or an entity active in a market
upstream or downstream from that of the acquirer, while, as pondered in
the preceding section, I tend to consider the first element, acquisition of
competitors, as the decisive one in most cases for ascertaining the
competition law relevance of minority shareholdings).
The second and third criteria involve a combination of a fixed quantitative
parameter and a quantitative reference parameter in interplay with general
and rather indeterminate qualitative parameters. Accordingly, a
“competitively significant link” would also be deemed to occur if, on the
one hand, the acquired shareholding reaches 20 per cent, or, on the other
hand, it is between 5 and 20 per cent but is accompanied by “additional
factors” (which correspond to the qualitative element involved in this
overall pondering), comprehending seats on the board of directors and,
therefore, direct participation in management decisions, de facto blocking
minorities or access to commercially sensitive information of the target
entity.
Under the terms of the Commission proposal, any undertaking wishing to
acquire a minority stake originating a “competitively significant link” as
defined supra, would have to submit a short “information notice”
informing the Commission of the transaction. On the basis of this
mandatory information, the Commission would decide whether further
investigation of the transaction would be needed (while Member States
could also ask for a referral to pursue the case themselves).
In the wake of the submission of an information notice a standstill
obligation would be established. The Commission has been considering for
24
that purpose a waiting period of 15 working days (aligned with the current
deadline under article 9 of the MCR for a Member Stare referral request
following a full notification). In case no investigation would be initiated by
the Commission, nor Member States would request a referral within such
waiting period, then the parties would be free to implement the transaction.
Nevertheless, the Commission would still have room to investigate the case
after the waiting period, and even if the transaction had in the meantime
been implemented, within a 4 to 6 month period after the information
notice, thus preventing undue procedural pressure to initiate investigations
during the waiting period (and avoiding, as such, investigations whose
objective necessity would not be confirmed ex post) and also allowing time
for relevant complaints by relevant stakeholders.
On the whole, it is therefore unquestionable that through the July 2014
White Paper proposals the Commission has endeavored to avoid an
excessive expansion of procedural requirements and the corresponding
administrative burdens of prior notification of acquisition of minority
shareholdings. Nonetheless, the scope of potential systematic control may
still be too wide and, above all, too much prone to legal uncertainty. The
regulatory risks and corresponding drawbacks associated with that level of
legal uncertainty have to do largely with the latitude of the qualitative
criteria used to identify or circumscribe “competitively significant links”.
As I have pondered in the previous section, there is a vast array of
analytical criteria which may be used to identify and assess the chief risks
for competition attached to certain minority shareholdings and a significant
part of these criteria are not univocal and require taking into consideration
different market contexts (in which the so called ‘additional factors’
identified by the Commission to ascertain competitive links potentially
adverse for competition may be valued differently). Furthermore, the
relative lack of consolidation of the relevant analytical criteria in this
domain - highlighted in the previous section - also creates significant
hurdles for an adequate delimitation of cases that are to be subject to ex
ante communication and for a balanced competitive assessment of the
whole range of diverse effects on competition that may arise from such
cases, when communicated to the Commission and, as such, specifically
assessed.
A second related area where legal safety and predictability could be
possibly affected corresponds to the content and latitude of the disclosure
requirements involved in the production of the “short information notice”
in the cases that supposedly would generate competitively significant links.
Particularly sensitive would be the level and extent of the requirements
25
concerning “some limited market share information” that the parties would
have to produce under the envisaged system. In fact, there seems to be an
inherent and unavoidable contradiction in the idea of, on the one hand,
providing information at a very limited and low-key level and of, on the
other hand, conveying some sort of references about market share of the
involved parties (as these references are not conceivable if sustainable and
credible at all without some exercise of market definition with all the
analytical hurdles it carries with it).
Considerations of legal safety and predictability, that are of the essence of
the business practices involved in these kinds of transactions, also raise
concerns as far as the timeframe for opening an investigation is concerned.
In fact, if the Commission would use the maximum period of 4 to 6 months
to decide on opening an investigation after the submission of the
information notice, the rather contradictory consequence arising from it
would be that potentially a significant number of acquisitions of minority
shareholdings would be subject to a much higher degree of uncertainty or
unpredictability than many full mergers involving the acquisition of control
(given the known enforcement practice that leads to the approval of a large
number of those transactions in less than 6 months).50
Another contradictory consequence of even a highly restrained ‘targeted’ or
‘selective’ form of ‘transparency system’ for ex ante control of minority
shareholdings – as the one contemplated in the July 2014 White Paper –
would be to establish more demanding requirements for the systematic
scrutiny of those transactions, which do not transfer control, than for the
competition law scrutiny of non full function joint ventures (which, since
they affect the structures and ties of control, are prone to have more impact
on the structures of the undertakings involved).
50
It must be acknowledged that, on the whole, the high level of concerns related with legal uncertainty or
unpredictability attached to the ‘targeted’ or ‘selective’ form of ‘transparency system’ for ex ante control
of minority shareholdings contemplated in the 2014 White Paper Proposals that I am taking into
consideration here has been viewed in a widely different manner in many comments of this prospective
reform of the EU merger rules, See, e.g. for a more favourable view to the envisaged changes to the MCR
oriented towards the extension of its scope of application to minority (non-controlling shareholdings)
without other substantive major changes to the MCR, Catalin Stefan Rusu, “(Non-Controlling) Minority
Shareholdings as Self-Standing Transactions under EU Merger Control Analysis – Prospective
Solutions”, in World Competition, 37 (4), 2014, pp 485 ff; Alec Burnside, “Minority Sahreholdings: An
Overview of EU and National Case Law”, in e-Competitions, N.º 56676. Conversely, see for more critical
views, although voiced from many different angles and different emphasis, e.g., Porter Elliott, Johan Van
Acker, “A Critical Review of the European Commission’s Proposal to Subject Acquisitions of NonControlling Minority Stakes to EU Merger Control”, in ECLR, 36, Issue 3, pp 97 ff; Kadir Bas,
“Reforming the Treatment of Minority Shareholdings in the EU: Making the Problem Worse Instead of
Better?”, in World Competition, 38 (1), 2015, pp 77 ff.
26
Such normative contradiction or distortion would be even greater in
connection to some sub-categories of non full function joint ventures that
have a more lasting impact in the degree of integration of parent
undertakings and of their key business assets, as it happens, e.g., with many
production joint ventures (and it has to be remembered that the option of
submitting these sub-categories of joint ventures to the MCR has been
pondered in the not too distant past, but never retained ‘de iure condito’ as
an option for the reform of the MCR).51
On the whole, regardless of an ultimate option of either adopting a
‘targeted’ or ‘selective’ form of ‘transparency system’ applicable to
minority shareholdings under a reformed MCR or retaining a system of
competition law scrutiny of these cases essentially based on the article 101
TFEU regime under a more proactive enforcement of such regime to these
situations, particularly in some economic sectors (as in the financial sector
and especially if minority shareholdings appear combined with interlocking
directorships in the various related undertakings) what seems to me
fundamental is to consolidate some analytical guidance in this domain.
For that purpose, I consider of paramount importance the adoption of a
proper set of Guidelines by the Commission in this domain in order to start
building a reference analytical framework around the lines discussed supra,
in 2.2.1. and 2.2.2. (either supporting a more vigorous and target oriented
enforcement of article 101.º TFEU in connection with minority
shareholdings and building largely on analytical parameters relevant for
joint venture analysis, or supporting a reformed MCR that would cover
some cases of minority shareholdings).
2.3. – The Desirability of Flexible Solutions for Dealing with Minority
Shareholdings
2.3.1. - As mentioned above, infra, 2.2.1., 2.2.2. and also the preceding
sections, and likewise sustained in the context of the assessment of joint
ventures, some of the potential issues of distortion of competition inherent
to these types of situations of acquisition of minority shareholdings should
51
See on this Luís Silva Morais, Joint Ventures and EU Competition Law, cit., esp point 4.4. and ff,
Chapter 1.
27
be handled with as much flexibility as possible and, for that purpose, could
be satisfactorily addressed through commitments from the undertakings
involved.52
Among other commitments addressed in decisions adopted under
notification procedures ex vi article 101.º TFEU or within the MCR,53 one
may consider, e.g., engagements to refrain from acquiring additional or
supplementary shareholdings, to refrain from seeking representation on
boards of directors of participated undertakings or even to prevent the flow
of commercially sensitive information by limiting the scope of action and
the information available to non-executive directors. Particularly
noteworthy on this last type of situations were the arrangements accepted in
the Commission’s “Olivetti/Digital” decision, dated 1994. One of the
concerned undertakings was represented in the other undertaking’s Board
of Directors; however, the executive powers material for the management
of the undertaking had already been delegated in the Chairman of the
Board of Directors.
This decision strikes me as especially significant for it was already adopted
under the MCR, with the Commission clearly acknowledging an
interpretation of the “Philip Morris” case law allowing the application of
article 101.º TFEU to situations of acquisition of shareholdings which
would not involve crossing the thresholds concerning a transfer of control,
relevant for the purposes of application of the MCR.54 Equally important is
the precedent corresponding to the “Warner-Lambert/Gillette” decision.
However, in this case, the issues of distortion of competition addressed by
the Commission mainly focused upon the application of article 102.º TFEU
(which are not the focus of the analysis in this paper).55
In some cases, characterized by a particular sensitivity of the flow of
certain business information – maxime, it should be reiterated in the
52
It should be borne in mind that, in relation to joint ventures I sustain, precisely, that the Commission
should adopt a more creative and flexible approach, in order to ponder certain commitments oriented
towards avoiding issues of distortion of competition in the context of the application of par 1 of article
101.º TFEU and without further intervening through the granting of exemptions (in line with what
happens in the enforcement practice of assessment of joint ventures by federal US competition
authorities). Moreover, the new EC Regulation N.º 1/2003, in terms that have been highlighted above,
strengthened the normative support for the adoption of regulatory decisions that accept and make duly
binding such type of commitments.
53
I refer herein, to the decisions adopted in the context of notification procedures under then article 85
EEC and article 81 EC (whilst Regulation No. 17/62 was in force), or under the MCR, concerning
situations in which, incidentally, the problems arising from shareholdings detained by firms involved in
cooperation agreements or by companies participating in concentrations have been brought up for
discussion.
54
See the Commission decision “Olivetti/Digital” decision, dated 1994 (IV/43.410; OJ N.º L 309/24,
1994).
55
See the “Warner-Lambert/Gillette” decision, OJ N.º L 116/21, 1993.
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financial sector - such commitments may even involve the termination of
situations of representation in the management bodies of third competitor
undertakings. One may consider in this regard, inter alia, as paradigmatic
cases – not by chance concerning the financial sector – the ones
concerning the Commission decisions “Generali/INA”, dated 2000, and
“Nordbanken/Postgirot”, dated 2001.56
3. – Concluding Remarks
On the whole, given the nature and contours of the complex web of
minority shareholdings that characterize these days the functioning of vital
economic sectors – such as the financial sector, with the high degree of
interdependence between its operators, or digital and electronic
communications markets, relying on networks of innovation that may be
supported in not too publicized minority shareholdings held in various
innovative undertakings in niche areas – an effective competition law
scrutiny of these situations is essential. Beside effectiveness of this antitrust
scrutiny, a flexible approach should be privileged in this domain,
regardless of the procedural framework ultimately chosen to deal with
these situations (either a more proactive enforcement of article 101.º TFEU
in this domain or a tailored reform of the MCR under the lines
contemplated in the Commission July 2014 White Paper, possibly with an
appreciable fine-tuning to enhance flexibility of such control).
Furthermore, at the current crossroad a proper consolidation of the overall
analytical framework in this domain, developing the parameters I put
forward infra, 2.2.1., 2.2.2. and others – that will stimulate a more active
stance on the part of affected third parties, thus contributing to reduce the
substantive enforcement gap on minority shareholdings – will also depend
significantly on the issuing of Guidelines by the Commission for the
treatment of those situations (a much needed development in either
scenario, of reform of the MCR or of a more active enforcement of article
101.º TFEU in this field).
56
I refer here to the aforementioned Commission decisions “Generali/INA”, dated 2000, and
“Nordbanken/Postgirot”, dated 2001, on concentration cases, respectively, COMP/M. 1712 and M.2567.
29