The EU’s competition watchdog, the European Commission, is seeking to upgrade its competition toolkit by giving itself power to review acquisitions of non-controlling minority shareholdings. While on the one hand stating a clear intention to make European merger control rules simpler and less onerous, it may seem odd that the commission is simultaneously consulting on changes that could lead to significantly more private equity transactions triggering notifications in Brussels. The commission’s current powers to review non-control- ling minority holdings – “structural links” – are limited. Its concern is that such links, specifically those between com- petitors and parties in vertical supply relationships, may significantly impede effective competition – for example, where there are common directors, or confidential infor- mation is made available which may result in co-ordination instead of competition between competitors. This perceived “enforcement gap” was discussed in a case involving Ryanair and Aer Lingus, two European air- lines with Irish origins. In that case, the commission pro- hibited Ryanair’s 2007 takeover of Aer Lingus but had no power to order the divestment of Ryanair’s pre-existing minority shareholding. Under current EU law, only mergers that confer “decisive influence” are covered, providing the relevant turnover requirements are met. The Ryanair case was subsequently picked up by the UK competition author- ities, who were able to assess whether the 29.4% share- holding was problematic under the UK’s more expansive “material influence” test. The UK has provisionally found that Ryanair’s shareholding weakens its main competitor, although the final decision is awaited. The commission has set out various options to expand its remit so that in future it would have jurisdiction to inter- vene in these cases. These include broadening the scope of the current mandatory notification procedure to catch all relevant structural links, or allowing the commission to investigate selected potentially problematic cases. This second option would allow a transaction to go ahead with- out prior clearance, but would either require the parties to file a short information notice, to be published on the com- mission’s website, or enable the commission to investigate if and when it became aware of the deal. Each option could have a significant impact on many pri- vate equity and growth capital transactions, most of which are benign in competition terms. A mandatory pre-notification system would provide the most legal certainty, but is also the most disruptive – a transaction may not be able to proceed if the standard “stand-still” obligation is to apply to such transactions, something the commission is consider- ing.…

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