EU antitrust law, and laws based in EU law, prohibit anticompetitive agreements between separate competing undertakings (Article 101 TFEU) and abuse of a dominant position by a single firm or a group of separate undertakings that are connected by either legal, economic or structural links (Article 102 TFEU). Merger laws target mergers or acquisitions where two competitors come under (full or partial) common ownership and control – they become a single undertaking and therefore cease to compete in the market. Under the EU Merger Regulation (EUMR), partial acquisitions are subject to ex ante review if they entail a ‘lasting change of control’ of the undertakings concerned. Minority shareholding acquisitions that confer ‘control’ - defined as ‘decisive influence’ pursuant to Article 3 of the EUMR - either on a de jure or a de facto basis on the acquirer may trigger merger scrutiny in the EU. Minority shareholdings that are considered ‘non-controlling’ fall outside the scope of the EU merger regime. Yet, other jurisdictions in Europe rely on broader jurisdictional tests to bring partial ownership acquisitions within their merger control rules. For instance, the UK employs a ‘material influence’ threshold and Germany a ‘competitively significant influence’ threshold that allows them to scrutinise minority shareholdings that escape EU scrutiny.
US merger control (Section 7 of the Clayton Act) is even broader than any of these regimes. Its substantive prohibition relies on an ‘effects-based’ test: any merger that leads to likely anticompetitive effects (i.e. ‘may be substantially to lessen competition’) is unlawful. According to US case law, ‘control’ is not a necessary or decisive factor for finding that an acquisition violates Section 7 of the Clayton Act (Denver & Rio Grande, 501). Therefore, any potentially harmful minority shareholdings may in principle run afoul US merger rules. The Horizontal Merger Guidelines (§13) reiterate this principle: the antitrust agencies will review ‘partial acquisitions that do not result in effective control’ for ‘any way’ they may affect or lessen competition, focusing in particular on (i) the acquirer’s ability to influence the competitive conduct of the target; (ii) a reduction in the acquirer’s incentive to compete; (iii) access to non-public, competitively sensitive information of the target (or acquiring) firm. There is however a ‘solely for investment’ exemption for substantive (and filing) purposes under US merger law, which applies under strict requirements and allows for more lenient treatment of actually ‘non-controlling’ or ‘passive’ minority shareholdings. These may be subject to review and liability if antitrust agencies can show ‘actual’ anticompetitive effects, rather than ‘likely’ effects as in other merger cases. Further, ‘passive’ minority shareholdings are liable under US merger law at ‘any time’ – not only at the time of their acquisition, when they may be considered lawful, but also later when they may face ex post scrutiny because ‘subsequent use of the stock’ makes it anticompetitive (du Pont, 597-598, 607).
In addition, minority shareholdings that do not bring about a change of ownership and control between the interlinked undertakings, or otherwise fall outside merger control, may still be captured by antitrust rules. Long-standing EU case law that precedes the adoption of the EU-wide system of merger control had crystalised this principle. Pursuant to Philip Morris, Article 101 TFEU may apply to agreements between undertakings based on which a minority shareholding is acquired when it is shown that in light of its economic and legal context, such agreement has “the object or effect of influencing the competitive behaviour of the companies on the relevant market” (para 45). The European Court of Justice further clarified in this case that “the acquisition by one company of an equity interest in a competitor does not in itself constitute conduct restricting competition” but it “may nevertheless serve as an instrument for influencing the commercial conduct of the companies in question so as to restrict or distort competition on the market on which they carry on business” (para 37). That is, shareholding acquisitions are not a ‘by object’ restriction but need to be evaluated based on their effects. Accordingly, a minority shareholding may be found to be restrictive of competition if it gives rise to either coordination or exchange of commercially sensitive information, or to effective control, at present or in the future, or some degree of influence over the competitor’s commercial conduct (paras 38-40). It is debatable whether the scope of the ‘influence’ standard under Article 101, which is lower than ‘decisive’ influence under the EUMR, is flexible enough to address seemingly passive minority shareholdings that merely give rise to unilateral anticompetitive effects. The main limitation of Article 101 is that it requires a finding of ‘agreement’ or at least ‘concerted practice’ (i.e. some element of reciprocity rather than a unilateral act) between ‘undertakings’ (rather than an undertaking and an individual with no independent economic activity) for a potentially anticompetitive minority shareholding to come within its ambit.
Article 102 TFEU may on the other hand cover unilateral acquisitions of a minority shareholding by undertakings in a dominant position if found to be abusive. In this context, Philip Morris established that abuse under Article 102 “can only arise where the shareholding in question results in effective control of the other company or at least in some influence on its commercial policy” (para 65). The Commission’s decision in Gillette later confirmed that even an indirect, non-voting minority interest in a competitor in connection with other special factors (financial loan arrangements and other agreements) could be found to violate Article 102. This case made clear that the ‘influence’ standard under Article 102 is even lower and more malleable than the one under Article 101. As such, Article 102 may tackle further instances of potentially anticompetitive minority shareholdings that are otherwise hard to reach under EU competition law. Specifically, it was considered that the creation of the link(s) between the acquirer and its main competitor had changed the structure of the market with adverse effects on competition (i.e. its behaviour ‘influenced’ market conditions), which a dominant undertaking has a ‘special responsibility’ not to impair in the common market (para 23). Gillette is important because it is the only antitrust case where disposal of the equity interest and its interest as creditor has been ordered by the Commission (para 42). The drawback of Article 102 is that it requires a finding of ‘dominance’ besides abuse to apply.
These antitrust rules have been sparingly applied after the coming into force of the EUMR in 1990 and have fallen to complete disuse after the modernisation of the EU antitrust enforcement system and its decentralisation in 2003. Recent EU jurisprudence has reaffirmed however that Articles 101 and 102 TFEU can scrutinise and remedy anticompetitive conduct arising out of ‘non-controlling’ minority shareholdings, which escape ex ante merger scrutiny, following their acquisition (Order of the President of the Court of First Instance in Aer Lingus, para 103). Articles 101 and 102 have national equivalents in EU Member States and similar antitrust provisions exist in the United Kingdom and in the United States that may address minority shareholdings that raise competition concerns. US antitrust law (Sections 1 and 2 of the Sherman Act) is more encompassing as its application is not restricted to ‘undertakings’ but applies to anticompetitive practices of any ‘persons’ including natural ones. Accordingly, an acquisition of a minority shareholding by an individual shareholder in a business entity could be liable under US antitrust law.