The European Antitrust Review 2014 Section 2: EU industry sectors

Private Equity

Private Equity: All Change for EU Merger Control?

Merger control plays a key role in acquisitions and when they involve private equity firms, they frequently result in at least one national merger filing in the EEA and quite often a merger filing under the EU Merger Regulation (EUMR). In 2012, there were 283 merger filings1 made to the European Commission (Commission) under the EUMR, of which almost 14 per cent involved at least one private equity firm.

In November 2012, Joaquín Almunia, Commission Vice President and European Commissioner for Competition, announced that he planned to modify the EUMR, which has been in existence for almost a decade. First, he proposed to streamline the merger review system to enable the Commission to ‘focus on the cases that have a real impact on competition and consumers in the internal market and require complex analyses’. However, he also identified an ‘enforcement gap’ in respect of acquisitions of non-controlling minority interests, as these types of transactions do not currently require notification under the EUMR even though they may raise competition concerns.2

Subsequently, in 2013 the Commission launched two public consultations regarding proposed changes to the EUMR, including extending the scope of the simplified procedure3 and extending the application of the EUMR to acquisitions of non-controlling minority shareholdings.4 While the proposed modifications to the simplified procedure should in theory reduce the reporting costs for private equity firms, an obligation on firms to notify acquisitions of non-controlling shareholdings at a level caught by national law requiring a filing in an EU member state would have the opposite effect.

Non-controlling minority shareholdings

Private equity firms that acquire only a minority interest in a target company with no controlling rights often avoid any merger filings. However, on 20 June 2013, the Commission launched a consultation to extend the scope of the EUMR to non-controlling minority shareholdings (referred to as ‘structural links’ by the Commission).

Current regime

The EUMR applies to ‘concentrations’ and a transaction only constitutes a concentration if it results in a change of control on a lasting basis over an undertaking.5A change of control arises when either two or more previously independent undertakings merge, where an undertaking acquires control over another undertaking, or in relation to the creation of a joint venture where two or more undertakings acquire control over a previously independent undertaking.6

Under the EUMR, ‘control’ is not limited to the acquisition of a majority shareholding (de facto control).7 It also includes the acquisition of any right that confers the possibility of exercising decisive influence over the strategic commercial decisions of an undertaking (de jure control).8 Therefore, the acquisition of a minority shareholding may result in de jure control if, for example, the shares have special rights which enable the minority shareholder to appoint more than half of the members of the supervisory or administrative board of the target; or the right to veto strategic commercial decisions of the target, such as the budget, business plan or the appointment of senior management.9

Under the current regime, private equity firms only need to notify a transaction and obtain merger clearance from the Commission if the transaction results in them obtaining de jure or de facto control of an undertaking, and the turnover thresholds of the EUMR are met. The EUMR would not apply if a private equity firm only acquired a minority holding in an undertaking with no controlling rights, even if the turnover thresholds are met. This contrasts with the national merger control regimes in three EU member states, namely, Austria, Germany and the UK, which do allow the review of structural links.

The Commission considers that acquisitions of structural links may, in some cases, lead to anti-competitive effects.10 However, the Commission does not think that it currently has the ability to systematically prevent anti-competitive effects deriving from such structural links. This can be illustrated in the case of Ryanair’s non-controlling minority shareholding in Aer Lingus.11

Ryanair gradually increased its shareholding in its competitor, Aer Lingus, from 19.16 per cent up to 29.82 per cent, prior to notifying its proposed acquisition of control of Aer Lingus to the Commission in 2006. As a consequence of the competitive concerns expected to result from the proposed hostile takeover, the Commission prohibited the transaction. However, as the EUMR only enables the Commission to consider the ex-ante review of operations leading to the acquisition of control, it did not have the jurisdiction to review Ryanair’s previously acquired structural link in Aer Lingus. This was confirmed by the General Court in 2010.12

Ryanair/Aer Lingus demonstrates the Commission’s inability to adequately examine structural links, as it does not currently have the power to request undertakings to fully or partially divest a minority shareholding. The Commission, therefore, wishes to extend the scope of the EUMR to close this ‘enforcement gap’.

Current powers relating to structural links

The Commission is currently only able to review the pre-existing structural links of the parties in the context of a separate acquisition of control, which is notified under the EUMR. In its Consultation Paper, the Commission states that it has intervened in such cases in a significant number of transactions. In some of these cases, the parties offered to divest pre-existing minority shareholdings in order to remedy the competition concerns raised by the transactions.

For example, Glencore/Xstrata13 involved the acquisition of Xstrata, the fifth-largest metals and mining group in the world, by Glencore, the world’s leading metals and thermal coal trader. Glencore was also the largest supplier of zinc metal in the EEA on the basis of an exclusive off-take agreement with Nyrstar, the world’s largest zinc metal producer, in which Glencore also had a 7.79 per cent minority shareholding. The Commission’s investigation found that the acquisition, as initially notified, gave rise to competition concerns through unilateral effects, increasing the merged entity’s ability and incentive to control the level of zinc metal supplies in the EEA.

In order to remove these concerns Glencore committed inter alia to terminate its exclusive long-term off-take agreement with Nyrstar, to the extent that the agreement related to commodity zinc products produced by Nyrstar in the EEA, and to divest its minority shareholding in Nyrstar so that Nyrstar would remain an independent supplier of zinc.

Merger control in Austria, Germany and the United Kingdom

In the EU, Austria, Germany and the UK have national merger control regimes that enable the review of structural links.

In Austria14 and Germany,15 a merger filing is triggered by a proposed acquisition of 25 per cent (subject to the relevant turnover thresholds being met) and it can also be triggered with a smaller shareholding in certain circumstances.16 Both Austria and Germany operate mandatory merger control regimes. Therefore, if the thresholds are met, a filing must be submitted otherwise the acquirer risks being fined or subject to other penalties.

In the UK, the OFT can review a transaction that enables the acquirer to exercise ‘material influence’ over the policy of the target.17This can be the acquisition of just a 15 per cent shareholding or even less if factors indicating the ability to exercise influence over the target’s policy are present.18 The assessment of material influence is done on a case-by-case basis and the OFT considers a number of factors similar to those considered by the Commission when determining ‘control’.

In 2011, the Austrian competition authority examined 226 notified merger transactions of which 34 were minority acquisitions with a shareholding below 50 per cent. Minority acquisitions accounted for approximately 15 per cent of all mergers notified in Austria (irrespective of whether or not they conferred de facto control). In Germany, acquisitions of minority shareholdings account for approximately 12 per cent of all mergers notified to the German competition authority. However, although transactions involving the acquisition of a 25 per cent shareholding account for about 10 per cent of both notifications and prohibitions, transactions notified under the ‘competitively significant influence’ criterion account for only about 0.6 per cent of all notified cases but of about 11 per cent of all mergers prohibited.

In the UK, acquisitions of minority shareholdings account for about 5 per cent of all transactions reviewed by the OFT. In contrast with Austria and Germany, the UK operates a voluntary merger control regime.

Commission’s proposals

The Consultation Paper discusses two potential options to review acquisitions of structural links: a notification system in which all non-controlling stakes that meet certain thresholds would trigger a filing; and a system where the Commission would select cases at its own discretion. It is too early to say which regime the Commission will opt for.

Notification system

Under the notification system, acquisitions of structural links of a certain level would have to be notified to the Commission in advance and could not be implemented before receiving approval. Such acquisitions would, therefore, be subject to the same notification requirements as acquisitions of control.

The Consultation Paper does not propose a shareholding level that would trigger a merger filing. However, it discusses defining safe harbours to determine which transactions would fall outside the Commission’s jurisdiction, for example, 10 per cent and/or the absence of special shareholder rights. The Commission is of the view that such safe harbours should provide legal certainty for companies considering acquiring a minority shareholding in a company.

Case selection system

Under the case selection system, the Commission would have the discretion to select certain acquisitions of structural links to review. Two possible proposals are put forward:

  • Under the self-assessment system, there would not be an obligation to notify acquisitions of structural links. Instead, the Commission would have the discretion to decide whether and when to commence an investigation of such acquisitions which may raise competition concerns based on its own market intelligence or complaints.
  • With the transparency system, parties to a prima facie problematic structural link would be required to file a short information notice to the Commission. This notice would be published in order to make third parties and EU member states aware of the transaction.

If a case selection system is adopted, the Commission expects to issue guidelines identifying the acquisitions of structural links that are prima facie likely to raise competition concerns.

Whichever system is adopted, the Consultation Paper makes clear that the turnover thresholds in the EUMR that establish the Commission’s jurisdiction for full concentrations would apply equally to structural links. The substantive test for full concentrations (ie, whether a transaction ‘significantly impedes effective competition’) would also apply in assessing structural links.


The procedural aspects will, to a large extent, depend on whether a notification or a case selection system is adopted. If the latter, the question arises as to whether parties should be given the option to submit a voluntary notification in order to have legal certainty and, if so, whether this option should only apply to transactions that have not yet been implemented so that a standstill obligation preventing the parties from closing the transaction pending review could be imposed.

The Consultation Paper states that if a case selection system is chosen and the Commission decides to investigate a case, it would request the parties to submit a full merger filing, which would be subject to the normal procedural deadlines and, for transactions that have not yet been completed, a standstill obligation would apply.

If a notification system were adopted, a form requiring the parties to provide only very limited information may be used. The Commission is considering whether there should be an automatic standstill obligation or whether it could be imposed by a separate decision similar to the current system in the UK.

The extension of the Commission’s jurisdiction to structural links is likely to result in increased costs and delay for private equity firms that only wish to acquire a minority interest in a company. The Commission has stated that if the notification system is adopted, only a limited amount of information regarding the acquisition would need to be submitted. However, the Commission often examines transactions notified under the simplified procedure in some detail. Therefore, it is likely to do the same with acquisitions of structural links particularly when the rules are in their infancy. If a case selection system is adopted, which would be Commissioner Almunia’s preference,19 the Commission would need to ensure that legal certainty prevails so that it is clear to parties acquiring a structural link if their acquisition is likely to fall under the Commission’s scrutiny.

Further, if the Commission’s proposals are implemented, there is a chance that the EU member states may amend their merger control rules so that they may also review acquisitions of structural links behind the current regimes of Austria, Germany and the UK.

Some simplification

Outside the issue of structural links, the Commission is also considering changes which could reduce the burden on some private equity deals. Currently, the turnover thresholds under the EUMR can be met in the case of a joint venture solely on the basis of the EU turnover of two controlling parent companies even if the joint venture itself has no turnover or assets in the EU. This rule often catches many club deals where two private equity firms have revenues in the EU and the target has none. Although these types of deals normally fall under the Commission’s simplified procedure, the requirement to submit a filing still results in unnecessary costs and delay for the parties. The Commission is proposing to remove from its jurisdiction ‘concentrations that do not have any effect in the EEA, such as the creation of a full-function joint-venture located and operating outside the EEA and that would not have any conceivable impact on markets in the EEA’.20

The Commission is also proposing to extend the application of the simplified procedure to two types of cases often relevant to private equity.

  • Currently, if there are overlaps between the parties’ activities, transactions can only benefit from the simplified procedure if: the parties have a combined market share of less than 15 per cent if they are active in the same market (horizontal relationships); or they each have an individual market share of less than 25 per cent if they are active in upstream and downstream markets (vertical relationships). The Commission proposes to increase these thresholds to 20 per cent and 30 per cent, respectively.
  • The Commission is proposing to introduce the possibility of using the simplified procedure for certain types of horizontal mergers where: the combined market share of the merging parties is less than 50 per cent under all plausible alternative market definitions; and where the increment in market share resulting from the transaction is small.21

Furthermore, in cases concerning the acquisition of joint control, the Commission will no longer consider the horizontal or vertical relationships between the parent companies acquiring joint control for the purpose of assessing if the transaction can qualify for the simplified procedure. If implemented, this would be an important change for private equity firms acquiring joint control, as they currently have to assess the extent of any overlaps between their controlled portfolio companies.

The proposed changes to the simplified procedure should, if implemented, reduce the burden on private equity firms, as more of their acquisitions should benefit from the simplified procedure. However, as the parties will still need to provide information on all plausible alternative market definitions in the case of any horizontal or vertical relationships between the parties, and estimated market share information in respect of any reportable markets, it will remain to be seen to what extent the administrative burden on the parties will actually be reduced.


Both of the Commission’s proposals to amend the EUMR, if implemented, could have significant implications for private equity firms. On the one hand, more transactions should be reviewed under the Commission’s simplified procedure and joint ventures with no effects in the EEA may be relieved of any notification requirements, thereby resulting in reduced legal fees and less preparatory work. On the other hand, acquisitions of structural links may fall under the scrutiny of the Commission, which could increase the administrative burden on private equity firms and delay such transactions.

The Commission should decide on both proposals later in 2013.


  1. Commission DG Competition’s statistics on mergers, available at:
  2. Speech: Joaquín Almunia, ‘Merger review: Past evolution and future prospects’ (2 November 2012), available at:
  3. Commission Press Release: ‘Mergers: Commission consults on proposal for simplifying procedures under the EU Merger Regulation’ (27 March 2013). Available at:
  4. Commission Staff Working Document, ‘Towards more effective EU merger control’ and Annexes (‘Consultation Paper’), available at:
  5. Article 3(1) of the EUMR.
  6. Ibid.
  7. A minority shareholder may also be deemed to have de facto control if it is highly likely to obtain a majority of the votes at shareholders’ meetings based on the level of its shareholding and the evidence resulting from the presence of shareholders in the shareholders’ meeting in previous years.
  8. Article 3(2) of the EUMR.
  9. Paragraphs 56 and 57 of the Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (2008/C 95/01).
  10. The Commission has published an annex to its Consultation Paper with an examination of the economic literature on the potential anti-competitive effects of acquisitions of non-controlling minority shareholdings.
  11. Case No. COMP/M.4439 – Ryanair/Aer Lingus.
  12. Case T-411/07 Aer Lingus v Commission [2010] ECR II-3691.
  13. Case No. COMP/M.6541.
  14. Section 7(1) of the Austrian Cartel Act 2005 (ACA).
  15. Paragraph 37(1) no 3 of the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, GWB).
  16. The Austrian courts have developed jurisprudence under which a transaction falls within the definition of a notifiable ‘concentration’ if a shareholding of less than 25 per cent is acquired (either a capital interest or voting rights) and it confers rights normally only held by a shareholder owning a 25 per cent interest. With regards to Germany, paragraph 37(1) no 4 GWB provides the qualitative criterion of an acquisition of a participation providing the acquirer with a ‘competitively significant influence’ on the target.
  17. Section 26(3) of the Enterprise Act 2002.
  18. Paragraph 3.20 of the OFT’s ‘Mergers: Jurisdictional and Procedural Guidance’ (June 2009) available at:
  19. Speech: Joaquín Almunia, ‘Merger review: Past evolution and future prospects’ (2 November 2012).
  20. Section IV. Miscellaneous of the Consulting Paper.
  21. The increment delta of the Herfindahl-Hirschman Index (HHI) resulting from the transaction is below 150. The HHI is calculated by summing the squares of the individual market shares of all firms in the market.

Kirkland & Ellis International LLP

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Pierre-Andre Dubois

With more than 100 years of experience handling the toughest antitrust matters, Kirkland & Ellis offers clients expedited transaction clearance in complex cases and real-world counselling experience as well as preeminent criminal and civil antitrust litigation defence, and government investigation. With six offices in the US and four offices in Europe and Asia, Kirkland & Ellis’ integrated team of lawyers provides seamless representation to its clients worldwide.

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