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15 August 2019
The Competition and Markets Authority (CMA) can open an investigation and impose initial enforcement orders where it has reasonable grounds to suspect that two or more enterprises have ceased to be distinct.(1) This includes circumstances in which an acquirer purchases only a minority shareholding in the target business because, under the UK merger control regime, two or more enterprises cease to be distinct where they are brought under "common ownership or common control".(2) Three levels of control are recognised in this regard:
In practice, the CMA will treat de facto control and material influence as de jure control for the purposes of a Phase 1 investigation.(6)
In assessing material influence, the CMA will consider all of the circumstances of the case, including:
While the CMA does not apply a list of exhaustive criteria in relation to voting rights conferred by a minority shareholding, there are some general rules.
Shareholder voting rights of more than 25%
As a general rule, the CMA is likely to view the acquisition of shareholder voting rights of more than 25% as conferring material influence, given that this level of minority shareholding would typically allow the acquirer to block decisions requiring a special resolution.(7)
Shareholder voting rights of 15% to 25%
The CMA may examine acquisitions of shareholder voting rights of 15% to 25% in order to consider whether these might enable the acquirer to exercise material influence over the commercial policy of the target business. For example, by reference to:
Shareholder voting rights of less than 15%
At levels of shareholder voting rights below 15%, the CMA may exceptionally choose to examine acquisitions where other factors indicate that material influence may arise.
With regard to the board of the target business, depending on the circumstances of the case, board representation alone may be sufficient to confer material influence or may be considered among other factors when assessing material influence.
When considering the significance of board representation, the CMA is likely to examine aspects including the expertise and experience of the acquirer's board nominee.(10)
The CMA may also consider a range of other relevant factors, including:
Parties can anticipate that the CMA will take a holistic approach when considering whether the acquisition of a minority shareholding would give rise to (at least) material influence, and result in "two or more enterprises ceasing to be distinct" for the purposes of the UK merger control regime.
For further information on this topic please contact Bernardine Adkins or Samuel Beighton at Gowling WLG by telephone (+44 207 379 0000) or email (email@example.com or firstname.lastname@example.org). The Gowling WLG website can be accessed at www.gowlingwlg.com.
(7) See, for example, the Ryanair/Aer Lingus merger inquiry, in relation to which Ryanair's acquisition of a 29.8% stake in Aer Lingus was investigated under the UK merger control regime, with Ryanair subsequently required to sell its stake in Aer Lingus down to 5%.
(9) See, for example, ME/1316/03 completed acquisition by VB Autobatterien GmbH, in which Robert Bosch GmbH has material influence of Optima Batteries AB and certain assets and companies constituting Johnson Controls Batterien, OFT decision of 26 September 2003, which provides that "Bosch's existing 20 per cent shareholding in VB, and the fact that Bosch has the ability to veto strategic commercial decisions, is in our view sufficient to confer on Bosch the ability to materially influence VB".
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