THE DEBATE OVER MINORITY SHAREHOLDINGS REVISITED: THE NEED FOR A BETTER HARMONIZATION WITH CORPORATE LAW
José Baño Fos
Adjunct Professor IE University1
SUMARIO: 1. INTRODUCTION 2. THE COMMISSION’S POWERS ON THE REVIEW OF THE ACQUISITON MINORITY SHAREHOLDINGS UNDER THE EUMR 3. THE RYANAIR / AER LINGUS LITIGATION AND THE ALLEGED ENFORCEMENT GAP 4. RYANAIR, TETRA LAVAL AND SCHNEIDER: THREE SIMILAR SCENARIOS AND THREE DIFFERENT OUTCOMES 4.1. Schneider 4.2. Tetra Laval 4.3. The Commission’s different approach in Ryanair/Aer Lingus 5. THE MANDATORY BID UNDER THE EUROPEAN TAKEOVER DIRECTIVE AS PROXY TO MONITOR THE ACQUISITION OF MINORITY SHAREHOLDINGS 6. CONCLUSION.
In the aftermath of the General Court’s ruling granting Ryanair the possibility to keep a shareholding below 30% in Aer Lingus (after its failed hostile takeover of the company), an old debate regarding whether the
1José Baño Fos, adjunct professor IE University. The views expressed herein are only those of the author.
European Merger Regulation should grant the European Commission the powers to review acquisitions not amounting to decisive influence has resurrected. In the midst of this debate - fuelled by the European Commission’s tender on the impact of minority shareholdings in the European Union - the following article wishes to bring the attention to the interplay between competition law and national securities laws. This article shows, on the one hand, some of the most relevant decisions on minority shareholdings have been dictated to a large extent by national securities laws considerations and argues, on the other hand, how the European Directive on Takeovers provides already a legislative framework for the European Commission to review minority shareholdings.
The European Commission (the “Commission”) announced on 2011 its invitations to tender for “a study on the importance of minority shareholdings in the EU“ and for “the provision of data for the assessment of the importance of minority shareholdings in the European Union”.2
The tender follows the concerns raised by Commissioner Almunia on March 10, 2011 indicating that “the Merger Regulation does not apply to minority shareholders, whereas some national systems – both in the EU and outside – make room for the review of such acquisitions. I have instructed my services to look into this issue and see whether it is significant enough for us to try and close this gap in EU merger control.”3
The question of whether the Commission should be empowered to assess minority shareholdings that do not provide its acquirer control over the target has been ongoing for the last ten years since the Commission’s Green
2The Commission reports are expected on 2013, at the time of the writing of this paper they had not been published yet.
3Press Release, Joaquín Almunia Vice President of the European Commission responsible for Competition Policy EU merger control has come of age ‘Merger Regulation in the EU after 20 years’, co-presented by the IBA Antitrust Committee and the European Commission Brussels, March 10, 2011, available at
http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/11/166& format=HTML&aged=0&language=EN&guiLanguage=en .
Paper on the Review of Council Regulation (EEC) No 4064/89 where the Commission clearly acknowledged that “transactions involving the acquisition of non-controlling joint or sole minority shareholdings are not covered by the Regulation, and this is regardless of whether the minority stake is acquired by a competitor”.
At the time, the Commission recognized that such transactions may have a structural impact on the market, however, it highlighted the difficulty in sufficiently defining the transactions that would fall under this category for purposes of mandatory ex-ante notification and indicated that those transactions could be in any event assessed ex post under Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”).
Moreover, the Commission further highlighted that “it appears that only a limited number of such transactions would be liable to raise competition concerns that could not be satisfactorily addressed under Articles 81 and 82 EC [101 and 102 TFEU]. Under this assumption it would appear disproportionate to subject all acquisitions of minority shareholdings to the ex ante control of the Merger Regulation.”
As it is well known, the regained interest in minority shareholdings in the European Union is the direct result of the Ryanair / Aer Lingus decision where the Commission prohibited the acquisition of control of Ryanair over Aer Lingus on competition grounds although it declared itself incapable of ordering Ryanair to divest its initial acquisition of less than 30% of the share capital of Aer Lingus.
This decision, litigated and confirmed by the European Courts, has led to significant amount of controversy and fuelled an interesting debate as to the Commission’s powers in the assessment of the acquisitions of minority shareholdings and the need for reform.
Over the last years, the debate over minority shareholdings has focused on the study of the anticompetitive effects that might arise out of the acquisition of minority shareholdings and the different approach taken by the competition authorities in the United States, the United Kingdom and
Germany vis-à-vis the European Union.4
The following article analyzes this debate from the corporate law perspective and more specifically under the lens of the European Directive on Takeovers. An approach we believe has been underestimated to some extent. This article shows the interaction that exists between competition and corporate law in the field of minority shareholdings; demonstrates how the alleged enforcement gap is de facto abridged by the mandatory bid rule of the European takeover directive; and advocates for a threshold for mandatory ex ante notification, if any, consistent with Member States corporate regulations.
The article is structured as follows. Section II describes the general legal framework of the Commission’s powers over minority shareholdings under the European Union Merger Regulation (“EUMR”).5 Section III provides an overview of the Ryanair/Aer Lingus litigation to explain with
4REYNOLDS, R. AND SNAPP, B., The Competitive Effects of Partial Equity Interests and Joint Ventures, International Journal of Industrial Organization 4 (1986) 141 – 153. O’BRIEN D. AND SALOP S., Competitive Effects on Partial Ownership: Financial Interest and Corporate Control, Antitrust Journal 67 (2000) 559-614. EZRACHI A. AND GILO D., EC Competition Law and the Regulation of Passive Investments Among Competitors, Oxford Journal of Legal Studies, Vol. 26, No.2 (2006), 327-349. DUBROW, J, Challenging the economic incentives analysis of competitive effects in acquisitions of passive minority equity interests, 69 Antitrust
L.J. 113 (2001). For a response, see SALOP S., AND O’BRIEN D., Competitive Effects on Partial Ownership: Financial Interest and Corporate Control: Reply, 69 Antitrust
L.J. 611 (2001). BARTHELMESS, S. Minority Shareholdings in Competing Companies: Lessons from Germany? Baudenbacher (ed.), Current Developments in European and International Competition Law, 18th St Gallen International Competition Law Forum, ICF 2011. GONZÁLEZ-DÍAZ, F.E., Minority Shareholdings and Creeping Acquisitions: the European Union Approach, Fordham Competition Law Institute 2011, chapter 17. For a comprehensive analysis (in Spanish) see ARMENGOL, O. AND PASCUAL, A. Participaciones Minoritarias y Derecho de la Competencia, Anuario de la Competencia 2004.
5Council Regulation (EEC) No 4064/89 of 21 December 1989, on the control of concentrations between undertakings, replaced by Council Regulation (EC) No 139/2004 of January 2004 on the Control of Concentrations between Undertakings OJ  L24/1.
specific facts the limits of the Commission’s powers on the assessment of minority shareholdings. Section 4 compares the outcomes of the Ryanair/Aer Lingus case with the Tetra Laval and Schneider cases to underline the relevance of takeover regulations on shaping the Commission’s powers of review. Section 5 puts forward our arguments as to the relevance of corporate law on the enforcement of minority shareholdings under competition law. Section 6 concludes.
2. THE COMMISSION’S POWERS ON THE REVIEW OF THE ACQUISITON MINORITY SHAREHOLDINGS UNDER THE EUMR
Minority shareholdings under European Law can, in principle, be assessed under three different legal norms: the EUMR,6 Article 101 and Article 102 TFEU.7This article focuses on the EUMR as it is within this ex ante analysis regime where the enforcement gap has been detected and the decisional practice of the Commission shows that the application of Articles 101 and 102 TFEU, although theoretically possible, has been actually quite limited in practice.8
6Council Regulation (EEC) No 4064/89 of 21 December 1989, on the control of concentrations between undertakings, replaced by Council Regulation (EC) No 139/2004 of January 2004 on the Control of Concentrations between Undertakings OJ  L24/1.
7GONZÁLEZ-DÍAZ, F.E., Minority Shareholdings and Creeping Acquisitions: the European Union Approach, Fordham Competition Law Institute 2011, chapter 17. EZRACHI A. AND GILO D., EC Competition Law and the Regulation of Passive Investments Among Competitors, Oxford Journal of Legal Studies, Vol. 26, No.2 (2006), 327-349. BROOMHALL, D. et al., Remedies for Addressing Minority Shareholding Issues, 6 Competition L. Int’l 39 (2010). STRUJILAART, R., Minority Share Acquisitions Below the Control Threshold of the EC Merger Control Regulation: An Economic and Legal Analysis, 25 World Competition Law and Economic Review 2 (2002) 173 – 204. GONZÁLEZ-DÍAZ...