Are you jumping the gun?
There can be more to minority shareholdings than initially meets the eye, particularly those which involve a 'creeping influence'.
Generally speaking, deals which satisfy certain turnover thresholds and involve the acquisition of legal or de facto control by one party of another must be notified to the Commission. 'Control' is defined as the ability to exercise 'decisive influence' over the commercial policy of a company e.g. by taking strategic decisions on the budget, business plans and key personnel appointments. Implementing a reportable transaction before obtaining clearance (a.k.a. gun-jumping) can expose parties to fines of up to 10% of annual group worldwide turnover. It can even kill the deal.
Last week Nordic company, IF P&C Insurance, notified the Commission of its control over Copenhagen-listed 'Topdanmark'. IF has been a minority shareholder of Topdanmark since 2008 (currently holding 25.18% shares) but unintentionally obtained de facto control during 2011-2013 due to a share buy-back programme. The Commission is now investigating exactly when control was obtained, potentially exposing IF to 'gun-jumping' fines.
Creeping shareholdings make it complicated to assess if and when control arises but, by the same token, failing to spot the transition to control has already led to beefy fines. Such was the fate of Belgian Electrabel, which coughed up €20m for obtaining control over CNR in 2003 without first securing Commission clearance. This was despite Electrabel having only acquired a minority stake, having voluntarily notified the deal (albeit in 2009) and despite there being no substantive competition concerns.
It's not just the Commission which treats a failure to notify seriously:
- A few weeks ago, the Dutch ACM fined car dealer Motorhuis (and its parents) €500,000 for failing to notify the acquisition of Butlers Group activities. Motorhuis' conduct was compared to driving through a red light – only when it passed the traffic light did its infringement stop;
- In 2008, the Bundeskartellamt fined Mars a whopping €4.5m for knowingly implementing its acquisition of Nutro Products before clearance;
- In Ireland, failure to notify within a set time limit can constitute a criminal offence, potentially incurring fines between €3,000-250,000.
This seemingly zero-tolerance to implementation prior to clearance, even if it took place years ago, is a stark reminder of the careful need to scrutinise the status of minority shareholdings and to question whether they should be notified to the authorities.