Minority Shareholdings Under Antitrust Law: A Regulatory Gap?
Paul Lugard, Jan 10, 2012
It is hard to underestimate the importance of minority shareholdings in today's economy. This applies to investments of private, non-financial institutions and institutional investors alike. Minority shareholdings, even between competing companies, are a widespread phenomenon in sectors as diverse as banking, insurance, energy, air travel, high-tech electronics, and automotive. The OECD estimates that in 2009 institutional investors alone managed financial assets in excess of $53 trillion including $22 trillion in equities in the OECD area. The European Private Equity and Venture Capital Association states that in 2007 approximately 5200 European companies received private equity investments.
In many cases the equity stakes that private equity investors receive for funding remain well below the threshold that ordinarily triggers antitrust concerns. In other cases investors have some limited influence to support the company at hand, and in yet other cases investors will seek influence that extends to the determination of the company's strategic market conduct.
It has been firmly established that minority shareholdings that do not involve rights and means to confer the possibility of exercising "decisive influence" on a firm, and might at first glance appear innocuous, may, upon proper inspection and under specific circumstances, give rise to anticompetitive unilateral and coordinated effects. Interestingly, some economic research demonstrates that these concerns may also arise even if a competitor directly or indirectly holds an entirely passive minority interest in a competitor and is not represented in the competing company's board or has access to sensitive information.
Minority participations have long received the attention of antitrust agencies in many jurisdictions. However, these types of business transactions receive different treatment under antitrust and merger control laws in various jurisdictions. Indeed, antitrust agencies in Germany, Austria, and a number of other countries require prior notification for acquisitions of minority shareholdings above 25 percent, irrespective of market circumstances and the rights conferred to the holder of the stake. In the United Kingdom, as well, there is a 25 percent threshold, but applied in a different manner. Although there is a presumption of "material influence" irrespective of the status of the rest of the company's equity, the notification remains voluntary. In the United States, Section 7 of the Clayton Act provides for an "investment only" exception that serves, in effect, as a safe harbor for partial equity investors. In other jurisdictions, such as the European Union, prior notification of the acquisition of an equity minority interest or an interlocking directorship is only required if the acquisition leads to decisive influence over the target company.
The antitrust treatment of minority shareholdings has, over the past few years, attracted new attention. In 2008, the OECD organized a roundtable discussion on antitrust issues involving minority shareholdings and interlocking directorates. And more recently in the European Union, in a speech delivered on March 10, 2011 that seems at least in part fuelled by the Commission's inability to require Ryanair to divest itself of a 29.82 percent minority stake in Aer Lingus, the Commissioner for Competition, Joaquín Almunia, expressed his concern about the fact that the European Merger Control Regulation does not apply to minority shareholdings and has announced that the Commission will "see whether it is significant enough for us to try and close this gap in EU merger control.