NautaDutilh submits reaction to EU consultation on control of minority shareholdings
This summer, the EC issued a consultation paper on two proposals to reform the EU merger control system. The first relates to minority shareholdings, the second to referrals. NautaDutilh's Competition Group recently submitted a reaction.
The first proposal relates to an enlargement of the scope of application of the EU Merger Regulation to non-controlling minority shareholdings. Currently, non-controlling minority shareholdings are not subject to a special competition review system: as they do not constitute concentrations, they are not caught by a notification obligation under the EUMR. There have been cases, however, where such shareholdings have been assessed by the Commission under the prohibition of restrictive agreements laid down in Article 101 TFEU.
The consultation paper's proposals
According to the Commission, non-controlling minority shareholdings may in certain cases harm competition, but may at the same time be difficult for the Commission to assess under Article 101 TFEU: when they relate to a listed company, they are not necessarily based on an agreement within the meaning of that provision and the Commission would then lack jurisdiction.
The Commission therefore proposes to widen the scope of the EUMR so as to encompass non-controlling minority shareholdings. The consultation paper presents various procedural options, ranging from a full prior notification system to systems where the Commission could claim jurisdiction only in respect of problematic cases. For the latter situation, the Commission proposes two options: a light notification system referred to as "transparency system", whereby companies concerned would give only limited information on the intended shareholding or self-assessment by the parties, with a possibility for the Commission to claim jurisdiction based on complaints or own intelligence.
NautaDutilh has serious misgivings about the enlargement of the EUMR system to encompass non-controlling minority shareholdings. If it goes through, it should be kept as light as possible, without creating legal uncertainty.
We also submit that the system should only extend to minority shareholdings expressed in terms of a minimum percentage of voting rights, and not to other types of structural links, and that the safe harbour level should be set at least at 25% of the voting rights (meaning that non-controlling minority shareholdings of less than 25% of the voting rights are not caught by the Commission's review).
The second proposal relates to two of the mechanisms for the referral of cases between the Commission and the Member States' national competition authorities (NCAs). Currently, article 4(5) EUMR enables parties to a concentration which can be reviewed in at least three EU Member States to request a referral of the case to the Commission. Although a referral is efficient, as it replaces multiple national filings by one EU filing, the double notification procedure (referral request and actual notification) usually results in a delay of two months.
Article 22 EUMR provides for the possibility, for NCA's, to refer a case to the Commission, irrespective of whether or not they have jurisdiction over the case under their national system. This provision, which is also referred to as the “Dutch Clause”, was originally introduced at the request of the Netherlands, which, at the time, did not have a national merger control system and wanted to be able to request the Commission to review problematic mergers that would otherwise have affected its market. It has, however, evolved in a wildcard system for the referral of complicated cases to the Commission.
The consultation paper's proposals
The Commission proposes to make it possible for merging parties to file directly with the Commission (without a preceding Article 4(5) referral request) when a transaction can be reviewed in at least three Member States. These Member States would then have a 15 working day period to oppose the referral, thereby retaining jurisdiction. This opposition period could start during pre-notification.
As regards the Member States' possibility to refer a case to the Commission under Article 22 EUMR, the Commission suggests that such a referral may only be made by a Member State that has jurisdiction to review the case under its national rules and that it should entail Commission jurisdiction in relation to the entire EU territory.
NautaDutilh welcomes the proposal to enable the parties to a merger to file directly with the European Commission (without a separate referral request), as it will significantly decrease the waiting period by removing the double procedure. We suggest however, that the opposition period start prior to notification. The Commission could transmit to the competent NCAs the first full draft form submitted in pre-notification and the opposition period would then run while the parties finalise this draft.
As regards the other referral system (upon request of a Member State), we submit that it should be abolished. This system has become a liability affecting the European M&A practice, because it creates an uncertainty that cannot be caught in SPAs. If, however, Article 22 is kept in place, its restriction to NCAs that are competent under their national rules goes some way in removing the uncertain outcomes that we have seen over the last few years.
For more information, please download the consultation paper and NautaDutilh's response.