Faculty of Law

International and European Law

The Commission’s 2014 White Paper – Foreshadowing the

Closing of the Regulatory/Enforcement Gap regarding Non-

Controlling Minority Shareholdings or a Sign of

Overregulation?

Master Thesis

Master’s Programme in European Law

Master’s Specialisation in Business Law

2014/2015

Author: Yavor Markov (s4479955)

Academic supervisor: Dr. Catalin S. Rusu

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Table of Contents

1. Introduction 5 2. Applicable Law 10

2.1. A General Note 10 2.2. The Status Quo prior to ECMR. Application of Arts. 101 and 102 TFEU 10 2.3. The First Merger Regulation 14 2.4. The Merger Control Regulation. Notion of Control 15 2.5. The Ryanair/Aer Lingus Saga 19 2.6. Preliminary Conclusions 21

3. Theories of Harm 23 3.1. General Notes 23 3.2. Horizontal Acquisitions 24

3.2.1. Non-Coordinated (Unilateral) Effects 24 3.2.2. Coordinated Effects 26

3.3. Non-Horizontal (Vertical) Acquisitions 28 3.4. Effects on Potential Entry 31 3.5. Magnitude of Harmful Effects 32 3.6. Preliminary Conclusions 35

4. The White Paper 36 4.1. General Notes 36 4.2. The Targeted Notification System 37 4.3. The Self-Assessment System 38 4.4. The Targeted Transparency System 39 4.5. Comparison of the Three Options 42 4.6. Potential Issues and Proportionality 44

4.6.1. Statistics 45 4.6.2. The Thresholds in the Definition of a Competitively Significant Link 47 4.6.3. The Information Notice’s Content 49 4.6.4. The Procedure’s Length 50 4.6.5. The Waiting Period 51 4.6.6. The Ex Post Dimension of the Targeted Transparency System 52 4.6.7. De Minimis Doctrine on Market Shares and Turnover Thresholds 53

4.7. Preliminary Conclusions 54 5. Conclusion 56 Table of Cases 59 Bibliography 61

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1. INTRODUCTION

In a response to the increased debate on the issue of non-controlling minority

shareholdings, the European Commission (hereinafter, the Commission) published in 2014

the white paper titled ‘Towards More Effective EU Merger Control’ (White Paper).1 The

document deals with proposals for reform envisaged by the Commission to close the

regulatory/enforcement gap manifested by the Ryanair/Aer Lingus saga,2 among other

things. By and large, a new system for the control of acquisitions of such shareholdings on a

European Union (the Union, EU) level is suggested, namely the so-called Targeted

Transparency System. It is supposed to bring about substantial changes in the currently

existing system set out in Regulation 139/20043 (the Merger Control Regulation, EUMR).

The publication of the White Paper enhanced the discussion in question among jurists and

economists across the Union. It had also been the subject of attention before,4 including in

the 2001 Green Paper5 where the Commission came to the seemingly firm conclusion that

“only a limited number of such transactions would be liable to raise competition concerns that

could not be satisfactorily addressed under Articles [101] and [102 of the Treaty on the

Functioning of the European Union (TFEU)].6 Under this assumption it would appear

disproportionate to subject all acquisitions of minority shareholdings to the ex ante control of

the Merger [Control] Regulation.”7 Eventually, this proposition was discarded, albeit not

abruptly. In a speech delivered on 10 March 2011,8 the then Commissioner for Competition

and Commission Vice-President Mr Joaquín Almunia stated that EUMR did not apply to

minority shareholdings and that he believed there was an “enforcement gap” which was to

be closed provided it was “significant enough.” To that end, the Commission issued that

same year a tender purposed to determine the “mapping” of (i) the current stock of minority

shareholdings across the EU […] and (ii) the links created by minority shareholdings

1 White Paper: Towards More Effective EU Merger Control, COM (2014) 449 final. It is accompanied by the following documents: Impact Assessment, SWD (2014) 217 final (Impact Assessment), Executive Summary of the Impact Assessment, SWD (2014) 218 final (Executive Summary) and Commission Staff Working Document, SWD (2014) 221 final (2014 Staff Working Document). 2 The saga comprises the legal proceedings emanating from case COMP/M.4439 - Ryanair/Aer Lingus I, Commission decision of 27 June 2007, OJ C 47, 20.2.2008, p. 9, case T-342/07, Ryanair v. Commission, [2010] ECR II-03457 (ECLI:EU:T:2010:280), case T-411/07, Aer Lingus v. Commission, [2010] ECR II-03691 (ECLI:EU:T:2010:281) (Aer Lingus), case COMP/M.5434 - Ryanair/Aer Lingus II, withdrawn 23.1.2009, and case COMP/M.6663 - Ryanair/Aer Lingus III, Commission decision of 27 February 2013, OJ C 216, 30.7.2013, p. 22. 3 Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ L 24, 29.1.2004, p. 1. 4 See Hawk and Huser (1993), Struijlaart (2002). 5 Green Paper on the Review of Council Regulation (EEC) No 4064/89, COM (2001) 745 final (Green Paper). 6 Then: arts. 81 and 82 of the Treaty establishing the European Community. 7 Green Paper, para. 109. 8 ‘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, 10 March 2011, SPEECH/11/166. Available at http://europa.eu/rapid/press-release_SPEECH-11-166_en.htm (retrieved on 22 February 2015).

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transactions across the EU over the last five years”9 in order to detect potential anti-

competitive effects caused by the gap.10

Some authors11 express their skepticism towards the magnitude of harm caused by non-

controlling minority shareholdings and the purported width of the debated

regulatory/enforcement gap and hence the necessity for its closing as well. Like other

proposals for legislative amendments, the proportionality of the regulation suggested by

the White Paper with the existing merger control regime was put to question as well. Stress

has been consistently placed on the administrative burden on businesses and on the

Commission’s workload with the inevitable consequences for the Union’s attractiveness for

investments and the actual efficiency of the proposed control, to name a few.

These are the questions which the present thesis shall address and analyse by relying on

the method of analytical-descriptive research. Are the changes proposed by the White

Paper consistent with the heralded intention of preventing non-controlling minority

shareholdings from “flying under the radar” of EUMR? If yes, to what extent? Are these

changes a sign of regulation above the limit healthy for a free market economy?

Accusations of unnecessary bureaucracy and overregulation seem to have been a constant

companion of the process of European integration and especially nowadays, given the

considerable percentage of Eurosceptic parties represented in the European Parliament,12

the matter takes on an additional political significance.

In order to give answers to the above questions, this contribution shall first provide some

historical context by examining the development of the merger control regime in the

European Union. At the outset, I discuss how the Commission coped with the challenge of

minority interests between competitors in the period prior to the adoption of

Regulation 4064/8913 (the First Merger Regulation, ECMR) and its entrance into force in

1990. Back then, the Commission resorted to the use of articles 101 and 102 TFEU.14 This

approach was reflected in the doctrine developed by the Court of Justice of the European

9 See Specifications to invitation to tender COMP/2011/016. Available at http://ec.europa.eu/competition/calls/2011_016_tender_specifications_en.pdf (retrieved on 22 February 2015). 10 Demir (2013), pp. 2-3. 11 For example, Ignjatovic and Ridyard (2012), Friend (2012), Tóth (2012), Levy (2014). 12 At the 2014 elections, the famously Eurosceptic political group “Europe of Freedom and Direct Democracy” won 47 seats and the short lived “Identity, Tradition, Sovereignty” had 23 seats, totaling at around 9%. See http://www.europarl.europa.eu/elections2014-results/en/election-results-2014.html (retrieved on 23 February 2015). 13 Council Regulation 4064/89 of 21 December 1989 on the control of concentration between undertakings, OJ L 395, 30.12.1989, p. 1. Corrected version in OJ L 257, 21.9.1990, p. 13. As last amended by Regulation (EC) No 1310/97 (OJ L 180, 9.7.1997, p. 1). Corrigendum in OJ L 40, 13.2.1998, p. 17. 14 Then: arts. 85 and 86 of the Treaty establishing the European Economic Community (TEEC).

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Communities (CJEC) in the seminal judgment in Philip Morris,15 whose seeds can later be

found in the Gillette16 decision which in turn shall also be reviewed so as to evaluate the

appropriateness of relying on Treaty competition rules in avoiding the potential undesired

effects of acquisitions of minority shareholdings.

Next, for the sake of context, I briefly touch upon the adoption of the First Merger

Regulation in 1989 and its overhaul which led to the adoption of the presently applicable

Merger Control Regulation and the new substantive test laid down therein, the test of

significant impediment to effective competition in the internal market or a substantial part

of it (the SIEC Test).17 Further, I dwell in more detail on the regulatory/enforcement gap

brought to light by the Ryanair/Aer Lingus saga, the reason behind the latest surge in the

debate surrounding minority interests and the White Paper.

Throughout the presentation of the merger control regime, special attention is given to the

notion of “control” owing to its fundamental importance for the concept of “concentration”

and therefore the applicability of EUMR on minority shareholdings falling short of

conferring decisive influence on their acquirer. The question of control is meticulously

analysed in the Consolidated Jurisdictional Notice,18 by reason of which there shall be

considerable reliance on its text.

Chapter 3 deals with the theories of harm attributed to non-controlling minority

shareholdings where economic concepts play a significant role in the legal context of the

present work. The presentation follows the traditional sequence, beginning with the

unilateral and then the coordinated effects in the event of horizontal acquisitions and

concludes with the non-horizontal (vertical) acquisitions, widely considered to be less

harmful. Theories of harm are of paramount importance for the research question at hand.

Some authors19 defy minority shareholdings’ harmful nature by playing down its effects in

every day practice or by presenting it as of a magnitude which is not of a scale to render the

EUMR’s recasting.

The following chapter focuses on the White Paper itself. It provides for a view of the

context within which it was brought about and the document’s structure. Furthermore, an

in-depth analysis of the suggested control systems designed to deal with the current issue

is provided, namely the Targeted Notification System, the Self-Assessment System and the

15 Cases C-142/84, 156/84, British American Tobacco Company and R. J. Reynolds Industries v. Commission, [1987] ECR 04487 (ECLI:EU:C:1987:490). 16 IV/33.440, Warner-Lambert v. Gillette, Commission decision of 10 November 1992, OJ L 116, 12.5.1993, p. 21. 17 Laid down in art. 2 EUMR. 18 Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings, OJ C 95, 16.4.2008, p. 1. 19 See supra note 11.

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Targeted Transparency System,20 the latter being the one actually preferred and promoted

by the Commission. They are also among the main subjects of the 2013 Staff Working

Document21 which paved the way to the publishing of the White Paper. Next, I proceed with

the evaluation of each of the aforementioned systems with an emphasis on their

proportionality, including the main factors of administrative burden on the business and

the Commission’s workload, among other issues which raise doubts regarding the

proposals’ pertinence. Several hypothetical settings shall be considered in order to gauge

the expected impact of the different systems.

Chapter 5 provides the conclusion at which the author has arrived. It is reiterated that the

legislative intervention proposed by the White Paper is relatively undisruptive and could

introduce a merger regime more apt to detecting potentially problematic transactions of

non-controlling minority shareholdings without unjustified or excessive consequences for

the institutions or the private sector. There remains however considerable room for

improvement to be taken into consideration.

The present contribution is centered around the debate on non-controlling minority

shareholdings. It does not deal with the other topics considered in the White Paper,

namely: (i) the proposal for optimizing the case referral system between the Commission

and the national competition authorities (NCA’s);22 (ii) the proposal that the creation of a

full-function joint venture located and operating totally outside the European Economic

Area (EEA) without any impact on markets within the EEA be taken out of the scope of the

Merger Control Regulation; and (iii) exemption from notification for certain categories of

transactions, currently dealt with under the simplified procedure, that normally do not

raise any competition concerns, on account of the lack of any horizontal or vertical

relationships between the merging undertakings.23

In addition, the subject matter of this paper does not encompass the other subcategories of

interests in competitors: interlocking directorates, loans to competitors and contracts for

differences.24 Interlocking directorates are defined in the Organisation for Economic Co-

operation and Development’s 2008 Report (OECD Report)25 as referring to situations in

which one or more companies have in common one or more members of their respective

boards.26 Despite partly overlapping with this thesis’ topic in relation to some of the

20 White Paper, paras. 42-58. 21 Commission Staff Working Document. Towards more effective EU merger control, SWD (2013) 239 final, part 1/3. 22 Ibid., paras. 59-75. 23 Ibid., para. 77. 24 Contracts for differences are derivatives on other firms’ equity or debt value: Annex I to Commission Staff Working Document: Towards more effective EU merger control, SWD (2013) 239 final, part 2/3: Economic Literature on Non-Controlling Minority Shareholdings (“Structural Links”) (Annex I), p. 6, footnote 14. 25 OECD Roundtable Discussions, Minority Shareholdings, 2008, DAF/COMP(2008)30. 26 Ibid., p. 24.

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harmful effects attributed to minority shareholdings, such as facilitating exchanges of

information,27 interlocking directorates remain outside of this work’s scope.

Furthermore, this contribution does not dwell on the respective remedies for non-

controlling minority shareholdings’ anti-competitive effects provided for by Member

States’ domestic legislation, be they of competition or corporate character.

Notwithstanding that, incidental references shall be drawn at the relevant places for the

sake of clarifying the research question at hand.

27 Ibid., p. 25.

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2. APPLICABLE LAW

2.1. A General Note

Before I proceed any further, it is indispensable to the understanding of the present subject

matter that the notion of non-controlling minority shareholdings be clarified. The OECD

Report suggests the following definition: “A minority shareholding exists when a shareholder

holds less than 50% of the voting rights or equity rights in a target firm.”28 Suffice it to say for

now, non-controlling minority shareholdings are those shareholdings between competitors

(or firms on different levels of the supply chain) which amount to less than 50% of the

voting or equity rights in the target and do not concurrently confer control on their

acquirer29 as per art. 3 EUMR. The 2013 Staff Working Document uses the term “structural

links” which, as discussed later in Chapter 4, in the White Paper together with the

documents supporting it, evolves into “competitively significant links.” These documents do

not lay down a definition per se, but rather embark on a legal and economic analysis of

their effects on competition.

As already articulated, the notion of control is also crucial for the understanding of the

problematic at hand. It is therefore further clarified later in this chapter in the part

dedicated to the Merger Control Regulation.

2.2. The Status Quo prior to ECMR. Application of Arts. 101 and 102 TFEU

Before the entry into force of ECMR on 21 September 1990, EU-wide merger control rules

did not exist. As Jones and Sufrin explain,30 TEEC did not contain any specific provisions,

unlike the Treaty establishing the European Coal and Steel Community (ECSC Treaty). One

explanation could be that the former was a traité-cadre, whilst the latter – a traité-loi. It

could also be that it was easier to agree on rules affecting specific industries rather than all

firms in general. Furthermore, in the long shadow of the recent Second World War, the

ECSC Treaty was considered to be politically more important and hence the greater

emphasis on merger control. After all, its purpose was to bind the coal and steel industries

of France and West Germany in such a way as to prevent any future military conflicts

between them. It is easy to understand why control on mergers would be pivotal to that

end. The Commission indicated the necessity of adopting EU merger control rules as early

as 1966, however any legislative proposals would be blocked by the lack of consensus in

28 OECD Report, p. 10. 29 Art. 3 EUMR expressly differentiates between an acquirer which is a natural person and an undertaking. For ease of reference though, in this regard I only use the term “undertaking” as encompassing both natural persons and legal entities as per case C-41/90, Höfner and Elser v. Macrotron, [1991] ECR I-01979 (ECLI:EU:C:1991:161), para. 21. 30 Jones and Sufrin (2014), p. 1134.

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the Council. Until such proposals were agreed upon in the 1980’s, the Commission had to

resort to the use of arts. 101 and 102 TFEU.31

At the outset, it should be noted that these articles are aimed at regulating the behaviour of

market players rather than structural lasting changes on the market.32 Still, the CJEC found

in Philip Morris33 that art. 101 TFEU applied to minority shareholdings in a competitor if

they “may […] serve as an instrument for influencing the commercial conduct of the

companies in question so as to restrict or distort competition on the market.”34 The Court laid

down the influence test which consisted of four alternative conditions: (i) the shareholding

results in legal or de facto control; (ii) the agreement gives the acquiring firm the

possibility of reinforcing its position at a later time and thereby eventually taking effective

control; (iii) the agreement provides for or creates a structure likely to be used for

commercial cooperation between the parties; or (iv) the minority shareholding requires

the firms to take into consideration each other’s interests when determining the

commercial policy.35

In para. 65 of its judgment, the Court also considered succinctly the possible application of

art. 102 TFEU. It acknowledged that an acquisition of a minority interest in a competitor

can constitute an abuse36 of a dominant position37 and therefore could fall within the

article’s ambit, but only if said shareholding “results in effective control of the other company

or at least in some influence on its commercial policy.”38 The Court had once considered this

possibility earlier, in the Continental Can39 case. In para. 26 thereof, it held that an abuse

occurs “if an undertaking in a dominant position strengthens such a position in such a way

that the degree of dominance reached substantially fetters competition.”40

The Philip Morris doctrine is reflected in recital 24 of Gillette41 where the “some influence”

test is repeated almost verbatim. In its decision, the Commission argued that “Gillette has

not only become a major shareholder in Eemland [(owner of Gillette’s main competitor

Wilkinson)], but has also become its largest creditor and has acquired important pre-emption

and conversion rights and options.” In Philip Morris the Court had set out a “safe harbour”

31 Ibid., pp. 1134-1135. 32 2014 Staff Working Document, para. 63. 33 See supra note 15. 34 Philip Morris, para. 37. 35 Hawk and Huser (1993), p. 299. 36 For a definition, see case C-85/76, Hoffmann-La Roche & Co. AG v. Commission, [1979] ECR-00461 (ECLI:EU:C:1979:36), para. 91. 37 For a definition, see case C-27/76, United Brands Company and United Brands Continentaal BV v. Commission, [1978] ECR-00207 (ECLI:EU:C:1978:22), para. 65. 38 Hawk and Huser (1993), pp. 299-300. 39 C-6/72, Europemballage Corp and Continental Can Co Inc v. Commission, [1973] ECR-00215 (ECLI:EU:C:1973:22). 40 Jones and Sufrin (2014), p. 1135. 41 See supra note 16.

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for acquisitions below 25% (the one at stake was 24.9%), even if the shareholding included

rights of first refusal or similar preemption rights over other shareholders’ interests and a

substantial holding of the acquired entity’s outstanding debt. However, the “safe harbour”

was not that straightforward since the “some influence” standard would still be triggered if

the following requirements were not satisfied: (i) the acquirer obtained no special control

(e.g. veto) rights over the target’s commercial or competitive activities, beyond those rights

provided to minority shareholders under normal corporate governance provisions; (ii) the

acquirer obtained no right to name any members of the target’s board or management;

(iii) the transaction did not involve agreements providing for post-closing cooperation or

coordination of the parties’ competing activities in the EU; and (iv) the parties

implemented Chinese Wall provisions to minimise the risk of information exchanges or

other methods to facilitate collusion.42 In line with the above, despite Gillette’s 22%

minority shareholding in Eemland being below the threshold and despite its causing less

competition concern on the whole, the Commission established infringement of

art. 102 TFEU due to the existence of additional factors enabling Gillette to exercise some

influence over the target, such as its non-voting minority interest and other limited links

with Eemland.43

The Philip Morris and Gillette cases were early predecessors of the future tools designed to

cope with the issues arising out of minority shareholdings. The Commission applied the

“some influence” concept also on cases such as Olivetti/Digital44 and BT/MCI.45 Their seeds

are later visible even in the White Paper which considers a similar concept to deal with the

issue, based on alike (20%) threshold and the presence of additional rights attached to

shareholdings below that level. The use of art. 102 TFEU is however limited because it

applies to (i) dominant undertakings which are (ii) abusing their dominant position.

Therefore, a substantial part of all mergers would remain outside the article’s ambit which

is also admitted in the White Paper,46 the 2014 Staff Working Document47 and the 2013

Staff Working Document.48

Also in the OECD Report,49 the European Commission endorses the possibility to apply the

Treaty articles to passive investments between competitors, involving little or no influence

on the target company. Art. 101 TFEU however does not seem to be suitable either, as it

applies to agreements50 between independent undertakings. It seems artificial to use it on

42 Hawk and Huser (1993), pp. 302-303. 43 Ibid., p.320. 44 IV/34.410, Olivetti/Digital, Commission decision of 11 November 1994, OJ L 309, 2.12.1994, p. 24. 45 IV/34.857, BT/MCI, Commission decision of 27 July 1994, OJ L 223, 27.8.1994, p. 36. 46 White Paper, paras. 39-40. 47 2014 Staff Working Document, paras. 61-65. 48 2013 Staff Working Document, p. 6. 49 OECD Report, pp. 187-188. 50 Agreement is defined as “concurrence of wills” (Joined cases C-2/01 P, C-3/01 P, BAI and Commission v. Bayer, [2004] ECR I-00023 (ECLI:EU:C:2004:2), para. 18).

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hostile takeovers, for example,51 where there is no necessary relationship between the

companies – parties to the share purchase agreement – and the companies between which

competition is distorted.52 In BT/MCI the Commission declared that in principle art. 101

TFEU did not apply to the purchases of shares.53 Also, a public bid would circumvent the

article’s provision as there would be no agreement.54

The White Paper provides for further examples which could escape its ambit, e.g. the

articles of association of a company could hardly fit into art. 101 TFEU’s scope either, as

their purpose in general is to lay down the corporate governance of the undertaking.55

Furthermore, it could be difficult to establish, when a structural link is built up by a series

of acquisitions of shares via the stock exchange, which one of the different purchase

agreements is dealt with under art. 101 TFEU.56 It is extremely difficult to identify a

relevant agreement and even when a share purchase agreement exists, it is competition-

neutral on the surface, rendering it difficult to prove an anti-competitive object or effect.57

Furthermore, share purchase agreements are not necessarily entered into between

“undertakings”. This is so because the mere holding of shares alone would not qualify as an

economic activity58 and therefore it would not be possible to qualify the party as an

undertaking pursuant to Höfner.59 In fact, if the shares are acquired over a stock exchange,

the seller’s identity may not even be established.60

This argument however does not seem to be in line with the Court’s practice in opting for

broad teleological interpretation of the concepts of agreement and concerted practice, such

as in Limburgse Vinyl61 where it stated that the Commission cannot be expected to classify

each infringement precisely for each undertaking and for any given moment. The seminal

ruling in T-Mobile62 also contributes to the lowering of the standard of proof by setting out

that where cartelists remain active on the relevant market, they are presumed to take

account of the information exchanged with their competitors.63

Another significant conceptual feature of arts. 101 and 102 TFEU is that they foresee an ex

post control. It proved to be inefficient with regards to mergers as it was extremely difficult 51 Jones and Sufrin (2014), p. 1136; Rusu (2014), pp. 491-492. 52 Gabrielsen et al. (2011), p. 852. 53 Tóth (2014), p. 616. 54 Ibid., p. 618. 55 White Paper, para. 40. 56 See also Struijlaart (2002), p. 202. 57 European Commission (2014), p. 2. 58 That is “any activity consisting in offering goods and services on a given market” (C-180/98, Pavlov and Others, [2000] I-06451 (ECLI:EU:C:2000:428), para. 75). 59 See supra note 29. 60 Gabrielsen et al. (2011), p. 851. 61 T-305/94, Limburgse Vinyl Maatschappij NV v. Commission, [1999] II-00931 (ECLI:EU:T:1999:80), para. 696. 62 C-8/08, T-Mobile Netherlands BV and others, [2009] I-04529 (ECLI:EU:C:2009:343), paras. 44-53. 63 Rusu (2014), p. 504.

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to dissolve them once already implemented. This consideration eventually contributed to

the introduction of the First Merger Regulation and the ex ante rules therein. Still, as far as

acquisitions of minority shareholdings are concerned, it could be argued that ex post

control does not pose such an unsurmountable obstacle since it is substantially easier to

dispose of the acquired shares64 which is discussed in Chapter 4.

On that note, the 2014 Staff Working Document considered that the Treaty articles

provided for less legal certainty owing to the prior self-assessment which the concerned

companies would have to undertake and the possibility for the Commission to initiate

investigations in the future.65 Conversely, the ex ante merger control provides for more

legal certainty as the Commission is bound by short, legally binding deadlines66 which also

increases the celerity needed for share purchases. Furthermore, it concludes the

proceedings with a decision67 - a legal act amenable to legal review by the General Court.

Still, the consensus among commentators is that, except for their abovementioned

limitations, the Treaty articles can be applied to non-controlling minority shareholdings.68

Levy (2014) goes even further by stating that arts. 101 and 102 TFEU together with EUMR

allow the Commission to review potential anti-competitive effects stemming from “most

(even if not all)” structural links.69 The same view is supported, in a similar wording, in the

Commission’s contribution to the OECD Report.70

2.3. The First Merger Regulation

The first EU merger control rules were introduced with Regulation 4064/89.71 As

mentioned above, it provided for ex ante control and laid down the Dominance Test,

according to which “[a] concentration which creates or strengthens a dominant position as a

result of which effective competition would be significantly impeded […] shall be declared

incompatible with the [internal] market.”72 As the Airtours73 case later showed, this concept

allowed for a considerable regulatory lacuna, particularly with regard to

oligopolistic markets,74 and eventually ECMR was replaced by the currently in force

Regulation 139/2004.

64 2013 Staff Working Document, p. 10. 65 2014 Staff Working Document, para. 64. 66 Ibid., para. 64. 67 Arts. 6 (1) (a) - (b), 8 (1) - (4) EUMR. 68 Jones and Sufrin (2014), p. 1136; Rusu (2014), p. 491; Struijlaart (2002), p. 192. 69 Levy (2014), p. 4. 70 OECD Report, p. 188. 71 See supra note 13. 72 Art. 2 (3) ECMR. 73 T-342/99, Airtours v. Commission, [2002] ECR II-02585 (ECLI:EU:T:2002:146). 74 White Paper, para. 9.

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2.4. The Merger Control Regulation. Notion of Control

Regulation 139/200475 entered into force on 1 May 2004 and introduced an important new

feature – the SIEC Test. The SIEC Test, unlike the Dominance Test, does not rely on the

creation or strengthening of a dominant position to declare a concentration (in)compatible

with the internal market or a substantial part of it. Still, in line with recital 26 thereof, the

provisions of art. 2 (2) and (3) are framed in such a way so as that the case-law developed

under ECMR would retain its significance.76

Further, art. 3 EUMR lays down the definition of concentration. This concept has not

changed since the First Merger Regulation and, as already mentioned, it is intrinsically

intertwined with the notion of control. The key importance of control could not be stressed

more and to this question I now turn.

Recital 20 EUMR accentuates that “the concept of concentration […] cover[s] operations

bringing about a lasting change in the control of the undertakings concerned and therefore in

the structure of the market.” In conjunction therewith, art. 3 (1) EUMR sets out that “[a]

concentration shall be deemed to arise where a change of control on a lasting basis77 results

from: (a) the merger of two or more previously independent undertakings or parts of

undertakings, or (b) the acquisition, […] whether by purchase of securities or assets, by

contract or by any other means, of direct or indirect control of the whole or parts of one or

more other undertakings.” Next, para. 2 defines control as “constituted by rights, contracts or

any other means which […] confer the possibility of exercising decisive influence on an

undertaking, in particular by: (a) ownership or the right to use all or part of the assets of an

undertaking; (b) rights or contracts which confer decisive influence on the composition,

voting or decisions of the organs of an undertaking.”

It follows that the acquisition of shares constitutes a concentration under art. 3 (1) (b)

EUMR, provided that control as per art. 3 (2) EUMR is conferred. Non-controlling minority

shareholdings however do not provide for a change in control because they do not confer

decisive influence78 on their acquirer and therefore are not a concentration under EUMR

and remain outside of its scope. Decisive influence is the ability to control the strategic

commercial behaviour of the undertaking concerned.79 Such a strategic behaviour can take

the form of, inter alia, decisions on the appointment of senior management, determination

75 See supra note 3. 76 White Paper, para. 7. 77 EUMR does not deal with transactions resulting only in a temporary change of control. However, a change of control on a lasting basis is not excluded by the fact that the underlying agreements are entered into for a definite period of time, provided those agreements are renewable (Consolidated Jurisdictional Notice (see supra note 18), para. 28). 78 It is not necessary that the decisive influence is or will be actually exercised. The possibility of exercising it is sufficient, provided that it is effective (ibid., para. 16). 79 Jones and Sufrin (2014), p. 1141.

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of the budget, the business plan or major investments, which I consider later in this

chapter. In order to illustrate what precisely makes a minority share non-controlling, I

refer to the Consolidated Jurisdictional Notice which meticulously examines the notion of

control.80

According to para. 16 thereof, a concentration may occur on a legal or a de facto basis and

take the form of sole or joint control, with the most common means for the acquisition of

control being the purchase of shares, possibly combined with a shareholders’ agreement in

cases of joint control.81

Sole control is acquired if one undertaking alone can exercise decisive influence on the

target undertaking. Sole control can be subdivided into two forms – positive and negative.

Positive sole control is obtained by the solely controlling undertaking if it enjoys the

power to determine the strategic commercial decisions of the target, typically achieved by

the acquisition of a majority of the voting rights.82

Negative sole control is conferred where only one shareholder is able to veto strategic

decisions, but does not possess the power to impose such decisions itself. Thus, the

shareholder has the same level of influence as that usually enjoyed by the individual

shareholders jointly controlling a company, i.e. the power to block the adoption of strategic

decisions. The difference here is that there are no other shareholders enjoying the same

level of influence and the shareholder enjoying negative sole control does not necessarily

have to cooperate with the rest of the shareholders in determining the undertaking’s

strategic behaviour. Since this shareholder can produce a deadlock situation, it acquires

decisive influence.83

Sole control can be obtained on a legal (de jure) or a de facto basis.84 De jure sole control is

normally acquired where the acquirer has a majority of the voting rights in the target

company. In the absence of other elements, an acquisition which does not include a

majority of the voting rights does not normally confer control even if it involves the

acquisition of a majority of the share capital. Where the company statutes require a

supermajority for strategic decisions, the acquisition of a simple majority of the voting

rights may not confer the power to determine strategic decisions, but may be sufficient to

confer a blocking right on the acquirer and therefore negative control.85

Minority shareholdings can also confer sole control where specific rights are attached to

them, such as preferential shares to which special rights are attached enabling the minority

80 Consolidated Jurisdictional Notice, paras. 11-82. 81 Ibid., para. 17. 82 Ibid., para. 54. 83 Ibid., para. 54. 84 Ibid., para. 55. 85 Ibid., para. 56.

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shareholder to determine the strategic commercial behaviour of the target, e.g. the power

to appoint more than half of the members of the supervisory or administrative board. Sole

control can also be exercised by a minority shareholder which has the right to manage the

activities of the company and to determine its business policy on the basis of the

organizational structure (e.g. as a general partner in a limited partnership).86

Negative sole control could arise on a legal basis where the shareholder holds 50% of the

voting rights, whilst the remaining 50% is held by several other shareholders (assuming

this does not lead to positive sole control on a de facto basis), or where it could exercise a

veto right where a supermajority is required for strategic decisions, irrespective of

whether it is a majority or a minority shareholder.87

Sole control can be acquired on a de facto basis as well, where, for example, the

shareholder is highly likely to achieve a majority at the shareholders’ meetings, given the

percentage of its shares and based on the voting pattern from shareholders’ meetings from

previous years. The Commission will carry out a case-by-case assessment resting on

criteria such as whether the remaining shares are widely dispersed, whether other

important shareholders have structural, economic or family links with the large minority

shareholder or whether other shareholders have a strategic or a purely financial interest in

the target company. If under the above criteria, a minority shareholder is likely to have a

stable majority of the votes at the shareholders’ meeting, then that large minority

shareholder is considered to have sole control.88 Furthermore, an agreement which

provides an option to purchase shares in the near future is another possible example of

how de facto control can be conferred.89

Likewise, joint control can also be acquired on a legal or de facto basis. It exists where two

or more shareholders have the possibility of exercising decisive influence over the target

undertaking. In contrast with sole control where the shareholder alone can determine the

strategic decisions, decisive influence in this sense normally means the power to block

actions which determine the strategic commercial behaviour of an undertaking. Joint

control is characterised by the possibility of a deadlock situation resulting from the power

of two or more parent companies to reject proposed strategic decisions. It follows,

therefore, that these shareholders must reach a common understanding in determining the

commercial policy of the joint venture and that they are required to cooperate.90 The

Consolidated Jurisdictional Notice discerns three forms of joint control: where the parent

companies have equal voting rights or rights to appoint an equal number of members to

the decision-making bodies; veto rights and joint exercise of voting rights.

86 Ibid., para. 57. 87 Ibid., para. 58. 88 Ibid., para. 59. 89 Ibid., para. 60. 90 Ibid., para. 62.

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The first form of joint control is self-explanatory, so I consider in more detail straight the

second one, veto rights. Joint control may exist even where there is no equality between

the two parent companies in votes or in representation in decision-making bodies or where

there are more than two parent companies. This is the case where minority shareholders

have additional rights which allow them to veto strategic decisions on the business policy

of the joint venture. They must go beyond the veto rights normally accorded to minority

shareholders in order to protect their financial interests as investors in the joint venture,

such as changes in the statute, an increase or decrease in the capital or liquidation.91

However, veto rights on strategic decisions which provide for decisive influence and

therefore confer joint control typically include decisions on issues such as appointment of

senior management, determination of the budget, the business plan or major

investments.92 Some market-specific veto rights can also confer joint control.93

The third form of joint control is the joint exercise of voting rights. In the absence of

specific veto rights, two or more minority shareholders may obtain joint control if they

have a majority of the voting rights and act together in exercising these voting rights. This

can result on a de jure basis, from a legally binding agreement to this effect (pooling

agreement),94 or it may be established on a de facto basis where common interests between

the shareholders motivate them to exercise their rights in a mutually beneficial way.95

Para. 78 describes another setting where mutual dependency between a majority and a

minority shareholder could exist. This may be the case where, for example, the majority

shareholder is a mere financial investor, whilst economically and financially dependent on

the minority shareholder which possesses the market-specific know-how.

The degree of control (or rather – influence) conferred by a minority shareholding, as well

as its effects on competition and the (limited) scope of the Commission’s jurisdiction in

addressing those effects, were in the center of the heated debate surrounding the

Ryanair/Aer Lingus saga. Upon notification of a concentration, the parties are obliged under

Section 3.5. Form CO96 to indicate any minority shareholding of 10% or more. Then, under

the appraisal proceedings set out in the Merger Control Regulation, these pre-existing non-

controlling minority stakes can be assessed by the Commission accordingly. If found to be

an impediment to effective competition, their divestiture can be ordered under

art. 8 (4) EUMR as long as the concentration has been implemented. This was the setting in

91 Ibid., para. 66. 92 Ibid., paras. 68-71. 93 Ibid., para. 72. 94 Ibid., para. 75. 95 Ibid., paras. 76-77. 96 Annex I to Commission Regulation (EC) No 802/2004 of 21 April 2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings, OJ L 133, 30.4.2004, p. 1, amended with Commission Implementing Regulation (EU) No 1269/2013, OJ L 336, 14.12.2013, p. 1.

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the Tetra Laval/Sidel97 case, for example, where the minority interest held by Tetra Laval

was considered to allow the retention of economic incentives to refrain from competition.

By contrast, in the Ryanair/Aer Lingus proceedings, the minority shares were acquired

before the launched and prohibited controlling bid, which rendered art. 8 (4) EUMR

ineffective, thereby exposing the regulation’s regulatory/enforcement gap.98 The saga

illustrates best this issue and to it I turn my attention now.

2.5. The Ryanair/Aer Lingus Saga99

In a nutshell, the facts on the case are as follows: Ryanair acquired 19.21% of the share

capital of its competitor Aer Lingus between 27 September and 5 October 2006 on financial

markets. On 23 October 2006, eighteen days after its announcement, Ryanair launched a

public bid for the total share capital of Aer Lingus, which was notified to the Commission on

30 October pursuant to EUMR. As of 28 November, Ryanair owned 25.17% of Aer Lingus’

share capital. On 20 December, the Commission decided to initiate Phase II investigation,

thereby causing the public bid to lapse automatically under Irish law. On 27 June 2007, the

Commission adopted a decision under art. 8 (3) EUMR that the proposed merger was

incompatible with the internal market and prohibited it.100 Following the decision, Ryanair

further increased its shareholding to 29.3% by August 2007.

The Commission, in accordance with recital 20 EUMR, considered during the proceedings

the entire operation comprising the acquisition of shares before and during the public bid

period as well as the public bid itself to constitute a single concentration.101 As early as the

preliminary examination procedure and also later, following the decision to initiate

Phase II proceedings, Aer Lingus requested the Commission to treat Ryanair’s shareholding

and its public bid as a single concentration and to require it to dispose of its shareholding

and to take the necessary interim measures in accordance with art. 8 (4) - (5) EUMR.102 By

contrast, in its decision from 11 October 2007103 DG Competition argued it did not possess

the jurisdiction under paras. 4 and 5 since their provisions applied only to implemented

concentrations within the meaning of art. 3 EUMR, whereas the 25.17% were not part of

such, neither did they grant Ryanair de jure or de facto control.104 Owing to the Irish

provision that, upon initiation of Phase II investigation by the Commission, a public bid

lapsed automatically, Ryanair was prevented from acquiring the remaining part of Aer

Lingus’ capital which would have conferred on it control and would have therefore

97 COMP/M.2416 – Tetra Laval/Sidel, Commission decision of 30 January 2002, OJ L 38, 10.2.2004, p. 1. 98 Rusu (2014), pp. 492-493. 99 See supra note 2. 100 Buhart and Lesur (2013), p. 5. 101 Para. 12 of Decision C(2007) 3104, case COMP/M.4439 – Ryanair/Aer Lingus I. 102 Aer Lingus, para. 18. 103 Commission Decision C(2007) 4600, case COMP/M.4439 – Ryanair/Aer Lingus I. 104 Ibid., points 10-11.

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constituted a concentration. As van de Walle de Ghelcke (2011) points out,105 were the

national legislation governing the acquisition different, DG Competition’s decision could

have met Aer Lingus’ demands, as in, for example, Tetra Laval/Sidel where French

corporate law rules allowed for the public bid to be successfully completed. Accordingly,

the Commission had the jurisdiction to request from Tetra Laval to divest its pre-existing

non-controlling minority shareholding. Thus, an inconsistency between national regimes

was unveiled that could lead to rather undesirable potential consequences.

Aer Lingus also supported the view that the remaining share constituted a partial

implementation of the concentration and therefore should be treated as such and fully

dissolved.106 Following the Commission’s decision from 11 October 2007, the airline lodged

an action for failure to act under art. 265 TFEU.107 Subsequently, the General Court upheld

the Commission’s conclusions in its 2010 judgment. The Court’s mainly linguistic analysis

concluded that the term “implemented” in art. 8 (4) - (5) EUMR only encompasses “full

consummation” of the transaction and the Commission could only act had control been

acquired by Ryanair.108

There remained however the contradiction between the Commission’s treatment of the

separate acquisitions of shares and the public bid as a single concentration during the

investigation and the final outcome where the minority shareholding did not have the same

fate as the prohibited (and not implemented) concentration it allegedly formed part of. The

General Court resolved this dilemma in the following manner: it argued that the single

concentration concept only played a role in the examination procedure109 where the

Commission sought rather to prevent situations in which a concentration is implemented

even though it might still be declared incompatible with the internal market.110 The

derogation to the stand-still clause provided for in art. 7 (2) EUMR is applied automatically

so long as the interested parties notify the Commission of the concentration without delay

and do not exercise the voting rights attached to those securities.111 Therefore, when the

Commission requested Ryanair not to exercise its voting rights, whereby it was also

pointed out that those voting rights did not grant Ryanair control of Aer Lingus, it merely

asked Ryanair to avoid putting itself in a situation in which it would be implementing a

concentration liable to give rise to a measure adopted on the basis of art. 8 (4) - (5) EUMR if

105 Van de Walle de Ghelcke (2011), pp. 21-22. 106 Ibid., p. 20. 107 Case Aer Lingus. 108 Van de Walle de Ghelcke (2011), p. 20. 109 “[A]t that stage, [...] the Commission is not concerned with ‘restoring the situation prevailing prior to the implementation of the concentration’ in the event that it were to adopt a decision declaring incompatibility, even where the notified concentration has been implemented. Those concerns arise only once a final decision has been adopted and when it is necessary to draw consequences from that decision after it becomes apparent that the situation at hand is not in accordance with it.” (Aer Lingus, para. 79). 110 Ibid., para. 80. 111 Ibid., para. 82.

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found to be incompatible with the internal market.112 In other words, that concept is only

relevant to safeguard the effectiveness of the Commission’s final decision,113 whereby the

Commission limits the risk of finding itself in a situation in which a decision finding

incompatibility would need to be supplemented by a decision to dissolve in order to put an

end to control acquired even before decision on its effects on competition has been

taken.114 Based on the above, no partial implementation had taken place.115

This outcome contradicts the Court’s approach in Cementbouw116 and is not consistent with

recital 20 EUMR either. Thereunder, a series of transactions in securities within a

reasonably short period of time is equated to a concentration under art. 3 EUMR. The

recital does not imply that this essentially substantive rule is of a rather procedural nature

for the needs of the derogation to the stand-still clause.117 Doubts remain that had the

Court not embarked on such an interpretation, the Commission would have been found

competent to order Ryanair’s minority interest’s dissolution.

2.6. Preliminary Conclusions

To sum up, before the entry in force of the first EU-wide merger rules in 1990, the

Commission used arts. 101 and 102 TFEU to tackle minority shareholdings’ anti-

competitive effects. This was exemplified in the seminal cases Philip Morris and Gillette.

Due to these provisions’ objective limitations though, a number of potentially harmful

transactions remain outside their ambit. Yet, it is considered that they still can be of a

residual use as regards transactions which do not confer control and thereby elude the

presently applicable Merger Control Regulation’s scope.

Furthermore, in this chapter it was shown that under EUMR the Commission has the

jurisdiction to request the dissolution of pre-existing non-controlling minority

shareholdings in the event of a notified and implemented concentration (as in Tetra

Laval/Sidel), but cannot do the same where no control has been conferred. Thus, the (still

on-going before the British competition authorities) Ryanair/Aer Lingus saga possibly

exposed the regulatory/enforcement gap regarding non-controlling minority

shareholdings. An enforcement gap – with respect to some ownerships which, in spite of

manifesting anti-competitive effects, may escape the Commission’s assessment, and a

regulatory gap – EUMR is equipped to only catch transactions conferring control, although

non-controlling acquisitions may raise competitive concerns too.118 It is paramount for the

further analysis at hand to underscore that the gap also pertains to minority shares

112 Ibid., para. 83. 113 Van de Walle de Ghelcke (2011), p. 21. 114 Aer Lingus, para. 83. 115 Ibid., para. 84. 116 C-202/06 P, Cementbouw Handel & Industrie BV v. Commission, [2007] ECR I-12129 (ECLI:EU:C:2007:814). 117 Van de Walle de Ghelcke (2011), p. 21. 118 Rusu (2014), p. 495.

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acquired on a self-standing basis, outside of the setting in the saga where the minority

interest was reviewed in the context of an independent concentration. Throughout the

legal proceedings, Aer Lingus pointed at Ryanair’s shares’ anti-competitive influence on its

commercial behaviour, even though this influence was not decisive within the meaning of

the Merger Control Regulation. What are therefore the concerns raised by such

shareholdings that merit the legislative amendments suggested in the White Paper? In the

following chapter I deal with the harmful effects on competition attributed to non-

controlling minority shareholdings.

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3. THEORIES OF HARM

3.1. General Notes

In paras. 28-38, the White Paper lays down the various ways in which the acquisitions of

non-controlling minority shareholdings can cause anti-competitive concerns, similar to

those attributed to full mergers. Likewise, their harmful effects are exacerbated if the links

are between close competitors with significant shares in markets which are highly

concentrated or entry to which is particularly difficult.119 In general, it is required that the

transactions significantly increase market power,120 i.e. the ability of one or more firms to

profitably increase prices, reduce output, choice or quality of goods and services, diminish

innovation, or otherwise influence parameters of competition.121 Annex I to the 2013 Staff

Working Document provides a more detailed economic analysis of the suggested theories

of harm.

Structural links provide their owners with two types of rights – financial interests (cash-

flow rights) and corporate rights. Financial interests entitle their owners to a proportionate

share of the profits from the undertaking’s commercial activity, whereas corporate rights

grant them the ability to influence the target’s competitive decisions,122 including pricing

and product selection and sale of the company’s assets.123 The two types of rights usually

go hand-in-hand, but can also differ substantially. It is conceivable that even very small

shares can de facto provide their owner with influence on account of the rest of the

shareholders’ dispersion and lack of protection.124 De jure the same can be achieved

through financial interests accompanied by special corporate rights or if the acquirer can

form coalitions with the rest of the shareholders.125

With regard to the degree of influence they provide, non-controlling minority

shareholdings are subdivided into passive (or silent financial interests;126 those having no

influence on the target’s decisions) and active (those having some influence on the target’s

decisions). The OECD Report provides for essentially the same definition, using the words

“a degree of control over the target.”127 Passive structural links represent a mere financial

investment in the activities of the target company,128 such as non-voting stock. They are not

119 Annex I (see supra note 24), para. 44; OECD Report, p. 183. 120 White Paper, para. 28. See also Struijlaart (2002), p. 184. 121 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 031, 05.02.2004, p. 5 (Horizontal Merger Guidelines), para. 8. 122 Annex I, para. 1. 123 Salop and O’Brien (2000), p. 568. 124 Annex I, paras. 26 and 28. See also Spector (2011), pp. 14-15. 125 Annex I, para. 35. 126 According to Spector (2011), p. 15, this expression is sometimes used to describe ownership of a “relatively high share of a company without [exercise] of any control.” 127 OECD Report, p. 9. 128 Ibid., p. 21.

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accompanied by any special corporate rights and consequently cannot influence the

target’s behaviour, but can nevertheless raise anti-competitive concerns by inducing their

owner to increase his prices to the consumers’ detriment.129 Those structural links which

confer some degree of influence are considered to cause competition concerns with greater

likelihood.130

In the White Paper, the Commission follows the pattern previously established with its

guidance documents where it first considers horizontal acquisitions (between actual or

potential competitors on the same relevant market)131 and second, non-horizontal

(vertical) acquisitions (between companies operating at different levels of the supply

chain).132 I stick to the same sequence in the following exposition.

3.2. Horizontal Acquisitions

3.2.1. Non-Coordinated (Unilateral) Effects

Acquiring a minority shareholding in a competitor may lead to non-coordinated anti-

competitive effects in the form of reduced incentives to compete because such a

shareholding may increase the acquirer’s incentive and ability to unilaterally raise prices or

restrict output.133 This would in turn lead to withdrawal of demand to the benefit of its

competitor, the target, resulting in profits increase on its part, but will also result in fall of

the consumer surplus.134 By virtue of its cash-flow rights, the shareholder could then

internalise the positive effects on its rival. For this reason, the higher the share’s

percentage is, the higher the owner’s incentives are to lower its output. Reciprocal

shareholdings (or cross-shareholdings) double the expected drop in the market.135 In such

a setting, both undertakings would have incentives to adopt the unilateral behaviour

described above, resulting in bigger consumer deadweight loss, with its magnitude brought

closer to monopolist levels.

Still, the effects of the internalisation are weaker in comparison to a full-scale merger as the

acquirer only recoups a fraction of its losses from the target’s profits and also because the

price increasing effect can only apply to the acquirer.136

This was the setting in the concentration case Siemens/VA Tech.137 Siemens held a pre-

existing 28% non-controlling minority shareholding in SMS Demag which competed with a

129 Annex I, paras. 30-31. 130 2014 Staff Working Document, para. 52. 131 Horizontal Merger Guidelines, para. 5. 132 Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 265, 18.10.2008, p. 7 (Vertical Merger Guidelines), para. 4. 133 In accordance with the Reynolds-Snapp theorem (Tóth (2014), p. 602). See also OECD Report, p. 25. 134 Annex I, para. 37. 135 OECD Report, pp. 25, 35. 136 Annex I, para. 5. 137 COMP/M.3653 – Siemens/VA Tech, Commission decision of 13 July 2005, OJ L 353, 13.12.2006, p. 19.

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subsidiary of the Austrian engineering group VA Tech. On account of the financial interest

combined with the information and voting rights accompanying Siemens’ share, under

art. 6 (1) (c) EUMR, the Commission concluded that the merger would lead to a reduction of

competition in the metal plant-building market. It was inferred that Siemens would have

privileged access to information on SMS Demag’s participation in related tenders.138 The

merger was eventually cleared with a decision under art. 8 (2) EUMR following

commitments offered, including, inter alia, the disposal of Siemens’ minority interest.

If the structural link is active and confers corporate rights on its acquirer, it is possible that

similar internalisation effect is achieved, whereby the target’s incentives to compete are

reduced. Material influence would allow the share’s owner to act on the target firm’s

strategic decisions so as to induce it to raise its own prices or restrict its own output.139

Thus, the internalisation’s anti-competitive effects would be more serious as the acquirer

would fully benefit from its competitor’s increased prices, but would only suffer a fraction

of its losses, proportionally to its financial participation.140

The minority shareholder is also able to further limit the competitive strategies available to

the target with the result of weakening its competitive force.141 The acquirer could

influence the adoption of special resolutions in general meetings concerning, inter alia, the

approval of significant investments, raising capital, changing the product or geographical

scope of the business, engaging in mergers and acquisitions142 and advertising.143

It can be recalled that this was one of Aer Lingus’ objections against Ryanair’s bid. The

same argument was raised in the Toshiba/Westinghouse144 concentration case. The

Commission considered there existed a possibility Toshiba would use its 24.5% pre-

existing minority interest and respective veto and information rights and representation in

Westinghouse’s competitor Global Nuclear Fuels (GNF) and some of its subsidiaries to

prevent its expansion into the market where the merged entity would be active and

thereby foreclose its future entry. Eventually, following Toshiba’s commitments to give up

its board and management representation in GNF and to waive its veto rights and the rights

to obtain confidential information, the merger was cleared with a decision under

art. 6 (1) (b) EUMR.145

138 White Paper, para. 31; 2014 Staff Working Document, para. 53. 139 Spector (2011), p. 15. 140 Annex I, para. 6. 141 White Paper, para. 30; 2014 Staff Working Document, para. 54. 142 White Paper, para. 32. 143 2014 Staff Working Document, para. 51. 144 COMP/M.4153 – Toshiba/Westinghouse, Commission decision of 19 September 2006, OJ C 10, 16.1.2007, p. 1. 145 White Paper, para. 34; 2014 Staff Working Document, para. 57.

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3.2.2. Coordinated Effects

Minority interests in competitors may further lead to tacit or explicit collusion by

influencing the market participants’ ability and incentive to coordinate so as to achieve

supra-competitive profits,146 especially if, absent coordination, the competition on the

market is intense and the companies can credibly adopt aggressive deterrent strategies.147

According to Spector (2011), collusion can be supported primarily by the increased

possibilities for acquisition of contacts and information exchange which arise out of

structural links so that cartelists can reach a common understanding on the terms of the

coordination.148 Furthermore, the minority interests in their competitors would make them

indirectly suffer from their losses on account of their cash-flow rights.149 This way,

collusion would be further stimulated.

However, the mere existence of links between players on the same market cannot be

conclusive of the likeliness with which coordination would occur. In this regard, the

following three cumulative prerequisites must be fulfilled:150 (i) the market must be

sufficiently transparent so as to allow cartelists to monitor the compliance with the terms

of the coordination and to detect possible deviations therefrom; (ii) the deterrence of such

deviations is enabled through fear of retaliation which is sufficiently severe and credible,151

and (iii) reactions from current or potential competitors or consumers must not jeopardise

the results from the coordination.152 Absent the threat of punishment, participating

undertakings could avoid heavy losses by maintaining prices close to marginal costs and

reduce their output if market prices fall below their costs.153

Structural links thus facilitate the implementation of more aggressive punishment

strategies. The ownership of a minority interest may enhance transparency due to the

privileged insight it offers to its owner into the target company’s commercial activities.154

Passive structural links, and a fortiori also active ones,155 may have access to information

which is unattainable to an independent competitor, e.g. plans to expand, to merge with or

to acquire other firms, to invest, to expand production or to enter or expand into new

146 White Paper, para. 35; 2014 Staff Working Document, para. 58. 147 Annex I, para. 59. 148 Spector (2011), p. 18. 149 Kühn and Rimler (2006), as cited in Annex I, para. 56. 150 OECD Report, p. 29. 151 Annex I, para. 46. 152 Ibid., para. 8. See also case Airtours (see supra note 73), para. 62, case C-413/06 P, Bertelsmann and Sony Corporation of America v. Impala, [2008] ECR I-04951 (ECLI:EU:C:2008:392), para. 123, and Horizontal Merger Guidelines, para. 41. 153 Kühn and Rimler (2006), as cited in Annex I, para. 56. 154 White Paper, para. 35; 2014 Staff Working Document, para. 58. 155 Yet, this inference cannot be backed by economic sources since, as acknowledged in Annex I, p. 12, footnote 39, there is no literature on the coordinated effects stemming from active structural links.

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markets.156 This is particularly so in reciprocal ownership links (cross-shareholdings)

which can lead to strengthening of information exchange157 since both undertakings have

the right of access to the other’s more or less sensitive commercial information.

As mentioned above, transparency allows the cartelists to monitor any deviations from the

collusive scheme and so it may also increase the credibility and severity of any threat of

retaliation.158 Structural links’ importance in this regard is proportional to the degree of

the ability to undertake an aggressive retaliation strategy. One such example could be

engaging in price wars where the potential deviator is forced to incur the losses of the firm

in which it owns shares.159 Thus, incentives to deviate are reduced. Notwithstanding that, if

minority shareholdings could soften competition following the break-down of the collusive

scheme, as shown in Section 3.2.1. on unilateral effects, it could be expected they would

rather increase the incentives for deviation and render collusion more difficult for their

owners.160 It is considered, though, that in practice the collusion-facilitating effect normally

dominates the effect of decreased incentives to collude.161 This is more so in highly

competitive markets absent collusion. If competitors on such a market engage in a collusive

scheme for a longer period of time, this would lead to supply of ever increasingly

homogenous products. 162 This way, following the scheme’s break-down, unilateral

behaviour would not result in as high profits due to the lack of products’ competitive

advantages and as a result incentives for deviation are lowered.

In the absence of transparency though, by virtue of its financial interest, the minority

shareholder could still catch deviations from the collusion’s terms. If the target firm

engages in independent behaviour which results in higher profits, it could be easily

detected by the higher dividends paid off to the shareholders.163

Despite structural links’ generally resulting in similar anti-competitive effects as full

mergers, there is a significant difference between them. While it is considered that a

merger with a maverick company164 would increase the effects of collusion,165 the same

cannot be confirmed in relation to acquisitions of passive minority interests in such a firm,

according to economic theory.166 By contrast, if the minority shareholder is the maverick,

the anti-competitive effects are expected to be more pronounced than in acquisitions by

156 OECD Report, p. 30. 157 Annex I, paras. 9 and 47. 158 White Paper, para. 35; 2014 Staff Working Document, para. 58. 159 Annex I, para. 10. 160 Ibid., paras. 50-51. 161 Gilo et al. (2006), p. 83. 162 Kühn and Rimler (2006), as cited in Annex I, para. 53. 163 Spector (2011), p. 18. 164 A firm which, by virtue of its lower costs or greater quality, has a greater incentive to deviate than its rivals (Ibid., p. 18). 165 Horizontal Merger Guidelines, para. 42. 166 Gilo et al. (2006), p. 88.

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less competitive companies because it signals to the other players on the market that it

would not contend as aggressively.167 The reasons behind this outcome lie in the

maverick’s reduced incentives to compete, considered earlier in the section dedicated to

unilateral effects.

Finally, another scenario for a punishment strategy can be one where the colluding

undertakings are involved in a joint venture, even if it is active on another unrelated

market.168 In the event of deviation, the maverick firm could then be forced to participate in

the losses incurred by the joint venture, a corollary of the other parents’ deliberately

uncooperative behaviour.

Coordinated effects were the source of concern for the Commission in the merger case of

VEBA/VIAG.169 VEBA and VIAG, as well as their competitors RWE and VEW, were German

energy operators. The latter pair also began a merger procedure at the same time, however

their concentration was examined in parallel by the Bundeskartellamt. The two mergers

would have resulted in a duopoly on Germany’s wholesale electricity market. All the

companies concerned possessed pre-existing controlling and non-controlling minority

shareholdings in regional and local electricity suppliers. The complex web of

shareholdings, together with the duopoly’s high market shares and increased market

power, caused considerable concerns to the Commission that they might induce

coordination.170 The merger was cleared with a decision under art. 8 (2) EUMR after

commitments by the parties to dispose of their minority shareholdings.

3.3. Non-Horizontal (Vertical) Acquisitions

Just as non-horizontal mergers are generally less likely to produce anti-competitive effects

than horizontal mergers,171 non-horizontal structural links are also less likely to be more

harmful than horizontal ones. Even though acquisitions of minority stakes generally raise

less concern in comparison to full mergers, some vertical links can still have more

pronounced anti-competitive effects if they confer more influence.172 This could be so

because the acquirer of the minority shareholding only internalises a part, rather than all,

of the target’s losses as a consequence of a foreclosure strategy.173 Conversely, where price

discrimination is not possible on the upstream market, vertical partial integration could

even lead to pro-competitive effects, such as the avoidance of double marginalization.174

Double marginalization has been defined as occurring when both the upstream and

167 OECD Report, pp. 32, 35. 168 Annex I, para. 57. 169 COMP/M.1673 - VEBA/VIAG, Commission decision of 13 June 2000, OJ L 188, 10.7.2001, p. 1. 170 2014 Staff Working Document, para. 58. 171 Vertical Merger Guidelines, para. 11. 172 Annex I, para. 13. 173 White Paper, para. 36; 2014 Staff Working Document, para. 59. 174 Annex I, para. 62.

29

downstream firms have monopoly power and each firm reduces output from the

competitive level to the monopoly level, creating two deadweight losses. Following the

merger, the vertically integrated firm can collect one deadweight loss by setting the

downstream firm's output to the competitive level. 175 However, in line with this

contribution’s subject matter, below I dwell on the three most pronounced anti-

competitive effects of vertical structural links – input foreclosure, customer foreclosure and

distortive effects stemming from information rights. Since it is maintained in Annex I that

there is no literature on coordinated effects of vertical acquisitions and that they are also

believed to play often only a minor role in vertical transactions,176 I do not follow here the

previous subchapter’s structure of observing first unilateral and then coordinated effects.

Unlike where the avoidance of double marginalization is possible, if the supplier can

discriminate among its client base, competitive concerns could arise out of its forward

integration177 with a downstream firm. The input foreclosure being at stake here is less

likely to occur in comparison to full-fledged mergers as the shareholder accrues only a

proportion of the downstream profits. Also, if the structural link is active, input foreclosure

is less likely to be further aggravated.178 This is so because in active links corporate rights

play a more important role than cash-flow rights and therefore the incentive to pursue

foreclosure in search of additional profits from the target does not increase materially, but

rather the level already achieved is maintained.

As long as upstream price discrimination is possible, in the event of a backward

integration179 through an active structural link, the downstream firm could induce the

upstream firm to restrict output to its downstream rivals despite negative implications on

upstream profits. This is made possible through the combination of corporate rights in the

upstream firm (necessary for the ability to foreclose) and cash-flow rights in the

downstream firm (necessary for the incentive to foreclose). 180 The downstream

shareholder bears only a fraction of the cut profits, but fully benefits from its direct

competitors’ losses.181 It is for this reason partial backward integration proves itself to be

even more conducive to input foreclosure than a full merger,182 as reasoned above.

Similarly, the ownership of a passive shareholding in the same setting could also increase

the downstream firm’s ability and incentive to internalise the supplier’s upstream profits

from sales to the acquirer’s downstream competitors and thereby soften the competition

175 Giddy (2009). 176 Annex I, p. 5, footnote 6. 177 When an upstream firm owns shares in a downstream firm (ibid., para. 60). 178 Ibid., para. 63. 179 When a downstream firm owns shares in an upstream firm (ibid., para. 60). 180 Spector (2011), p. 17. 181 Annex I, para. 69. 182 Ibid., paras. 69 and 71.

30

on the relevant downstream market183 through raising its prices184 to the detriment of

consumers. Conversely, where upstream players cannot discriminate between customers,

passive structural links in them are considered unlikely to raise non-horizontal competitive

concerns, but may rather improve coordination along the vertical chain.185 They can also

facilitate the access to information which is discussed later in this subchapter.

Case IPIC/MAN Ferrostaal AG186 dealt with the issue of input foreclosure arising out of

IPIC’s acquisition of MAN Ferrostaal. The latter held a pre-existing 30% shareholding in

Eurotecnica, an undertaking which owned the only existing non-proprietary technology for

melamine production in the world and also a supplier, whereas IPIC controlled AMI, one of

two major melamine producers on a global scale, the other one being DSM. The 30% share

granted MAN Ferrostaal material influence over Eurotecnica’s licensing and engineering

business since, as per its statutes, a number of decisions needed to be taken with

supermajority and provided all shareholders with extensive information rights. The

Commission was concerned that the merger between IPIC and MAN Ferrostaal could result

in the correspondence between Eurotecnica and its clients leak to AMI, which would

subsequently facilitate the foreclosure of AMI’s competitors. Furthermore, concerns over

deterrence of new entries arose. Also, the transparency on the highly concentrated

melamine market would have increased markedly, thereby facilitating coordination

between AMI and its main competitor DSM.187 The merger was eventually cleared with a

decision under art. 6 (1) (b) EUMR following commitments by MAN Ferrostaal to divest its

entire shareholding.

Customer foreclosure is also one of the conceivable anti-competitive effects that could

arise out of vertical acquisitions of non-controlling minority shareholdings, especially in

the event of a forward integration which confers some influence on the acquirer.188 By

selling at higher prices to the downstream target, the supplier would internalise only part

of its losses, but would fully benefit from the increased upstream profits. Thus, partial

integration would actually be more conducive to customer foreclosure than a full

merger.189

Minority shareholdings can be further used for passing of market-sensitive information

between competitors.190 A passive structural link in a forward integration could enable

the upstream shareholder to gain view of the contracts between the target and other

183 Ibid., para. 11. 184 Ibid., para. 68. 185 Ibid., para. 11. 186 COMP/M.5406 – IPIC/MAN Ferrostaal AG, Commission decision of 13 March 2009, OJ C 114, 19.5.2009, p. 8. 187 White Paper, para. 37; 2014 Staff Working Document, para. 60. 188 Annex I, paras. 12 and 74. 189 Ibid., paras. 65 and 71. 190 OECD Report, p. 183.

31

suppliers and sell at profit maximising prices. This way, the incentive to foreclose other

downstream firms is reduced too.191 The information so gathered provides the acquirer

with the more convenient option to adjust its own commercial behaviour so as to better its

performance and fully benefit from it rather than count on its limited cash-flow rights in

the target and incur indirectly part of the losses from the higher supply prices.

Information rights can also be of key importance when the vertically related markets take

the form of tenders and backward integration of passive links is at stake. Shareholders

would possess more information and would know the true value of the sold item, hence

they would not fear overpayment (winner’s curse). In such a setting, the owner of even a

small shareholding in a potential supplier (in the case of a very scarce output) or a

potential customer (in the case of “scarce order”) can gain significant advantage.192 Thus,

bidders with some toehold can bid more aggressively and it becomes more likely that the

partially integrated firm would win the tender, while paying a relatively low mean price.

Such a result however would not be based on the company’s merits and so could lead to

inefficiencies.193

According to Spector (2011),194 if a shareholder possesses cash-flow rights (incentive) in a

potential supplier together with information rights (ability) which can provide it with

necessary information as to the auctioned good’s value, it can offer a higher bid and

internalise the additional profits. If the remaining bidders are aware that the vertically

integrated tenderer has reliable information, they would be induced to submit lower bids.

Therefore, the shareholder’s chances to win the tender go up substantially. It is not

necessary that the winning bid results in higher consumer prices, but it provides the

winner with an advantage not based on its merits and could again result in productive

inefficiencies, as inferred in the preceding paragraph.

3.4. Effects on Potential Entry

Unlike Annex I, the White Paper does not treat the matter of non-controlling minority

shareholdings’ effects on potential entry. Nevertheless, it seems appropriate to briefly

consider this issue.

It is believed that structural links could deter future entry in two ways: by significantly

impeding third party’s access to the target’s equity via acquisition or by rendering the

acquirer’s entry on the market where the target is active less likely.195

191 Annex I, paras. 64 and 75. 192 Spector (2011), p. 17. 193 Annex I, paras. 72-73. 194 Spector (2011), p. 17. 195 OECD Report, pp. 183-184.

32

Additionally, the minority shareholder could also induce the target to not enter the market

where it is already active (this was one of the Commission’s concerns in

Toshiba/Westinghouse, discussed above in Section 3.2.1.).196 Such a decision can be justified

by the fact that the consequent losses would only be partly internalised by the stake holder.

Another possibility is, where horizontal structural links are at stake, that the shareholder

prevents a third party from buying shares in its competitor, especially if that third party

would enhance the target’s competitiveness.197 Otherwise, horizontal structural links

generally soften competition on the market as discussed earlier in this chapter and, absent

high barriers to entry, could facilitate entry and thereby mitigate the anti-competitive

effects of the existing minority shareholdings.198 For that to happen, the new entrant would

need to be a maverick which does not espouse a cartelist behaviour. The lower the barriers

to entry are, the less expensive it is to infiltrate the new market.

In conclusion, the very prospect alone of input or customer foreclosure, also discussed

above, could render market entry less attractive as well.199

3.5. Magnitude of Harmful Effects

In observing the theories of harm arising out of structural links, both the Commission and

the legal and economic literature consistently draw parallels between the acquisitions of

non-controlling minority shareholdings and full-fledged mergers. Whereas it is

acknowledged that harm can be caused in principle, there are substantial discrepancies

between opinions on its real magnitude. The Commission, by conceding that structural

links can also produce efficiencies akin to full-fledged mergers,200 indirectly admits that the

matter of their anti-competitive effects might not be as straightforward as it might first

seem. Indeed, neither the White Paper nor any of the documents accompanying it raise the

question of efficiencies brought about by non-controlling minority shares, but that does not

necessarily entail that counterbalancing effects cannot occur. In that vein, there have been

commentators who diminish the degree of harm caused by them.201 As it is of paramount

importance to the issue of overregulation with which I deal in the next chapter, here I dwell

on the magnitude of minority interests’ anti-competitive effects.

Authors such as Gilo et al. (2006) appreciate non-controlling minority shareholdings’

harmful effects with a degree of reservation. While acknowledging that their anti-

competitive effects are not to be overlooked, they conclude that if a firm’s controller holds a

stake in a rival firm, passive investment by this rival in the controller’s firm warrants a

196 Annex I, para. 77. 197 Ibid., para. 78. 198 Ibid., para. 80. 199 Ibid., paras. 16 and 79. 200 Ibid., paras. 81-82. 201 Among others, Ignjatovic and Ridyard (2012), Barth and Restrepo-Rodríguez (2013), Levy (2014).

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lenient antitrust approach.202 Levy (2014) is of the opinion that non-controlling minority

shareholdings will only rarely raise competition concerns.203 Similarly, Kalbfleisch (2011)

argues that complications are unlikely to arise except when oligopolistic markets with high

barriers to entry are at stake.204 Struijlaart (2002) also notes that many authors are

unwilling to attribute anti-competitive effects to vertical structural links.205

Ignjatovic and Ridyard (2012) go further.206 According to them, with respect to unilateral

effects, the acquirer’s ability to weaken the target as a competitive force would be rather

limited due to the lack of control and hence merely amounts to a “theoretical risk.” The

remaining shareholders would resist its policies as they have interest to keep the

undertaking competitive and profitable. Any such situation would appear contrary to all

notions of good corporate governance which should not allow for a company to be run

against its shareholders’ interests. Therefore, a minority shareholding (absent specific veto

rights) only rarely confers influence over strategic decisions with a substantial impact.207

Moreover, the effect of reduced incentives to compete due to internalisation of the target’s

profits is denied its substantial consequences by other commentators too. Levy (2014)

argues that in practice the minority shareholder’s incentives to compete with the target

firm remain strong as it gains all the profits from its own business, but only a share of the

target company’s profits.208 Likewise, the acquirer of a horizontal interest would suffer

fully from its own losses and gain only a part of the competing target’s profits if it were, for

example, to restrict its own output so as to increase its competitor’s earnings.

As far as coordinated effects are concerned, some authors209 underscore, firstly, the

extremely small number of merger decisions dealing with collusion. Secondly, by reason of

the limited control they provide on the target and the isolated effect on the market as a

whole, structural links are likely to only marginally affect the firms’ incentives and abilities

to engage in coordination rather than be leading players on the market instead. In order for

the minority shareholdings to have a substantial impact on the companies’ abilities to

collude, they need to be either widespread across the whole relevant market or to involve a

maverick firm.210

It is further stressed that the acquirer’s information rights could not do a lot for monitoring

compliance with the collusive scheme. On one hand, this hardly contributes to a greater

202 Gilo et al. (2006), p. 93. 203 Levy (2014), p. 7. 204 Kalbfleisch (2011), p. 41. 205 Struijlaart (2002), p. 183. 206 Ignjatovic and Ridyard (2012), pp. 5-6. 207 Levy (2014), p. 5. 208 Ibid., p. 4. 209 Ignjatovic and Ridyard (2012), p. 6. 210 Ibid., p. 6.

34

transparency of the market as a whole and on the other, the provided information would be

asymmetric in not allowing the target to gather intelligence on the shareholder’s strategic

decisions and would do little for sustaining the coordinated effects unless the target

happens to be an industry maverick.211 In addition, it should be also noted that in practice

the information which is disclosed on shareholders’ meetings would often come to the

general public’s knowledge eventually.212 Last, but not least, usually only the larger

shareholders would actually engage in effective monitoring, while the smaller ones would

only follow their lead, especially if they are dispersed. Unless they form alliances, it is

generally less expensive for minority shareholders to exit the undertaking rather than vote

against the board (“to voice”) and remain actively involved with the target’s strategies.213

Another argument in support of the limited nature of minority shareholdings’ harmful

effects is the benefits recapture problem. According to Dubrow (2001),214 this is one of the

real world factors215 which need to be taken into consideration in the analysis of structural

links. Essentially, the benefits recapture problem means that shareholders might not be

able to be aware that when they increase their products’ prices, this will also increase their

investment’s value. Furthermore, they can never be certain if their risk would pay off.

Further with respect to certainty, the acquirer may be expected to compete less fiercely

with the target firm only if (i) it is able to predict the relationship between demand and

price; (ii) it is confident that, by raising prices for its own products, it will benefit the target

firm and not instead divert sales to rivals (or encourage new entry); (iii) it is able to predict

the extent to which it will recoup its losses; and (iv) it is confident that the benefits it

secures by increasing the target firm’s sales will outweigh the profits it would otherwise

have secured itself. These conditions will be met only in exceptional circumstances,

though.216

Finally, another argument in support of the view that acquisitions of non-controlling

minority shareholdings are not inherently harmful is that they are even capable of

providing a limited gamut of efficiencies. Same as full mergers, these efficiencies need to

benefit consumers, be merger specific and verifiable.217 They can come in the form of

lowering prices218 or increasing output, improving product quality, variety and innovation,

among other things.219 In that vein, Annex I concedes that synergies are limited for

horizontal links, whereas there might be some with respect to vertical links, such as

211 Ibid., p. 6. 212 Struijlaart (2002), p. 179. 213 Ibid., pp. 186-187. 214 As cited in Demir (2013), p. 15. 215 The other two are incomplete information and management's incentives, see ibid., p. 14. 216 Levy (2014), p. 4. 217 White Paper, para. 13. 218 See also Struijlaart (2002), p. 183. 219 White Paper, para. 14.

35

alleviating double marginalization, mitigating inefficiencies caused by asymmetric

information or improving the service provided by downstream firms. Moreover, especially

with view to R&D, difficulties arising out of incomplete contracts could be overcome and

cross-shareholdings could facilitate the aligning of incentives of companies involved in

alliances or joint ventures.220

3.6. Preliminary Conclusions

In sum, the Commission and jurists and economists are unanimous that potential anti-

competitive harm stems from non-controlling minority shareholdings, albeit generally less

serious in comparison to full-fledged mergers. Horizontal acquisitions of structural links

cause more concern than between undertakings on different levels of the supply chain,

while active shareholdings cause more concern than passive ones. The classic theories of

unilateral and coordinated effects apply here as well, with the main risks to competition

being restriction of output, price increase, input foreclosure, deterrence of future entries.

Whereas the Commission seems determined to adopt changes to the merger control regime

on account of the theories of harm considered earlier in this chapter, many commentators

remain of the opinion that their effects are rather of a theoretical nature and do not raise

substantial issues in practice, certainly not of such a magnitude as to warrant risky

legislative amendments. This clash of views paves the way for the discussion on the

workability and proportionality of the suggestions published in the White Paper, the topic

of Chapter 4.

220 Annex I, paras. 81-82.

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4. THE WHITE PAPER

4.1. General Notes

White papers adopted by the Commission represent proposals for legislative actions in a

specific area.221 Once public consensus is built around them, whereby the potential

addressees and other parties concerned have provided their opinions, they can serve as a

foundation for the actual Commission proposal sensu stricto with which it exercises its

legislative initiative under art. 17 (2) of the Treaty on European Union (TEU). In 2014, only

one such document was published, namely the White Paper, titled ‘Towards more effective

EU merger control’, around which the present discussion is centered. It brings together the

results of the public consultation put through by the 2013 Staff Working Document and

Annexes I and II accompanying it.

The White Paper is supported by the 2014 Staff Working Document which analyses in more

detail the proposed policies, together with an Impact Assessment which weighs the

potential benefits and costs of the different options and the Executive Summary of that

impact assessment.222

As mentioned in the Introduction, the White Paper’s two main topics are the proposals

regarding the acquisitions of non-controlling minority shareholdings and the streamlining

of the case referral system between the Commission and the national competition

authorities. It also provides for a brief substantive review of mergers after the 2004 reform

of the First Merger Regulation which is appreciated as successful. The proposals in the

White Paper address the more immediate problems currently facing EU merger control.

The Commission’s long-term goal however is the creation of a true “European Merger Area”

(EMA) where a single set of rules will apply to mergers in the whole Union, including on a

national level.223 In the pursuit of EMA, the Union could once again become the motor

behind change just like back in 1989 when it introduced the merger control regime,

thereby inciting the Member States to pass their own anti-trust legislation too. The White

Paper does not go in any further details, but the adoption of regulation on control of

minority shareholdings could be expected to lead to “soft” harmonisation in the field in that

the 25 jurisdictions without competences over this matter would possibly follow suit.

Further miscellaneous issues dealt with in the documents are the proposals that the

creation of a full-function joint venture located and operating totally outside the EEA

without any impact on markets within the area be taken out of EUMR’s scope and that

certain categories of transactions, currently dealt with under the simplified procedure, that

normally do not raise any competition concerns, on account of the lack of any horizontal or

221 See http://europa.eu/legislation_summaries/glossary/white_paper_en.htm (retrieved on 14 March 2015). 222 See supra note 1. 223 White Paper, para. 23.

37

vertical relationships between the merging undertakings, be exempted from notification.

Out of the above, only the topic of minority shareholdings is of interest to the contribution

at hand and on it I dwell further on.

In order to tackle all potential sources of harm to competition stemming from the

acquisitions of non-controlling minority shareholdings, the Commission suggests that a

system for control of these transactions be introduced which complies with three

principles, enumerated in para. 42 of the paper. It lays down that the chosen system must

(i) capture the potentially anti-competitive acquisitions, (ii) it must avoid any unnecessary

and disproportionate administrative burden on companies, the Commission and the NCA’s

and (iii) it must fit with the merger control regimes currently in place at both the EU and

national level. In order to address the regulatory/enforcement gap, the proposed system

ought to answer two questions: which cases the Commission should be competent to

review (pertaining to the “regulatory” limb) and what the most suitable procedure to that

end would be (pertaining to the “enforcement” limb).224 The substantive test applied on

minority shareholdings would remain the current SIEC Test as laid down in the Merger

Control Regulation.225

The White Paper proceeds next with consideration of three possible systems, namely the

Targeted Notification, the Self-Assessment and the Targeted Transparency System. They

differ not only in procedural aspects, but also in relation to their administrative and

enforcement costs, the degree of legal certainty they provide and the degree of adherence

to the principle of proportionality, among other things. The three systems are consequently

reviewed below one by one.

4.2. The Targeted Notification System

The pure notification system consists in extending the Merger Control Regulation’s current

scope to all acquisitions of non-controlling minority shareholdings. 226 This would

admittedly be too burdensome for the businesses, DG Competition and also the NCA’s.227 As

a result, a modified version, namely the Targeted Notification System (TNS), is given

consideration by the Commission. The modification foresees that TNS would only apply to

potentially problematic acquisitions, i.e. purchases of shareholdings (i) in a competitor or a

vertically related company (such as supplier or customer), which are (ii) either above a

certain threshold (e.g. around 20%) or below it and above 5%, however accompanied by

additional rights such as, inter alia, board representation, the right to block special

resolutions and information rights giving access to strategic information. These cumulative

criteria would either be incorporated in the body of the Merger Control Regulation or in

224 2014 Staff Working Document, para. 66. 225 Ibid., para. 114. 226 White Paper, para. 43. 227 Impact Assessment, paras. 53, 57.

38

additional guidelines, whereas the Commission’s preference tends to the former option so

as to carve shareholdings of under 5% out of art. 21 (3) EUMR’s ambit and thereby leave

them under the Member States’ competence.228 Upon submitting prior notification under

art. 4 EUMR, the normal stand-still obligation in art. 7 (1) EUMR shall apply, whereby the

parties would not be able to close the transaction before the Commission’s clearance

decision. Lastly, the NCA’s would be able to request a referral within 15 working days

following receipt of the parties’ notification forwarded by the Commission, in line with the

existing rule of art. 9 (2) EUMR.229

4.3. The Self-Assessment System

The Self-Assessment System (SAS) provides for ex post control and generally resembles the

anti-trust regime under arts. 101 and 102 TFEU. It would not require the parties to submit

a notification prior to the completion of the acquisition, but the Commission would be

competent to initiate investigation against potentially problematic cases based on its own

market intelligence or complaints.230 “Safe harbours” would be introduced for acquisitions

of minority shareholdings below 5%, for example, and there would be guidance published

on the types of transactions the Commission would likely select for investigation. Finally,

Member States would also be entitled to request referral of those cases of which they

acquire knowledge in accordance with their own legislation.231 Bardong (2011) argues

that, as a start, an ex post control could be introduced as a transitional measure so as to

allow for case practice to be built up first.232

As the lack of obligation for notification and the possibility for subsequent investigation

would clearly lead to reduction in legal certainty, it is recommendable for SAS to provide

for voluntary submission which DG Competition would examine and issue a decision on. As

articulated earlier, its decision is a legal act as per art. 288 (4) TFEU and as such is, under

art. 263 TFEU, amenable to legal review by the General Court and can be appealed on

points of law before the Court of Justice as a final instance.233 However, the possibility for

voluntary filing of full notification is set out only in para. 11 of the Executive Summary and

denied immediately after, in para. 15, where, according to the inserted table, the

availability of this option is indicated with “n/a”. Table 1 on p. 26 of the Impact Assessment

provides for the same indication. Neither the White Paper nor the 2014 Staff Working

Document discuss voluntary submission with regard to SAS. The only other occasion where

228 Ibid., p. 25, footnote 44. 229 Executive Summary, paras. 12-13; Impact Assessment, paras. 57-59. 230 White Paper, para. 43; Impact Assessment, para. 54. 231 Impact Assessment, paras. 55-56. 232 Bardong (2011), p. 36. 233 See art. 256 (1) TFEU in conjunction with art. 58 Protocol (No 3) on the Statute of the Court of Justice of the European Union (OJ C 83, 30.3.2010, p. 210).

39

it is considered is in table 3 in the Impact Assessment234 where it is said that the

respondents to the public consultation “widely support[ed] the possibility of a voluntary

notification [proposed in the 2013 Staff Working Document235] as it gives legal certainty to

[the] parties”. Still, this sentence does not amount to an unequivocal indication. The

Commission needs to clear this contradiction.

4.4. The Targeted Transparency System

The Targeted Transparency System (TTS) is the one to which the Commission gives its

clear preference. Thereunder, the parties would have to submit an information notice for

potentially problematic transactions, pursuant to their own self-assessment. Therefore,

TTS chiefly envisages ex ante control, similarly to the Targeted Notification System, but

possesses an ex post aspect as well, discussed later in this subchapter, rendering it partly

akin to the Self-Assessment System.

Only the acquisition of a “competitively significant link” (CSL) would trigger the obligation

for submission of information notice. This term is the successor of the “structural link” used

throughout the 2013 Staff Working Document and the two annexes thereto. It arises where

there is a prima facie competitive relationship between the acquirer’s and target’s

activities, be it of horizontal or vertical nature. Therefore, the definition for CSL comprises

two limbs: (i) vis-à-vis its competitive character – the parties must be in a competitive

relationship, and (ii) vis-à-vis its significance - the link would be considered significant if it

is above a threshold of around 20%236 or, alternatively, between 5% and 20%, but

accompanied by additional factors such as possession of a de facto blocking minority, a seat

on the board of directors or access to commercially sensitive information.237 This division

reflects the possible fluctuations in the degree of influence conferred on the acquirer. In

principle, the Targeted Transparency System would only be triggered when material

influence over the target’s behaviour is conferred (i.e. the CSL is active). However,

regardless of the level of influence, it may lead to a change in the acquirer’s financial

incentives so that it would adjust its own commercial behaviour instead (also in the event

of a passive CSL),238 as discussed in more detail in the previous chapter.

Given the above criteria, the parties concerned would have to self-assess if the acquisition

of the shareholding represents a competitively significant link and submit the information

234 Impact Assessment, p. 32. 235 2013 Staff Working Document, p. 10. 236 The White Paper’s wording in para. 47 is not consistent with the supporting documents’ language. The exact words used in it are “shareholding [which] is […] around 20%” which contradicts the rationale behind TTS: cf. paras. 78 and 89 of the 2014 Staff Working Document or para. 57 of the Impact Assessment. Furthermore, the quoted percentages are shares of the voting or equity rights in the target company, as considered earlier in Subchapter 2.1., although the White Paper does not expressly draw such a delineation. 237 White Paper, paras. 46-47. 238 Ibid., para. 46.

40

notice. The notice requires for less information to be provided than a full notification (Form

CO) as per the existing merger control regime. The parties would be obliged to give

information in relation to themselves, their turnover, a description of the transaction, the

shareholding’s level before and after the transaction, any rights attached to the

shareholding and some limited market share information. Following the submission, there

would be a waiting period of preferably 15 working days (in line with the deadline laid

down in art. 9 (2) EUMR). During the waiting period, the parties would not be allowed to

implement the transaction, whilst on the basis of the information notice the Commission

would assess whether the acquisition warrants Phase I proceedings as applicable to

concentrations (and possibly an in-depth investigation as a second stage) and the Member

States would decide whether to request referral. Thus, it would be ensured that no

enforcement gaps would occur under national legislation as it might foresee a stand-still

obligation and not be equipped to deal with implemented transactions. In the event that

the Commission decides to initiate an investigation, it would request from the parties to

submit a full notification and only then could a final decision be adopted.239 In the interest

of legal certainty, the parties would be provided with the possibility to submit voluntarily a

full notification from the outset which would provide for more legal certainty as described

above in Subchapter 4.3.240 If a full notification is requested by the Commission or

voluntarily submitted, the stand-still clause in art. 7 (1) EUMR would apply.241

The waiting period or the suspension obligation would have no or limited impact on two

types of acquisitions – of shares via stock exchanges as the ambit of art. 7 (2) EUMR would

be extended to cover CSL’s, and with regard to the “banking clause” (art. 3 (5) (a) EUMR)

which would be amended so as to bring the transactions envisaged by it outside the

Commission’s competence. That way, neither the waiting period nor the stand-still

obligation would apply to them.242

Furthermore, TTS also foresees for the Commission to be able to start investigation ex post

regardless of whether the transaction has been implemented within a limited period of

four to six months following the information notice. This would minimise the risk that DG

Competition initiates an investigation out of precaution and would also allow for the

business communities and the general public to lodge complaints if need be. In the event of

a consummated transaction, the Commission would have the right to impose interim

measures, such as a hold separate order which would require ring-fencing of the assets, the

obligation to hold separate manager, etc. This is similar to the standard practice for

divestiture commitments during the divestiture periods or the conditions and obligations

239 2014 Staff Working Document, para. 82. 240 Executive Summary, para. 14; White Paper, paras. 48-50. 241 Impact Assessment, para. 65. 242 Ibid., para. 68.

41

under art. 7 (3) EUMR.243 Furthermore, all prior steps already implemented would be

validated.

In paras. 95-97, the 2014 Staff Working Document considers two possible ways of

transposing TTS into legislation. The first one consists in extending the Commission’s

competence over minority stakes which create CSL, whereas the criteria for CSL would be

set out in the body of the Merger Control Regulation, its recitals or in a guidance document.

The second option would be to specify the CSL criteria in an implementing regulation

under art. 291 TFEU, thereby allowing for their fine-tuning without the burdensome

complications of the legislative procedure. In my opinion, the latter option provides for a

comparable level of legal certainty, but is less onerous from a procedural point of view.

The targeted approach would not abridge the Commission from its right to request full

divestiture of pre-existing minority shareholdings even under the 5% threshold in the

context of a concentration.244 This consideration is an echo from the similar concern voiced

earlier by Koch (2010),245 who argued that ordering Ryanair to entirely divest its existing

shareholding in Aer Lingus would not have prevented it from immediately reacquiring the

minority share without any notification obligations. This suggestion is in line with the

proposed amendment of art. 8 (4) EUMR which addresses the gap manifested in the

Ryanair/Aer Lingus saga.246 The provision would be altered so as to ensure the Commission

could order the full divestiture of the acquired share in the event of a partially

implemented and subsequently prohibited concentration, even though it does not confer

control. As the ruling in Aer Lingus remains nebulous vis-à-vis its inconsistent application

of the single concentration concept, it is unclear whether the amendment of art. 8 (4)

EUMR is really indispensable to widening DG Competition’s jurisdiction or a clear

elaboration of the doctrine would suffice instead. However, the express text envisaged

would certainly solve future misunderstandings with regard thereto.

In that vein, there could be given consideration to amending the provision at stake so that it

would catch also transactions falling short of concentrations. This could be achieved, for

example, through the introduction of a lower threshold of influence – material instead of

decisive. Thus, non-controlling minority shareholdings would also be captured by

art. 8 (4) EUMR. This would indisputably be an elegant legislative technique, however it

would essentially entail adoption of the Targeted Notification System which would not be

in line with the principle of proportionality for reasons considered in the following

subchapter.

243 White Paper, paras. 51-52; 2014 Staff Working Document, para. 110. 244 2014 Staff Working Document, para. 79. 245 Koch (2010), p. 45. 246 Annex 2 to the Impact Assessment, ‘Technical Amendments’ (Annex 2), paras. 12-16.

42

4.5. Comparison of the Three Options

The Commission compared the suggested systems for control of acquisitions of

competitively significant links in the light of their compliance with the three general

principles outlined above in Subchapter 4.1. The Impact Assessment provides for a detailed

review of the separate systems’ performance under five criteria built on the three

principles: (i) preventing harm to competition and consumers, (ii) legal certainty,

(iii) administrative burden on businesses, (iv) public enforcement costs and (v) ensuring

consistency with the existing merger control system on an EU and Member State level and

allocation to the more appropriate authority.

In order to score positively under the first criterion, an option needs to contribute to more

effective competition enforcement, i.e. to capture the potentially problematic cases. The

indicator used to measure this criterion is therefore the number of cases caught. This

benchmark’s importance is highlighted by the significant amount of money saved due to

corrective merger decisions. Using different methodologies, DG Competition estimates the

observable benefits to consumers from horizontal merger decisions in the period 2009-

2011 at € 4-6 billion per year (in the form of consumer welfare savings) and for 2012 – at

€ 2.2-5.6 billion per year (consumer savings related to price increases on the set of markets

where there has been an intervention). It ought to be noted that the Impact Assessment

expresses certain reservations to the reliance on the 2012 methodology with respect to the

targeted approach (envisaged in TNS and TTS), where only the potentially problematic

cases are selected, because thereunder the rate of intervention for CSL cases would be

higher than for concentration cases and also because the data so extrapolated relies only

on horizontal merger cases.247

Results on legal certainty would be higher if the proposed system is clear and precise and

has foreseeable legal implications. This is particularly important where self-assessment

plays a role and is reflected in the results from the public consultation initiated with the

2013 Staff Working Document which showed particular concerns with this matter. In a

nutshell, legal certainty ought to answer two questions: (i) does a transaction fall within

the Commission’s competence and (ii) when should it be considered harmful.248

As regards the third criterion, administrative burden on businesses, it was the main source

of concern for all participants in the public consultation. It encompasses the net costs for

meeting legal obligations to participate in procedures. An option would score more

positively if it provides for less complex and/or lengthy procedure. The Commission

assumes that both the internal and external costs of an undertaking would increase,

however they would be limited in comparison to the size of transactions in question and

247 Impact Assessment, paras. 73-75. 248 Ibid., para. 76.

43

other related costs. The costs for filing a full notification are estimated by the respondents

in the public consultation at between € 50,000 and € 500,000. Those costs are significantly

lower with regard to the information notice under the Targeted Transparency System,

estimated at between € 5,000 and € 50,000. Lastly, the proposed reform would not have

direct impact on the small and medium-sized enterprises as they fall outside of the Merger

Control Regulation’s scope on account of the thresholds set out in art. 1 thereof.249

On the other side of the coin, public enforcement costs were a major source of concern for

the Commission.250 As it is closely connected to its workload, the number of transactions

likely to be affected by the respective option is used as a proxy for the enforcement costs.

The ratio between harmful acquisitions captured and increased workload must not be

disproportional. The most undesired scenario possible would be the one where a high

number of cases are brought to DG Competition’s attention, whereas only a small part of

them turn out to be competitively problematic. It would mean that institutional resources

are wasted on innocuous transactions rather than be streamlined in activities more

beneficial to the European taxpayer. Therefore, an option would score higher if it provides

for a lower number of number of cases caught.

The fifth and last criterion pertains to consistency with the EU and national merger control

currently in force. Consistency with national regimes means that if an option allows the

referral system currently in place for full mergers to be applied to minority shareholdings,

it allows for an allocation of a case to the more appropriate authority. An option would

score higher if it can be seamlessly integrated into the existing system of EU merger control

and does not make it more complicated. As far as Member States are concerned, only

Austria, Germany and the United Kingdom have jurisdiction to review minority

shareholdings, even though their regimes differ. Therefore, an option would score more

positively if it fits with each of the existing national regimes and allows the Member States

to request referral.251

The expected outcomes of each system’s application are derived from their juxtaposition to

the baseline “no policy change” scenario. By and large, the Targeted Transparency System

provides the most promising results by scoring highest (or not lower than the others) in

four out of the five criteria, namely preventing competitive harm, legal certainty,

administrative burden and enforcement costs (where it is the undisputed winner). Only in

relation to the last criterion, consistency with existing regimes, it gives away the leading

position to the Targeted Notification System which is not surprising as TNS is merely an

extension of the currently applicable merger control regime. However, despite equal

results in the first two criteria, it is more burdensome and costlier than TTS. The Self-

249 Ibid., paras. 78-84. 250 Ibid., paras. 85-87. 251 Ibid., paras. 88-89.

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Assessment System does not entail heavy administrative burden, but scores last under the

other criteria. Regarding legal certainty, all three options score equally with a moderately

positive impact, at least pursuant to the Impact Assessment’s findings.252

I need to disagree with the latter conclusion. The reason for this is that under SAS the

parties to the transaction are left to assess it entirely by themselves and many possibly

harmful purchases could be left unnotified and bypass the Commission’s review. Such a

system cannot provide the same level of certainty as systems which foresee some form of

notification.

According to DG Competition, the Targeted Transparency System is the most efficient

because it would likely capture the potentially harmful transactions, whereas innocuous

acquisitions would be left outside of the Commission’s competence, thereby limiting the

number of cases to what is strictly necessary. The administrative and enforcement costs

under this option are low by reason of the limited amount of information to be submitted

with the information notice and TTS’ catching only the problematic cases, respectively. Full

notification shall be resorted to only in the event of initiation of an in-depth investigation.

Furthermore, TTS fits to a large extent with the existing national merger control regimes

except for its ex post phase which is inconsistent with the vast majority of the jurisdictions

which rely on ex ante regulation.253 It is however considered to be a secondary phase which

as such does not have the same weight as the obligatory ex ante stage triggered by the

information notice’s submission. Last, but not least, unlike under the Self-Assessment

System, Member States would be informed of the respective acquisition and would thereby

be able to exercise their right to request referral of the case if necessary. The 15-working-

day waiting period would ensure that those NCA’s with a notification system and stand-still

obligations are not left to deal with consummated transactions before the start of their

investigations.254

4.6. Potential Issues and Proportionality

In my opinion, given the above considerations, the Targeted Transparency System does

seem to be the most adequate of the Commission’s proposals. Consequently, the following

discussion focuses only on the workability of this option rather than embark on a new

independent comparison of the three systems’ pros and cons. To that end, I first consider

the statistical data provided by the Commission in the context of the proportionality of the

expected results from applying TTS to competitively significant links. Next, I discuss how to

best address several issues stemming from the thresholds in the definition of CSL, the

information notice’s content, the procedure’s length and its ex post dimension. Lastly, it is

argued that through reliance on the de minimis doctrine with regard to the relevant market

252 Ibid., p. 35, table 6. 253 The most notable exception being the United Kingdom. 254 Impact Assessment, paras. 95-97.

45

shares and the turnover thresholds, TTS could be further improved in line with the

principle of proportionality.

4.6.1. Statistics

A law always needs to strike the right balance between protection and overprotection and

the above analysis illustrates how challenging this can be. The principle of proportionality,

manifested in art. 5 (4) TEU, represents the backbone of EU law. This makes it all the more

necessary to assess whether potential shortcomings would compromise legislative

intervention and in doing so, I turn to the statistical data provided by DG Competition.255 As

of 28 February 2015, there have been 5,767 notifications since the introduction of merger

control in 1990. With respect to 231 of them (less than 5%), an in-depth Phase II

investigation has been initiated based on concerns established in Phase I. In about 5-8% of

all notified mergers, the Commission identified concerns that the merger may be

incompatible with the internal market, in most cases alleviated through remedies offered

by the undertakings concerned at either phase.256 Only 24 concentrations have been

prohibited with an art. 8 (3) EUMR decision or 0.42% of all notified mergers.

Understandably, the above data does not pertain to acquisitions of non-controlling

minority shareholdings. For this reason, the Commission resorted to information provided

by Member States which have jurisdiction to investigate such cases and by the Zephyr

database which contained data on the acquisitions of shares between listed companies

registered in the then 27 Member States. The Commission calculated the cases which

would be brought to it for assessment under a targeted approach. The database indicated

91 transactions for the period 2005-2011 which would warrant examination, out of which

43 would potentially meet the EU dimension thresholds,257 with the sectors where they

occur most frequently being banking and energy. Based on the data so obtained and subject

to several premises, the Commission estimates that, yearly, approx. 20-30 non-controlling

minority shareholding cases with EU dimension (or 7-10% of all cases examined by the

Commission each year), with an assessed minimum number of cases of 12 and maximum of

38,258 would meet the Targeted Transparency System’s criteria and be consequently

investigated.259 It is highly likely however that the Zephyr database underestimates the

actual number of relevant acquisitions because it only considers situations where the

acquirer or the target are publicly listed companies and both are registered in the Union.

255 Available at http://ec.europa.eu/competition/mergers/statistics.pdf (retrieved on 19 March 2015). 256 White Paper, para. 6. 257 Annex II to the Commission Staff Working Document: Towards more effective EU merger control, SWD (2013) 239 final, part 3/3: Non-controlling minority shareholdings and EU merger control (Annex II), para. 5. 258 Annex 3 to the Impact Assessment, ‘The Magnitude of the Problem: Estimates from Member States and the Commission’, para. 19. 259 2014 Staff Working Document, para. 85; Executive Summary, para. 8; Impact Assessment, para. 45.

46

Therefore, transactions between private companies are not covered.260 Still, the database

indicates a confirmed minimum number of structural links between competitors for the

six-year period at stake.261 As the German Bundeskartellamt applies alike criteria like TTS,

namely a competitively significant influence test, it is sensible to apply its intervention rate

of 4.6% to similar cases as a proxy. Using this methodology, the Commission estimates that

it would intervene in only 1-2 non-controlling minority shareholdings cases per year,

similar to the intervention rate of 5-8% with regard to concentrations, considered above.262

Despite these conservative evaluations, engaging in an unpopular legislative reform in

order to catch not more than two cases per year can hardly be described as proportional, a

prima vista at least. Perhaps this conclusion corresponds to the latest signals from Brussels.

On 12 March 2015, the Commissioner for Competition Ms Margrethe Vestager delivered a

speech in which she stated that “the balance between the concerns that this issue raise[s] and

the procedural burden of the proposal in the White Paper may not be the right one and that

the issues need to be examined further.”263 On the other hand, as considered already in

Subchapter 2.2, abandonment of the reform and reliance on a laissez-faire approach would

not resolve the issue with the Commission’s inability to tackle harmful non-controlling

minority shareholdings as self-standing transactions. This would seem like an odd

outcome, considering that other major market economies such as the United States, Canada

and Japan deal with these concerns. Even if art. 8 (4) EUMR is to be amended as proposed

so that the Ryanair/Aer Lingus gap is closed and the Commission is allowed to take action

in the context of partially implemented concentrations, it would not be able to respond to

the harm stemming from structural links acquired on an independent basis. The results

would remain the same also if the concept of single concentration was to be clarified

because it could answer the questions raised by Aer Lingus, yet it cannot be applied on self-

standing acquisitions of CSL’s.

The least intrusive other approach would be to rely on a more extensive use of arts. 101

and 102 TFEU which would overstretch their limited ambit. Indeed, Limburgse Vinyl264 and

T-Mobile265 showed that art. 101 TFEU can be construed broadly so as to allow

intervention, but this approach threatens to render it somewhat amorphous and would

also collide with the BT/MCI266 rule which established that this article cannot be applied on

260 Impact Assessment, paras. 39-41. 261 Annex II, para. 93. 262 Impact Assessment, para. 46. 263 ‘Thoughts on merger reform and market definition’. Keynote address at Studienvereinigung Kartellrecht, Brussels, 12 March 2015. Available at http://ec.europa.eu/commission/2014-2019/vestager/announcements/thoughts-merger-reform-and-market-definition_en (retrieved on 16 March 2015). 264 See supra note 61. 265 See supra note 62. 266 See supra note 45.

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acquisitions of shares.267 Last, but not least, it does not seem likely for the Court to ever

depart from the settled case-law on art. 102 TFEU regarding the concepts of dominant

position and abuse in order to widen its scope.

Finally, one could argue that, in fact, even a single case per year could justify the additional

costs entailed by regulation. To put this into perspective, Aer Lingus’ turnover for 2014 is

more than € 1.5 billion268 and the airline company employs 4,000 people.269 The possible

social corollaries of leaving such areas of law unregulated may be difficult to be exactly

calculated, but nevertheless cannot be neglected.

All this goes to show that it is not recommendable to abandon the reform. Instead, the

system should be further fine-tuned by addressing the possible complications considered

further below.

4.6.2. The Thresholds in the Definition of a Competitively Significant Link

Another issue I would like to observe, pertains to the bottom threshold in the definition of a

competitively significant link. As mentioned above, TTS deals only with CSL’s above 20% or

between 5% and 20% and accompanied by additional factors. This is in line with the

findings in the 2014 Staff Working Document, according to which competitive harm is very

unlikely for shareholdings of 5% or less.270 Nevertheless, it seems plausible that an

undertaking could circumvent this rule by acquiring a share lower than 5%, but with

disproportionately comprehensive rights; a quasi-golden share which would allow its

owner to exert influence by far surpassing the financial interest expressed as a fraction of

the capital. Per argumentum a contrario from art. 21 (3) EUMR, since structural links below

5% are not CSL’s, national rules would be applicable to them. However, it will be recalled

that only three Member States are competent to review acquisitions of non-controlling

minority shareholdings. In that case, it is highly likely that another regulatory lacuna would

come into being. Therefore, it would seem recommendable that the lower threshold be

removed entirely so as to ensure that these transactions would be reviewed by the

Commission. This solution would be consistent with EU law, especially if combined with a

de minimis rule, as discussed in the end of this subchapter. Lastly, this would solve the issue

with the possibility to acquire shares below the threshold of 5% without notification

following a Commission’s order for full divestment in the context of a single

concentration.271

267 Rusu (2014), p. 504. 268 See the preliminary financial results report at http://corporate.aerlingus.com/media/corporateaerlinguscom/content/pdfs/2014-Preliminary-Results-20150224-FINAL.pdf (retrieved on 19 March 2015). 269 See http://careers.aerlingus.com/ (retrieved on 19 March 2015). 270 2014 Staff Working Document, para. 93. 271 This issue is also touched upon in Annex 2, paras. 15-16.

48

Furthermore, as already articulated,272 the upper threshold’s exact percentage value needs

to be clarified. A strictly linguistic interpretation of the White Paper does not provide a

conclusive answer to this end. Does the phrase “around 20%” mean that there would be a

bright-line test and it is not decided yet whether the threshold is going to be 20% or

somewhere around it, for example, 15%273 or 25%? Or does it mean that shareholdings

lower than, but around 20% (for example, 19%) which are not accompanied by the

additional factors would still be caught by the Targeted Transparency System? The answer

is provided in a footnote in one of the supporting documents where it is expressly stated

that “the acquisition of a minority shareholding below 20% which is not accompanied by

additional elements would not be subject to the Merger [Control] Regulation.”274 This

solution certainly provides for more legal certainty. Any possible deviations can be

remedied by fine-tuning of the applicable thresholds, but a departure from the clear-cut

percentage approach would dramatically reduce the degree of clarity.

On that note, the upper threshold of 20% falls short of consistency with the merger control

regimes on national level, which is one of the three principles with which the proposed

systems ought to comply, as I considered above in Subchapter 4.1. As the 2014 Staff

Working Document shows,275 several Member States foresee a threshold of 25% (Belgium,

Germany, the United Kingdom, also Austria;276 it corresponds to the “safe harbour” laid

down in Philip Morris as well) and higher, e.g. 33.33% (in France and Italy). Even though

20% is a reasonable level in itself, more regard should be held for Union-wide convergence,

especially with respect to the long-term goal to create a true “European Merger Area”.

Next, in relation to the CSL’s’ thresholds, it would appear useful to clarify the exact nature

of the additional factor attached to a shareholding of between 5% and 20% in the form of a

de facto blocking minority. Its concept, considered in para. 92 of the 2014 Staff Working

Document, is not that straightforward. First, it must be borne in mind there is a pivotal

difference between blocking strategic decisions (special resolutions) or “ordinary” ones

which is not expressly drawn in the White Paper or the documents accompanying it. On the

basis of the Consolidated Jurisdictional Notice, I considered in detail the notion of control in

Subchapter 2.4. Para. 54 thereof expressly lays down that if a shareholder can produce a

deadlock situation by vetoing a strategic decision, it acquires decisive influence in the form

of negative sole control. Furthermore, if a share is big enough to block a non-strategic,

“ordinary”, decision, then it certainly is big enough to block a strategic one too. This is so

because the majority needed to adopt a strategic decision is equal to or higher than the one

needed for an “ordinary” decision which is the reason why it is often called “supermajority”.

272 See supra note 236. 273 Such an alternative threshold is foreseen in the 2014 Staff Working Document, p. 29, footnote 71. 274 Impact Assessment, p. 24, footnote 43 in conjunction with para. 61 thereof. 275 2014 Staff Working Document, p. 28, footnote 69. 276 Bardong (2011), p. 36.

49

Therefore, a de jure blocking minority inevitably results in conferral of control and cannot

be an additional factor in the context of competitively significant links’ second limb as they

are non-controlling by definition.

As far as de facto blocking minorities are concerned, they have to be the result of, inter alia,

low attendance levels at shareholder meetings.277 This can be easily understood because in

practice shareholders tend to attend more frequently meetings concerning strategic

decisions rather than the more mundane meetings on inessential issues. Consequently, a

minority shareholding not de jure capable of vetoing a strategic decision (and therefore not

resulting in control) could still turn out to be de facto sufficient for the blocking of an

“ordinary” decision.

However, it remains puzzling why as a “good example” of a de facto blocking minority is

given the ability to “influence strategic decision making”, considered in a case before the

British authorities,278 since the possession of such power would lead to a finding of decisive

influence and control. It is highly unlikely that there is a difference between “influencing”

and “vetoing” strategic decisions, given that in para. 90 it is stated that “block[ing] special

resolutions […] allows the shareholder to influence the target company’s strategy”, thereby

further contributing to the confusion. Certainly, more guidance on this matter would

increase legal certainty and would be proportional to the end sought.

4.6.3. The Information Notice’s Content

The next issue I would like to address pertains to the information notice’s content. The

Commission briefly outlines it in paras. 102-104 of the 2014 Staff Working Document as

consisting of information in relation to the parties, their turnover, a description of the

transaction, the shareholding’s level before and after the acquisition, any rights attached to

it and essential market information about the parties and their main competitors or

internal documents that allow for initial competitive assessment. It is further suggested

that market share information be reduced to encompass only markets where the

undertakings’ combined market shares are 20% or above. It therefore does not seem

“much”279 shorter than a full notification under the existing regime. Form CO also requires

there to be provided data on the parties (Section 2), their turnover (Section 4), a

description of the transaction (Section 1), market share information (Section 7) and certain

supporting documentation (Section 5). The obligation for information on the

shareholding’s level and rights attached to it largely corresponds to what is envisaged in

Section 3 bearing the subheading ‘Details of the concentration, ownership and control’. In

fact, the only information required with Form CO on which the information notice would

not insist pertains to the structure of supply in the affected markets (Section 8), efficiencies

277 Or of additional rights vested in the shareholder agreement (2014 Staff Working Document, para. 92). 278 2014 Staff Working Document, p. 29, footnote 72. 279 Ibid., para. 105.

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(Section 9) and cooperative effects of a joint venture (Section 10). It seems sensible that

eventually a declaration under Section 11 would be foreseen as well, but its effect on the

administrative burden is negligible and cannot become a source of overregulation.

It is further admitted in para. 104 that the self-assessment necessary in connection with the

information notice could be burdensome for the companies involved. Indeed, what

constitutes a prima facie competitive concern could be problematic and could require an

expensive in-depth due diligence - it is common that the acquirer does not have extensive

knowledge of the target’s business, e.g. in venture capital transactions.280 The Commission

retains a rather wide discretion with regard to the cases it could select for investigation as

the White Paper uses the prima facie approach only with respect to the two limbs defining

a competitively significant link.281 Especially as regards oligopolistic markets or sectors not

previously dealt with by DG Competition, it would be desirable that guidelines be published

clarifying what elements would constitute grounds for examination and the evidentiary

thresholds that would have to be met in the early stage for a transaction to be appraised as

meriting investigation.282 This corresponds to my proposal that transactions on certain

markets be exempted from the waiting period, considered in Section 4.6.7.

4.6.4. The Procedure’s Length

Hence, the questions arise, to what extent does the information notice shift the

administrative burden away from the businesses? Would its limited advantages not incite

companies to submit a full notification straightaway on considerations of legal certainty?

Paradoxically, the Commission envisaged the prescription period of four to six months

following the information notice, considered earlier in Subchapter 4.4., precisely to reduce

the risk of initiating precautionary investigations and thus save both the businesses and

itself time and expenses. Suppose DG Competition found by the end of the sixth month

reasons to request full notification and triggered Phase I investigation, possibly on grounds

of a complaint. Pursuant to art. 10 (1) EUMR, the decision concluding the first stage of the

proceedings must be taken within 25 working days following notification with the

possibility for this period to be extended to 35 working days or even longer in case the

information submitted is incomplete. Next, para. 3 sets out that Phase II proceedings must

be concluded within 90 working days, again with the possibility to be further extended to

105 working days. Furthermore, an additional maximum extension of up to 20 working

days could be granted. Moreover, due to other possible irregularities, these periods could

be suspended, thereby contributing to more delay, as foreseen in para. 4. To sum up, the

total duration of the investigation in such a setting could amount to approximately thirteen

calendar months. On pain of such an undesired scenario and given the strong resemblance

280 Burnside (2014), p. 6. 281 2014 Staff Working Document, paras. 88-89. 282 Rusu (2014), pp. 511-512.

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between the information notice and the full notification, it could make sense from an

undertaking’s perspective to opt for full notification from the outset so as to both gain legal

certainty283 and save four to six months’ delay accompanied by the additional substantial

expenses it invokes. It is apparent that this would defeat the whole purpose of the

information notice, the Targeted Transparency System and, in the end, the reform

supported in the White Paper. It is not proportionate to spend around twice as much time

assessing CSL transactions than the more harmful full-fledged mergers whose investigation

is strictly confined to the periods in art. 10 EUMR without the additional 4-6-month

prescription period. Therefore, it would need to be ensured that only the potentially most

harmful acquisitions would possibly be subject to this delay, while providing incentives for

the more innocuous transactions to be notified instead of to be hidden from the

Commission. This could be achieved through the application of a more nuanced approach

based on the de minimis doctrine, considered in the following sections.

4.6.5. The Waiting Period

In that vein, suppose the Commission were to come across a prima facie concern after the

expiration of the prescription period, then it would have no competence to initiate

proceedings and the anti-competitive situation would be sustained indefinitely. The

likelihood of this happening would be lower if the waiting period was to be extended with,

for example, one-third to 20 working days,284 thereby providing DG Competition with

substantially more time to assess the transaction and avoid the above outcome. This

measure would be markedly more effective under the premise that the Commission treats

the prescription period as an opportunity for the general public to come forward with

complaints rather than as additional time for monitoring the transaction and further, more

in-depth, assessment. At the same time, it seems unlikely that the business climate would

be considerably more adversely affected on account of this extra week. Whereas this time

set would not be aligned with the deadline for request of referral under art. 9 (2) EUMR, my

opinion is that it does not have to entail harmonisation at any cost and the latter period

could be left unaltered.

Yet, one major drawback of this proposal could consist in the Commission’s overreliance on

potential complaints. In principle, the general public does not have access to the specific

information necessary for it to identify a problem in the first place, or to adduce evidence

which would be of service to DG Competition. It would make more sense then that the

complaints come from parties’ competitors. This seems less likely than at first sight,

though. Competitors also benefit from the higher prices set by a cartel they are not parties

to because they can raise their own prices without being liable for the damages caused to

283 See also Friend (2012), p. 306. 284 Similarly, a 30-calendar-day waiting period is foreseen in the United States, the jurisdiction with the longest traditions in anti-trust law, under the Hart-Scott-Rodino Act: see Annex II, para. 78.

52

consumers in the form of overcharges. Under the so-called Umbrella Doctrine,285 injured

parties are entitled to seek full compensation from the infringing undertaking, irrespective

of the existence of a direct contractual relationship with it.286 This rationale was

subsequently vested in Directive 2014/104287 which further provides for a broad definition

of “injured party” in art. 2 (6), encompassing all persons that have suffered harm caused by

an infringement of competition law, including non-cartelists’ clients. Therefore,

competitors would have no incentive to complain to the Commission and give up their

profits as a consequence of the cartel’s eventual dissolution. This obstacle could be

overcome by (stronger) reliance on the leniency notices encouraging cartelists to come

forward rather than their competitors. Immunity candidates/recipients enjoy certain

advantages purposed to motivate them to give away the cartel, as, for example, under

art. 11 (4) Directive 2014/104 by virtue of which they are liable only to their own direct or

indirect purchasers or providers and to other injured parties only where full compensation

cannot be obtained from the other undertakings that were involved in the same

infringement of competition law.

In addition, as it is shown in Section 4.6.1., more than 90% of the cases that would be

scrutinised by the Commission under the Targeted Transparency System are not expected

to cause anti-competitive harm. For the waiting period to be more effective and

proportionate, it could be envisaged that it would be applied only under certain

circumstances which point at high potential for distortion of competition. This way, DG

Competition would be able to free more resources for investigation while innocuous

transactions would be left to be implemented and not be affected by the delay. The waiting

period could remain applicable, inter alia, to oligopolistic or highly concentrated markets

or markets with past history of infringements. The criteria could be broader as well, for

example, only on horizontal acquisitions as they admittedly cause more concern in general.

If set out in a guidance document, they would markedly contribute for more legal certainty

and lower administrative and enforcement costs.

4.6.6. The Ex Post Dimension of the Targeted Transparency System

In Chapter 2, it was argued that the ex post control envisaged by the Treaty articles is

slower than the ex ante and it could also lead to certain complications such as the

burdensome procedure of remedying structural changes on account of a prohibited

concentration and restoring the status quo ante. Still, acquisitions of shares do not lead to

structural changes sensu stricto and they can be easily disposed of on the basis of a regular

market transaction, so ex post control is not an entirely inacceptable option.

285 C-557/12, Kone and Others, n. y. r. (ECLI:EU:C:2014:1317), para. 34. 286 Recital 13 of Directive 2014/104, see infra note 287. 287 Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, OJ L 349, 5.12.2014, p. 1.

53

However, one could think of the curious setting where following an ex post prohibition of a

minority share acquisition and the subsequent disposal of the shares, the target’s decisions

based on the (former) acquirer’s voting or additional rights would have to be declared null

and void retroactively with the respective heavy consequences. For example, if a member

of an organ of the undertaking was appointed by virtue of the share, ought he or she to step

down and ought the decisions in whose adoption he or she has participated to be annulled?

Material or not, this argument is certainly neutralised by the Commission’s proposal for an

ex nunc effect of its (prohibition) decisions and validation of all prior steps taken.288 On the

other hand, firstly, this solution can serve as a catalyst for misuses of the notification notice,

thereby putting into question the safety of relying on the parties’ self-assessment and,

secondly and more importantly, it would abridge DG Competition from the power to order

divestment of shares within partially implemented transactions. Except for the competence

to take interim measures, this situation looks quite analogous to the one in the Ryanair/Aer

Lingus saga, the very reason behind the revived and intensified discussion on non-

controlling minority shareholdings. The above two considerations outweigh the risk of

retroactive invalidation’s possible corollaries. I am of the opinion that validation of the

implemented steps must be avoided so that the Commission does not again divest itself

from its powers.

4.6.7. De Minimis Doctrine on Market Shares and Turnover Thresholds

Finally, a possibility of avoiding disproportionality issues and addressing the potential anti-

competitive concern with non-controlling minority shareholdings could consist in defining

a de minimis threshold in the form of the concerned undertakings’ combined market share

in addition to the thresholds laid down with respect to competitively significant links. Such

an approach has already been suggested by legal practitioners.289 Below a certain market

share level, the acquisition would be presumed compatible with the internal market.

Currently, pursuant to the Horizontal Merger Guidelines290 and in line with recital 32 of the

Merger Control Regulation, this share is set at 25% of the related market for horizontal

and, considering their less harmful potential, at 30% for non-horizontal concentrations.291

Given that CSL’s cause admittedly less harm than full-fledged mergers, it would make sense

to raise the market share threshold even more so as to bring about more legal certainty and

less administrative and enforcement costs. If the parties involved meet the thresholds, they

would be exempt from submitting an information notice. This approach would correspond

to the proposal to limit the applicability of the waiting period only to high-risk markets, as

considered in Section 4.6.5. In my opinion, this nuanced approach would be the most

efficient for two reasons. Firstly, it further reduces the number of cases caught by the

288 2014 Staff Working Document, para. 110. 289 Mayer Brown LLP (2013), p. 2. 290 Horizontal Merger Guidelines, para. 18. 291 Vertical Merger Guidelines, para. 25. Also, the post-merger HHI must be below 2,000.

54

Commission while not stripping it from its competences to review potentially problematic

transactions. Secondly, it provides for more clarity in the self-assessment process and

thereby stimulates the sensible usage of the information notice. A downside to it is that it

requires a greater reliance on the parties’ self-assessment of market shares, though. In

order to produce the desired effect, the rule must not be applied in isolation, but rather

ought to be accompanied by correcting measures addressing the issues considered so far,

succinctly enumerated in the concluding subchapter next.

The de minimis rule could be further accompanied by higher, separate, EU dimension

thresholds, adjusted specifically to apply to acquisitions of competitively significant links,

whereas the thresholds set out in art. 1 EUMR currently in force could be kept for the

purposes of concentrations. Turnover levels have so far been used by the Commission as a

reliable proxy for the magnitude of potential anti-competitive harm, which can only

encourage wider usage of this approach. Indeed, the 2013 Staff Working Document

expressly stated that the turnover thresholds should remain unchanged also with regard to

structural links in order to keep the benefits of the “one-stop-shop” principle.292 However,

in my opinion, it would be proportionate to depart from this limitation as the “one-stop-

shop” principle would remain unaffected. In fact, the parties would only need to take into

consideration the different applicable thresholds during the self-assessment stage before

they conclude whether any kind of notification would be necessary.

4.7. Preliminary Conclusions

In its 2014 White Paper, the Commission presented a project for amendment of the merger

control rules, designed to tackle the anti-competitive concern stemming from acquisitions

of non-controlling minority shareholdings, among other things. As a follow-up to the 2013

public consultation, taking into account the responses of the business community gathered,

the Targeted Transparency System was proposed as the most adequate means of control of

such transactions. It provides for predominantly ex ante control and balances between

preventing and remedying distortions of competition to the detriment of consumers, on

one hand, and overregulation entailing high costs and legal uncertainty, on the other. The

system is not flawless and this has been acknowledged by the Juncker Commission which

inherited the debate in question, whereby reservations to its proportionality have been

publicly expressed.

In my opinion, the Targeted Transparency System is a tool capable of adequately

addressing the harm stemming from structural links between competitors and companies

on different levels of the supply chain. Subject to several improvements, it could overcome

the widespread distrust facing it. By and large, it seems recommendable to shorten further

the quantity of data required with the information notice and to introduce a longer waiting

292 2013 Staff Working Document, p. 9.

55

period of 20 working days to decrease uncertainty and incentives for gun-jumping,

resulting in higher costs for both the businesses and DG Competition. In addition, the

validation of implemented prior steps of the transactions upon initiation of ex post

investigation should be avoided so the Commission does not happen upon the same cul-de-

sac situation as in the Ryanair/Aer Lingus saga. In conclusion, the more nuanced the

approach is, the higher the chances of eschewing disproportionate burden on all parties

involved are. It is worth considering the introduction of de minimis requirements for the

concerned undertakings’ combined market share, accompanied by higher turnover

thresholds and a guidance paper for maximum clarity.

Therefore, the Targeted Transparency System could be further developed to look generally

the following way: at the outset, the parties would consider whether they are obliged to file

an information notice. If they meet the de minimis market shares or turnover thresholds,

they would be exempt from notification. Otherwise, following submission, they would have

to enter a 20-working-day waiting period, but only if they are active on markets known for

entailing higher risks to competition. If that is not the case, they would be free to

implement the notified transaction forthwith. During the waiting period (or after the

submission if the period does not apply), the Commission would investigate the acquisition,

whereby the focus would fall on its market intelligence. After the 20th working day, if a

decision to this effect has not been issued, Phase I proceedings could only be initiated

within a 4-6-month period following the information notice. To that end, DG Competition

would rely on complaints, predominantly from the general public and immunity

candidates, but to a lesser extent on its own market intelligence, the rationale behind this

being to decrease the workload on the institution. If it finds reasons to initiate in-depth

proceedings, a full notification would be requested and interim measures could be taken,

but there would not be validation of the prior steps already implemented so as to avoid

sustaining anti-competitive situations. Voluntary notification would remain an available

option.

56

5. CONCLUSION

This contribution provided an extensive analysis of the problematic of acquisitions of non-

controlling minority shareholdings under the current EU merger control regime. The

historical development of the applicable law, considered in Chapter 2, showed that

arts. 101 and 102 TFEU are limited in capturing all potential competition issues stemming

from transactions involving structural links. The same applies to the Merger Control

Regulation which can only deal with concentrations whereby control in the form of

decisive influence is conferred. Notwithstanding that, the 2001 Green Paper argued that

the Treaty articles and merger control are sufficient to address the potential anti-

competitive harm arising out of such transactions.293

Almost a decade later, the Ryanair/Aer Lingus saga finally put the present research

question into the spotlight again. The General Court’s 2010 judgment294 laid bare that this

issue, previously believed to be merely a theoretical problem, could take on a rather

practical dimension in that the Commission was helpless in ordering as a remedy the

divestiture of a non-controlling minority share acquired gradually in the context of a

notified concentration. What is even more important, self-standing acquisitions of minority

shares remained completely outside of DG Competition’s purview. In that regard, the

European Union seemed to be lagging behind the other major world market economies,

most notably the United States, the birthplace of anti-trust law. The problematic at stake

was not consistently dealt with among Member States either, with Austria, Germany and

the United Kingdom being the only authorities with power to review such transactions.

Next, in Chapter 3, I provided a succinct review of the economic theories of harm arising

out of transactions of structural links which justify amendments to the legislation in force.

It was argued that such transactions are in general less harmful than concentrations, but

nevertheless warrant regulation. Just like full-fledged mergers, horizontal (unilateral and

coordinated) and non-horizontal anti-competitive effects are the issues here too. It was

argued that, in relation to transactions both between competitors and between companies

active on different levels of the supply chain, the risks of full-fledged mergers already

known to economic theory, such as restriction of output, price increase, input foreclosure,

deterrence of future entries, access to sensitive commercial information, are present in the

context of non-controlling minority shareholdings as well. However, the efficiencies that

could arise out of acquisitions of structural links are also more limited and cannot provide

as strong a counterbalancing effect. Finally, the magnitude of their anti-competitive harm is

oppugned by many commentators claiming that it is either virtually non-existent or that it

is negligible and does not merit risky legislative amendments.

293 See supra notes 5 and 7. 294 Aer Lingus, Judgment of 6 July 2010, see supra notes 2 and 107.

57

The following Chapter 4 provided the answer to the present thesis’ research question.

Although subject to several suggestions for improvement, I argue that the Targeted

Transparency System proposed in the White Paper is an adequate tool capable of bringing

about the closing of the regulatory/enforcement gap regarding the acquisitions of non-

controlling minority shareholdings. However, in order to avoid overregulation, the

proposed system must hold regard for the increased transactional costs which would result

out of it. Therefore, it ought to refrain from imposing disproportionate administrative

burden on the businesses and additional enforcement costs and heavier workload on the

Commission as much as possible. In exchange for that, the paramount goals of legal

certainty and minimum disruption of the business process must be consistently pursued in

order to justify the legislative intervention. On account of this consideration, I suggested

several changes vis-à-vis the Targeted Transparency System. Firstly, I advocate the wider

reliance on the de minimis doctrine with regard to the parties’ applicable market shares

and turnover thresholds. If the respective levels are met, an information notice would not

have to be submitted. Next, my opinion is that the waiting period should be extended with

5 working days so as to allow DG Competition to concentrate its resources on the most

worrisome transactions without initiating proceedings as a precautionary measure. In that

vein, the information notice needs to be shortened so as to dissuade the undertakings from

filing full notification as a precaution too and foster the short notice’s sensible usage.

Furthermore, the waiting period should be restricted only to transactions on markets

which are a traditional source of concern for DG Competition so that the vast majority of

share purchases would not be unnecessarily slowed down. Last, but not least, I argued that

the possibility to validate all prior implemented steps taken during the 4-6-month

prescription period would be detrimental to the Commission’s competences as it would

once again be unable to tackle an anti-competitive situation once it has taken place.

Political consensus on European Union level has rarely been easy to achieve. Perhaps this is

once again the question at stake, considering that the Commissioner for Competition

recently made public her dissatisfaction with the balance struck by the amendments

envisaged with the White Paper.295 Achieving regulatory equilibrium has always been a

challenging task and in the present context even more so, as evidenced in the chapter

dedicated to the White Paper where I criticised several aspects of the Targeted

Transparency System. Still, for a myriad of reasons considered earlier in this contribution, I

remain of the opinion that reform must not be abandoned, but rather the most nuanced

approach should be found, whereby I provided several proposals to that end.

It is not easy to predict what the final stance taken by DG Competition towards non-

controlling minority shareholdings is going to be. On 9 April 2015, Ms Margrethe Vestager

295 See supra note 263.

58

delivered her latest speech296 in which she addressed several obstacles to the internal

market which needed to be assessed and tackled. In a nutshell, the Commission’s future

policy is going to put an emphasis on efforts in boosting employment and creating a true

Energy Union, a Digital Single Market and a Capital Markets Union. These objectives are in

line with the priorities of the Europe 2020 strategy.297 However, there is no mentioning of

the White Paper this time, but rather only a brief reference to mergers and acquisitions in

general. The Commissioner for Competition vaguely states that she “will always be in favour

of not putting unnecessary constraints on business. Companies can grow organically or

through mergers as they see fit. But no company should be allowed to pursue its plans at the

expense of consumers, business partners and rivals.” In my opinion, this proposition does not

contribute markedly to the debate of interest to this thesis, but merely reflects the merger

reform’s dichotomy embodied in the search for regulatory balance. In a sentence, the

question remains open for discussion.

Given the controversy illustrated by the intense debate on competitively significant links,

from my point of view it would seem appropriately for the newly appointed Juncker

Commission to take into consideration the criticism surrounding the proposals for reform

and, among other possibilities, draw up a new white paper which would build on its

predecessor’s achievements and further them rather than negate them. The present

contribution provided several angles how to approach this problem differently. I believe

that this is an issue whose solution cannot be postponed indefinitely, especially if regard is

to be held for the future of European integration and the completion of the internal market.

Now, in the aftermath of the financial crisis and in combination with the external

challenges to its fundamental values that increased substantially over the last two years,

more than ever does the European Union need to show that it is able to display firm and

healthy political will. Such an act could take many different forms and, in this author’s

opinion, the consistent pursuit of better merger control rules for the benefit of all European

citizens is one of them.

296 ‘Defining Markets. Making It Big’, Presidents Institute Summit, Copenhagen, 9 April 2015. Available at http://ec.europa.eu/commission/2014-2019/vestager/announcements/defining-markets_en (retrieved on 15 April 2015). 297 Summary available at http://ec.europa.eu/europe2020/europe-2020-in-a-nutshell/priorities/index_en.htm (retrieved on 15 April 2015).

59

TABLE OF CASES

Judgments of the Court of Justice of the European Union

1. T-411/07, Aer Lingus v. Commission, [2010] ECR II-03691 (ECLI:EU:T:2010:281);

2. T-342/99, Airtours v. Commission, [2002] ECR II-02585 (ECLI:EU:T:2002:146);

3. C-2/01 P, C-3/01 P, BAI and Commission v. Bayer, [2004] ECR I-00023

(ECLI:EU:C:2004:2);

4. C-413/06 P, Bertelsmann and Sony Corporation of America v. Impala, [2008] ECR I-

04951 (ECLI:EU:C:2008:392);

5. C-142/84, 156/84, British American Tobacco Company and R. J. Reynolds Industries v.

Commission, [1987] ECR 04487 (ECLI:EU:C:1987:490);

6. C-202/06 P, Cementbouw Handel & Industrie BV v. Commission, [2007] ECR I-12129

(ECLI:EU:C:2007:814);

7. C-6/72, Europemballage Corp and Continental Can Co Inc v. Commission, [1973] ECR-

00215 (ECLI:EU:C:1973:22);

8. C-85/76, Hoffmann-La Roche & Co. AG v. Commission, [1979] ECR-00461

(ECLI:EU:C:1979:36);

9. C-41/90, Höfner and Elser v. Macrotron, [1991] ECR I-01979 (ECLI:EU:C:1991:161);

10. C-557/12, Kone and Others, n. y. r. (ECLI:EU:C:2014:1317);

11. T-305/94, Limburgse Vinyl Maatschappij NV v. Commission, [1999] II-00931

(ECLI:EU:T:1999:80);

12. C-180/98, Pavlov and Others, [2000] I-06451 (ECLI:EU:C:2000:428);

13. T-342/07, Ryanair v. Commission, [2010] ECR II-03457 (ECLI:EU:T:2010:280);

14. C-8/08, T-Mobile Netherlands BV and others, [2009] I-04529 (ECLI:EU:C:2009:343);

15. C-27/76, United Brands Company and United Brands Continentaal BV v. Commission,

[1978] ECR-00207 (ECLI:EU:C:1978:22).

Decisions of the European Commission

1. IV/34.857, BT/MCI, Commission decision of 27 July 1994, OJ L 223, 27.8.1994, p. 36;

2. COMP/M.5406 – IPIC/MAN Ferrostaal AG, Commission decision of 13 March 2009,

OJ C 114, 19.5.2009, p. 8;

3. IV/34.410, Olivetti/Digital, Commission decision of 11 November 1994, OJ L 309,

2.12.1994, p. 24;

4. COMP/M.4439 - Ryanair/Aer Lingus I, Commission decision of 27 June 2007, OJ C 47,

20.2.2008, p. 9, confirmed by the General Court in Case T-342/07;

5. COMP/M.4439 - Ryanair/Aer Lingus I, Commission decision of 11 October 2007,

confirmed by the General Court in Case T-411/07;

6. COMP/M.6663 - Ryanair/Aer Lingus III, Commission decision of 27 February 2013,

OJ C 216, 30.7.2013, p. 22;

60

7. COMP/M.3653 – Siemens/VA Tech, Commission decision of 13 July 2005, OJ L 353,

13.12.2006, p. 19;

8. COMP/M.2416 – Tetra Laval/Sidel, Commission decision of 30 January 2002, OJ L

38, 10.2.2004, p. 1;

9. COMP/M.4153 – Toshiba/Westinghouse, Commission decision of 19 September

2006, OJ C 10, 16.1.2007, p. 1;

10. COMP/M.1673 - VEBA/VIAG, Commission decision of 13 June 2000, OJ L 188,

10.7.2001, p. 1;

11. IV/33.440, Warner-Lambert v. Gillette, Commission decision of 10 November 1992,

OJ L 116, 12.5.1993, p. 21.

Soft Legal Documents of the European Commission

1. Annex I to Commission Staff Working Document: Towards more effective EU merger

control, SWD (2013) 239 final, part 2/3: Economic Literature on Non-Controlling Minority

Shareholdings (“Structural Links”);

2. Annex II to Commission Staff Working Document: Towards more effective EU

merger control, SWD (2013) 239 final, part 3/3: Non-controlling minority shareholdings

and EU merger control;

3. Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No

139/2004 on the control of concentrations between undertakings, OJ C 95, 16.4.2008, p. 1;

4. Commission Staff Working Document. Accompanying the document White Paper:

Towards more effective EU merger control, SWD (2014) 221 final;

5. Commission Staff Working Document. Executive Summary of the Impact

Assessment. Accompanying the document White Paper: Towards more effective EU merger

control, SWD (2014) 218 final;

6. Commission Staff Working Document. Impact Assessment. Accompanying the

document White Paper: Towards more effective EU merger control, SWD (2014) 217 final;

7. Commission Staff Working Document. Towards more effective EU merger control,

SWD (2013) 239 final, part 1/3;

8. Green Paper on the Review of Council Regulation (EEC) No 4064/89, COM (2001)

745 final;

9. Guidelines on the assessment of horizontal mergers under the Council Regulation on

the control of concentrations between undertakings, OJ C 031, 05.02.2004, p. 5;

10. Guidelines on the assessment of non-horizontal mergers under the Council

Regulation on the control of concentrations between undertakings, OJ C 265, 18.10.2008,

p. 7;

11. White Paper: Towards More Effective EU Merger Control, COM (2014) 449 final.

61

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