Commission Notice on the concept of concentration under Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings
Date: 1998-03-02
Institutions: European Commission
Subjects: company structure, consortium, economic concentration, merger, merger control, shareholding

2.3.98

EN

Official  Journal  of  the  European  Communities

C  66/5

on  the  concept  of  concentration  under  Council  Regulation  (EEC)  No  4064/89  on  the  control
of  concentrations  between  undertakings

COMMISSION  NOTICE

(98/C  66/02)

(Text  with  EEA  relevance)

I. 

INTRODUCTION

II.  MERGERS  BETWEEN  PREVIOUSLY  INDEPENDENT  UNDERTAKINGS

III.  ACQUISITION  OF  CONTROL

1.  Sole  control

2.  Joint  control

2.1.  Equality  in  voting  rights  or  appointment  to  decision-making  bodies

2.2.  Veto  rights

2.3.  Joint  exercise  of  voting  rights

2.4.  Other  considerations  related  to  joint  control

2.5.  Joint  control  for  a  limited  period

3.  Control  by  a  single  shareholder  on  the  basis  of  veto  rights

4.  Changes  in  the  structure  of  control

IV.  EXCEPTIONS

V.  FINAL

I. INTRODUCTION

1. 

The  purpose  of  this  Notice  is  to  provide  guidance
as  to  how  the  Commission  interprets  the  term
‘concentration’  used 
in  Article  3  of  Council
Regulation  (EEC)  No  4064/89 (1)  as  last  amended
by  Regulation  (EC)  No  1310/97 (2)  (hereinafter
referred  to  as 
‘the  Merger  Regulation’).  This
formal  guidance  on  the  interpretation  of  Article  3
should  enable  firms  to  establish  more  quickly,  in
advance  of  any  contact  with  the  Commission,
whether  and  to  what  extent  their  operations  may
be  covered  by  Community  merger  control.

This Notice replaces the Notice on the notion of a
concentration (3).

(1)  OJ  L  395,  30.12.1989,  p.  1,  corrected  version  OJ  L  257,

21.9.1990,  p.  13.

(2)  OJ  L  180,  9.7.1997,  p.  1.
(3)  OJ  C  385,  31.12.1994,  p.  5.

2. 

3. 

This Notice deals with paragraphs (1), (3), (4) and
(5)  of  Article  3.  The  interpretation  of  Article  3  in
relation  to  joint  ventures,  dealt  with  in  particular
under  Article  3(2),  is  set  out  in  the  Commission’s
Notice  on  the  concept  of  full-function 
joint
ventures.

The  guidance  set  out  in  this  Notice  reflects  the
Commission’s  experience  in  applying  the  Merger
Regulation  since  it  entered  into  force  on  21
December 1990. The principles contained here will
be  applied  and 
the
Commission  in  individual  cases.

further  developed  by 

According  to  recital  23  to  Regulation  (EEC)  No
4064/89, the concept of concentration is defined as
covering  only  operations  which  bring  about  a
lasting  change  in  the  structure  of  the  undertakings
concerned.  Article  3(1)  provides  that  such  a
structural  change  is  brought  about  either  by  a

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merger  between 
independent
undertakings  or  by  the  acquisition  of  control  over
the  whole  or  part  of  another  undertaking.

two  previously 

4. 

the 

The  determination  of 
existence  of  a
concentration  under  the  Merger  Regulation  is
based  upon  qualitative  rather  than  quantitative
criteria,  focusing  on  the  concept  of  control.  These
criteria  include  considerations  of  both  law  and
fact. It follows, therefore, that a concentration may
occur  on  a  legal  or  a  de  facto  basis.

5. 

Article  3(1)  of  the  Merger  Regulation  defines  two
categories  of  concentration:

—  those arising from a merger between previously

independent  undertakings  (point  (a));

—  those  arising  from  an  acquisition  of  control

(point  (b)).

These are treated  respectively in Sections II  and  III
below.

II. MERGERS  BETWEEN  PREVIOUSLY  INDEPENDENT
UNDERTAKINGS

6. 

7. 

A  merger  within  the  meaning  of  Article  3(1)(a)  of
the  Merger  Regulation  occurs  when  two  or  more
independent  undertakings  amalgamate  into  a  new
undertaking  and  cease  to  exist  as  separate  legal
entities.  A  merger  may  also  occur  when  an
undertaking  is  absorbed  by  another,  the  latter
retaining  its  legal  identity  while  the  former  ceases
to  exist  as  a  legal  entity.

the  combining  of 

A  merger  within  the  meaning  of  Article  3(1)(a)
may  also  occur  where,  in  the  absence  of  a  legal
the  activities  of
merger, 
previously  independent  undertakings  results  in  the
creation  of  a  single  economic  unit (4).  This  may
arise 
two  or  more
undertakings,  while  retaining  their  individual  legal
personalities,  establish  contractually  a  common
economic  management (5).  If  this  leads  to  a  de

in  particular  where 

(4)  In  determining  the  previous  independence  of  undertakings,
the  issue  of  control  may  be  relevant.  Control  is  considered
generally  in  paragraphs  12  et  seq.  below.  For  this  specific
issue,  minority  shareholders  are  deemed  to  have  control  if
they  have  previously  obtained  a  majority  of  votes  on  major
decisions  at  shareholders  meetings.  The  reference  period  in
this  context  is  normally  three  years.
for  example, 

the  case  of  a
‘Gleichordnungskonzern’ 
certain
‘Groupements  d’Inte´reˆt  Economique’  in  French  law,  and
certain  partnerships.

(5)  This  could  apply 

in  German 

law, 

in 

is  considered 

facto  amalgamation  of  the  undertakings  concerned
into  a  genuine  common  economic  unit, 
the
operation 
to  be  a  merger.  A
prerequisite  for  the  determination  of  a  common
economic  unit  is  the  existence  of  a  permanent,
single  economic  management.  Other  relevant
factors  may 
loss
compensation  as  between  the  various  undertakings
within 
liability
externally.  The  de  facto  amalgamation  may  be
reinforced  by  cross-shareholdings  between  the
undertakings  forming  the  economic  unit.

internal  profit  and 

the  group,  and 

include 

joint 

their 

III. ACQUISITION  OF  CONTROL

8. 

Article 3(1)(b) provides that a concentration occurs
in  the  case  of  an  acquisition  of  control.  Such
control may be acquired by one undertaking acting
alone  or  by  two  or  more  undertakings  acting
jointly.

Control  may  also  be  acquired  by  a  person  in
circumstances  where  that  person  already  controls
(whether  solely  or  jointly)  at  least  one  other
undertaking  or,  alternatively,  by  a  combination  of
persons 
(which  controls  another  undertaking)
and/or  undertakings.  The  term  ‘person’  in  this
context  extends  to  public  bodies (6)  and  private
entities,  as  well  as  individuals.

As  defined,  a  concentration  within  the  meaning  of
the  Merger  Regulation  is  limited  to  changes  in
control.  Internal  restructuring  within  a  group  of
companies, 
a
concentration.

constitute 

therefore, 

cannot 

is 

to  be  regarded  as  an 

An  exceptional  situation  exists  where  both  the
acquiring  and  acquired  undertakings  are  public
companies  owned  by  the  same  State  (or  by  the
same  public  body).  In  this  case,  whether  the
operation 
internal
restructuring  depends  in  turn  on  the  question
whether  both  undertakings  were  formerly  part  of
the  same  economic  unit  within  the  meaning  of
recital 12 to Regulation (EEC) No 4064/89. Where
the  undertakings  were  formerly  part  of  different
economic  units  having  an  independent  power  of

(6)  Including  the  State  itself,  e. g.  Case  IV/M.157  —  Air
France/Sabena,  of  5  October  1992  in  relation  to  the  Belgian
State,  or  other  public  bodies  such  as  the  Treuhand  in  Case
IV/M.308 — Kali und Salz/MDK/Treuhand, of 14 December
1993.

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the  operation  will  be  deemed 

decision, 
to
constitute  a  concentration  and  not  an  internal
restructuring (7).  Such 
independent  power  of
decision  does  not  normally  exist,  however,  where
the  undertakings  are  within  the  same  holding
company (8).

(Article  3(4)(b)).  The  evidence  needed  to  establish
this  type  of  indirect  control  may  include  factors
such  as  the  source  of  financing  or  family  links.

the  only  elements 

9.  Whether  an  operation  gives  rise  to  an  acquisition
of  control  depends  on  a  number  of  legal  and/or
factual elements. The acquisition of property rights
and  shareholders’  agreements  are  important,  but
are  not 
involved:  purely
economic  relationships  may  also  play  a  decisive
role.  Therefore,  in  exceptional  circumstances,  a
situation  of  economic  dependence  may  lead  to
control  on  a  de  facto  basis  where,  for  example,
very  important  long-term  supply  agreements  or
credits provided by suppliers or customers, coupled
with  structural  links,  confer  decisive  influence (9).

11.  The  object  of  control  can  be  one  or  more
undertakings  which  constitute  legal  entities,  or  the
assets  of  such  entities,  or  only  some  of  these
assets (11).  The  assets  in  question,  which  could  be
brands  or  licences,  must  constitute  a  business  to
which  a  market 
clearly
attributed.

turnover 

can  be 

12.  The  acquisition  of  control  may  be  in  the  form  of
sole  or  joint  control.  In  both  cases,  control  is
defined  as  the  possibility  of  exercising  decisive
influence on an undertaking on the basis of rights,
contracts  or  any  other  means  (Article  3(3)).

There  may  also  be  acquisition  of  control  even  if  it
is  not  the  declared  intention  of  the  parties (10).
Moreover,  the  Merger  Regulation  clearly  defines
control  as  having  ‘the  possibility  of  exercising
decisive influence’ rather than the actual exercise of
such  influence.

13. 

10.  Control 

is  nevertheless  normally  acquired  by
persons  or  undertakings  which  are  the  holders  of
the  rights  or  are  entitled  to  rights  conferring
control  (Article  3(4)(a)).  There  may  be  exceptional
situations where the formal holder of a controlling
interest  differs  from  the  person  or  undertaking
having in fact the  real  power  to exercise  the  rights
resulting  from  this  interest.  This  may  be  the  case,
for  example,  where  an  undertaking  uses  another
person  or  undertaking  for  the  acquisition  of  a
controlling interest and exercises the rights through
this  person  or  undertaking,  even  though  the  latter
is  formally  the  holder  of  the  rights.  In  such  a
situation,  control  is  acquired  by  the  undertaking
which in reality is behind the operation and in fact
enjoys the power to control the target undertaking

(7)  Case  IV/M.097  —  Pe´chiney/Usinor,  of  24  June  1991;  Case
IV/M.216  —  CEA  Industrie/France  Telecom/SGS-Thomson,
of  22  February  1993.

(8)  See  paragraph  55  of  the  Notice  on  the  concept  of

undertakings  concerned.

(9)  For  example,  in  the  Usinor/Bamesa  decision  adopted  by  the
Commission under the ECSC Treaty. See also Case IV/M.258
— CCIE/GTE, of 25 September 1992, and Case IV/M.697 —
Lockheed  Martin  Corporation/Loral  Corporation,  of  27
March  1996.

(10) Case  IV/M.157  —  Air  France/Sabena,  of  5  October  1992.

1.  Sole  control

Sole  control  is  normally  acquired  on  a  legal  basis
where  an  undertaking  acquires  a  majority  of  the
voting  rights  of  a  company.  It  is  not  in  itself
significant  that  the  acquired  shareholding  is  50 %
of  the  share  capital  plus  one  share (12)  or  that  it  is
100 %  of  the  share  capital (13).  In  the  absence  of
other  elements,  an  acquisition  which  does  not
include  a  majority  of  the  voting  rights  does  not
normally  confer  control  even  if  it  involves  the
acquisition  of  a  majority  of  the  share  capital.

14. 

Sole  control  may  also  be  acquired  in  the  case  of  a
‘qualified  minority’.  This  can  be  established  on  a
legal  and/or  de  facto  basis.

On  a  legal  basis  it  can  occur  where  specific  rights
are  attached  to  the  minority  shareholding.  These
may be preferential shares leading to a majority of
the  voting  rights  or  other  rights  enabling  the
minority  shareholder  to  determine  the  strategic
commercial behaviour of the target company, such
as  the  power  to  appoint  more  than  half  of  the
members  of 
the
administrative board.

supervisory  board  or 

the 

(11) Case  IV/M.286  —  Zürich/MMI,  of  2  April  1993.
(12) Case IV/M.296 — Cre´dit Lyonnais/BFG Bank, of 11 January

1993.

(13) Case IV/M.299 — Sara Lee/BP Food Division, of 8 February

1993.

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A  minority  shareholder  may  also  be  deemed  to
have  sole  control  on  a  de  facto  basis.  This  is  the
case,  for  example,  where  the  shareholder  is  highly
likely  to  achieve  a  majority  at  the  shareholders’
meeting, given that the remaining shares are widely
dispersed (14). In such a situation it is unlikely that
all  the  smaller  shareholders  will  be  present  or
represented  at  the  shareholders’  meeting.  The
determination of whether or not sole control exists
in  a  particular  case  is  based  on  the  evidence
resulting  from  the  presence  of  shareholders  in
previous  years.  Where,  on  the  basis  of  the  number
of 
shareholders’
meeting,  a  minority  shareholder  has  a  stable
majority of the votes at this meeting, then the large
minority  shareholder 
to  have  sole
is 
control (15).

shareholders  attending 

taken 

the 

Sole  control  can  also  be  exercised  by  a  minority
shareholder  who  has  the  right  to  manage  the
activities  of  the  company  and  to  determine  its
business  policy.

15.  An option to purchase or convert shares cannot in
itself  confer  sole  control  unless  the  option  will  be
exercised  in  the  near  future  according  to  legally
binding  agreements (16).  However, 
likely
exercise  of  such  an  option  can  be  taken  into
account  as  an  additional  element  which,  together
with  other  elements,  may  lead  to  the  conclusion
that  there  is  sole  control.

the 

17.  The  concept  of  control  under 

legislation  concerning, 

the  Merger
Regulation  may  be  different  from  that  applied  in
specific  areas  of 
for
example,  prudential  rules,  taxation,  air  transport
or  the  media.  In  addition,  national  legislation
within  a  Member  State  may  provide  specific  rules
the
on 
the  structure  of  bodies  representing 
organisation  of  decision-making  within 
an
undertaking,  in  particular,  in  relation  to  the  rights
of  representatives  of  employees.  While  such
legislation may confer some power of control upon
persons other than the shareholders, the concept of
control  under  the  Merger  Regulation  is  related
only to the means of influence normally enjoyed by
the  owners  of  an  undertaking.  Finally, 
the
prerogatives exercised by a State acting as a public
authority rather than as a shareholder, in so far as
they  are  limited  to  the  protection  of  the  public
interest,  do  not  constitute  control  within  the
meaning  of  the  Merger  Regulation  to  the  extent
that  they  have  neither  the  aim  nor  the  effect  of
enabling  the  State  to  exercise  a  decisive  influence
over  the  activity  of  the  undertaking (19).

2.  Joint  control

18.  As  in  the  case  of  sole  control,  the  acquisition  of
joint  control  (which  includes  changes  from  sole
control to joint control) can also be established on
a  legal  or  de  facto  basis.  There  is  joint  control  if
the shareholders (the parent companies) must reach
agreement  on  major  decisions  concerning  the
controlled  undertaking  (the  joint  venture).

16.  A  change  from 

influence  exercised  alone 
from  decisive 

joint  to  sole  control  of  an
undertaking  is  deemed  to  be  a  concentration
within  the  meaning  of  the  Merger  Regulation
is
because  decisive 
influence
substantially  different 
exercised  jointly (17).  For  the  same  reason,  an
operation involving the acquisition of joint control
of  one  part  of  an  undertaking  and  sole  control  of
another  part  is  in  principle  regarded  as  two
the  Merger
separate 
Regulation (18).

concentrations 

under 

19. 

(14) Case  IV/M.025  —  Arjomari/Wiggins  Teape,  of  10  February

1990.

(15) Case  IV/M.343  —  Socie´te´ Ge´ne´rale  de  Belgique/Ge´ne´rale  de

Banque,  of  3  August  1993.

(16) Judgment  in  Case  T  2/93,  Air  France  v.  Commission  [1994]

ECR  II-323.

(17) This  issue  is  dealt  with  in  paragraphs  30,  31  and  32  of  the

Notice  on  the  concept  of  undertakings  concerned.

control 

decisive 

influence 

influence 

over 
in 

Joint 
two  or  more
exists  where 
undertakings  or  persons  have  the  possibility  of
another
exercising 
undertaking.  Decisive 
this  sense
normally  means  the  power  to  block  actions  which
determine the strategic commercial behaviour of an
undertaking. Unlike sole control, which confers the
power upon a specific shareholder to determine the
strategic  decisions  in  an  undertaking,  joint  control
is  characterized  by  the  possibility  of  a  deadlock
situation  resulting  from  the  power  of  two  or  more
parent  companies  to  reject  proposed  strategic
decisions. 
these
shareholders  must  reach  a  common  understanding
in  determining  the  commercial  policy  of  the  joint
venture.

therefore, 

follows, 

that 

It 

(18) Case  IV/M.409  —  ABB/Renault  Automation,  of  9  March

(19) Case  IV/M.493  —  Tractebel/Distrigaz  II,  of  1  September

1994.

1994.

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2.1.  Equality  in  voting  rights  or  appointment  to

decision-making bodies

20.  The  clearest  form  of  joint  control  exists  where
there  are  only  two  parent  companies  which  share
equally  the  voting  rights  in  the  joint  venture.  In
this case, it is not necessary for a formal agreement
to  exist  between  them.  However,  where  there  is  a
formal  agreement,  it  must  be  consistent  with  the
principle  of 
the  parent
equality  between 
companies, by laying down, for example, that each
is entitled to the same number of representatives in
the  management  bodies  and  that  none  of  the
members  has  a  casting  vote (20).  Equality  may  also
be achieved where both parent companies have the
right  to  appoint  an  equal  number  of  members  to
the  decision-making  bodies  of  the  joint  venture.

2.2.  Veto  rights

21. 

in  representation 

Joint  control  may  exist  even  where  there  is  no
equality  between  the  two  parent  companies  in
votes  or 
in  decision-making
bodies  or  where  there  are  more  than  two  parent
companies.  This 
is  the  case  where  minority
shareholders  have  additional  rights  which  allow
them  to  veto  decisions  which  are  essential  for  the
strategic  commercial  behaviour  of 
joint
venture (21). These veto rights may be set out in the
statute  of  the 
joint  venture  or  conferred  by
agreement  between  its  parent  companies.  The  veto
rights  themselves  may  operate  by  means  of  a
specific quorum required for decisions taken at the
shareholders’  meeting  or  by  the  board  of  directors
to  the  extent  that  the  parent  companies  are
represented  on  this  board.  It  is  also  possible  that
strategic  decisions  are  subject  to  approval  by  a
body,  e.g.  supervisory  board,  where  the  minority
shareholders  are  represented  and  form  part  of  the
quorum  needed  for  such  decisions.

the 

22.  These  veto  rights  must  be  related  to  strategic
decisions  on  the  business  policy  of  the  joint
venture.  They  must  go  beyond  the  veto  rights
normally  accorded  to  minority  shareholders  in
interests  as
their 
order 
investors 
joint  venture.  This  normal
protection of the rights of minority shareholders is

to  protect 
the 

financial 

in 

(20) Case  IV/M.272  —  Matra/CAP  Gemini  Sogeti,  of  17  March

1993.

(21) Case  T  2/93  —  Air  France  v  Commission  (ibid).  Case

related  to  decisions  on  the  essence  of  the  joint
venture, such as changes in the statute, an increase
or  decrease  in  the  capital  or  liquidation.  A  veto
right,  for  example,  which  prevents  the  sale  or
winding-up  of  the  joint  venture  does  not  confer
joint 
shareholder
concerned (22).

the  minority 

control  on 

23. 

of 

In  contrast,  veto  rights  which  confer  joint  control
typically  include  decisions  and  issues  such  as  the
budget, the business plan, major investments or the
appointment 
senior  management.  The
acquisition  of  joint  control,  however,  does  not
require that the acquirer has the power to exercise
decisive  influence  on  the  day-to-day  running  of  an
undertaking.  The  crucial  element  is  that  the  veto
rights are sufficient to enable the parent companies
in  relation  to  the
influence 
to  exercise  such 
strategic  business  behaviour  of  the  joint  venture.
Moreover,  it  is  not  necessary  to  establish  that  an
acquirer  of  joint  control  of  the  joint  venture  will
actually  make  use  of  its  decisive  influence.  The
possibility  of  exercising  such  influence  and,  hence,
the  mere  existence  of  the  veto  rights,  is  sufficient.

24. 

In order to acquire joint control, it is not necessary
for  a  minority  shareholder  to  have  all  the  veto
rights  mentioned  above.  It  may  be  sufficient  that
only some, or even one such right, exists. Whether
or  not  this  is  the  case  depends  upon  the  precise
content  of  the  veto  right  itself  and  also  the
importance  of  this  right  in  the  context  of  the
specific  business  of  the  joint  venture.

A p p o i n t m e n t  
d e t e r m i n a t i o n   o f   b u d g e t

o f  

m a n a g e m e n t  

a n d

25.  Normally the most important veto rights are those
concerning  decisions  on  the  appointment  of  the
management  and  the  budget.  The  power  to
co-determine  the  structure  of  the  management
confers  upon  the  holder  the  power  to  exercise
decisive  influence  on  the  commercial  policy  of  an
undertaking.  The  same  is  true  with  respect  to
decisions  on 
the  budget
determines  the  precise  framework  of  the  activities
of  the 
in  particular,  the
investments  it  may  make.

joint  venture  and, 

the  budget 

since 

B u s i n e s s   p l a n

26.  The  business  plan  normally  provides  details  of  the
aims  of  a  company  together  with  the  measures  to

IV/M.010  —  Conagra/Idea,  of  3  May  1991.

(22) Case  IV/M.062  —  Eridania/ISI,  of  30  July  1991.

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be  taken  in  order  to  achieve  those  aims.  A  veto
right  over  this  type  of  business  plan  may  be
sufficient  to  confer  joint  control  even  in  the
absence of any other veto right. In contrast, where
contains  merely  general
the  business  plan 
declarations  concerning  the  business  aims  of  the
joint  venture,  the  existence  of  a  veto  right  will  be
only one element in the general assessment of joint
control  but  will  not,  on  its  own,  be  sufficient  to
confer  joint  control.

29. 

O v e r a l l   c o n t e x t

In  assessing  the  relative  importance  of  veto  rights,
where  there  are  a  number  of  them,  these  rights
should  not  be  evaluated  in  isolation.  On  the
contrary, the determination of whether or not joint
control exists is based upon an assessment of these
rights  as  a  whole.  However,  a  veto  right  which
does  not  relate  either  to  commercial  policy  and
strategy  or  to  the  budget  or  business  plan  cannot
be  regarded  as  giving 
its
owner (23).

joint  control 

to 

I n v e s t m e n t s

2.3.  Joint  exercise  of  voting  rights

27. 

In  the  case  of  a  veto  right  on  investments,  the
importance of this right depends, first, on the level
of investments which are subject to the approval of
the  parent  companies  and,  secondly,  on  the  extent
to which investments constitute an essential feature
of  the  market  in  which  the  joint  venture  is  active.
In  relation  to  the  first  criterion,  where  the  level  of
investments  necessitating  approval  of  the  parent
companies is extremely high, this veto right may be
closer to the normal protection of the interests of a
minority  shareholder  than  to  a  right  conferring  a
power  of  co-determination  over  the  commercial
policy  of  the  joint  venture.  With  regard  to  the
second,  the  investment  policy  of  an  undertaking  is
normally  an 
in  assessing
important  element 
whether  or  not  there  is  joint  control.  However,
there may be some markets where investment does
not play a significant role in the market behaviour
of  an  undertaking.

M a r k e t - s p e c i f i c   r i g h t s

28.  Apart  from  the  typical  veto  rights  mentioned
above,  there  exist  a  number  of  other  veto  rights
related to specific decisions which are important in
the  context  of  the  particular  market  of  the  joint
venture.  One  example  is  the  decision  on  the
technology  to  be  used  by  the  joint  venture  where
technology  is  a  key  feature  of  the  joint  venture’s
activities.  Another  example  relates  to  markets
characterised  by  product  differentiation  and  a
significant degree of innovation. In such markets, a
veto  right  over  decisions  relating  to  new  product
lines to be developed by the joint venture may also
be  an 
in  establishing  the
existence  of  joint  control.

important  element 

acquiring 

undertakings 

30.  Even  in  the  absence  of  specific  veto  rights,  two  or
more 
minority
shareholdings  in  another  undertaking  may  obtain
joint  control.  This  may  be  the  case  where  the
minority  shareholdings  together  provide  the  means
for  controlling  the  target  undertaking.  This  means
that  the  minority  shareholders,  together,  will  have
a  majority  of  the  voting  rights;  and  they  will  act
together  in  exercising  these  voting  rights.  This  can
result  from  a  legally  binding  agreement  to  this
effect,  or  it  may  be  established  on  a  de  facto
basis.

31.  The  legal  means  to  ensure  the  joint  exercise  of
voting  rights  can  be  in  the  form  of  a  holding
company  to  which  the  minority  shareholders
transfer  their  rights,  or  an  agreement  by  which
they  undertake  to  act  in  the  same  way  (pooling
agreement).

32.  Very exceptionally, collective action can occur on a
de facto basis where strong common interests exist
between  the  minority  shareholders  to  the  effect
that  they  would  not  act  against  each  other  in
exercising  their  rights  in  relation  to  the  joint
venture.

33. 

34. 

the 

case  of 

acquisitions  of  minority
In 
shareholdings,  the  prior  existence  of  links  between
the  minority  shareholders  or  the  acquisition  of  the
shareholdings by means of concerted action will be
factors  indicating  such  a  common  interest.

the  case  where  a  new 

In 
is
established,  as  opposed  to  the  acquisition  of
minority  shareholdings  in  a  pre-existing  company,
there  is  a  higher  probability  that  the  parent

joint  venture 

(23) Case  IV/M.295  —  SITA-RPC/SCORI,  of  19  March  1993.

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companies  are  carrying  out  a  deliberate  common
policy.  This  is  true,  in  particular,  where  each
parent  company  provides  a  contribution  to  the
joint  venture  which  is  vital  for  its  operation  (e. g.
specific  technologies,  local  know-how  or  supply
agreements).  In  these  circumstances,  the  parent
companies may be able to operate the joint venture
with  full  cooperation  only  with  each  other’s
agreement  on 
strategic
decisions  even  if  there  is  no  express  provision  for
any  veto  rights.  The  greater  the  number  of  parent
companies 
joint  venture,
however,  the  more  remote  is  the  likelihood  of  this
situation  occurring.

in  such  a 

the  most 

important 

involved 

35. 

in 

there 

is  no  stable  majority 

In  the  absence  of  strong  common  interests  such  as
those  outlined  above,  the  possibility  of  changing
coalitions  between  minority  shareholders  will
normally  exclude  the  assumption  of  joint  control.
Where 
the
decision-making  procedure  and  the  majority  can
the  various
on  each  occasion  be  any  of 
combinations  possible  amongst 
the  minority
it  cannot  be  assumed  that  the
shareholders, 
jointly  control  the
minority  shareholders  will 
undertaking. In this context, it is not sufficient that
there  are  agreements  between  two  or  more  parties
having  an  equal  shareholding  in  the  capital  of  an
undertaking  which  establish  identical  rights  and
powers  between  the  parties.  For  example,  in  the
case  of  an  undertaking  where  three  shareholders
each  own  one-third  of  the  share  capital  and  each
elect  one-third  of  the  members  of  the  Board  of
Directors,  the  shareholders  do  not  have  joint
control since decisions are required to be taken on
the  basis  of  a  simple  majority.  The  same
considerations  also  apply 
in  more  complex
structures,  for  example,  where  the  capital  of  an
is  equally  divided  between  three
undertaking 
shareholders  and  where  the  Board  of  Directors  is
composed  of 
the
shareholders A, B and C electing two, another two
being  elected  by  A,  B  and  C  jointly,  whilst  the
remaining  four  are  chosen  by  the  other  eight
members  jointly.  In  this  case  also  there  is  no  joint
control,  and  hence  no  control  at  all  within  the
meaning  of  the  Merger  Regulation.

twelve  members,  each  of 

2.4.  Other  considerations  related  to  joint  control

36. 

Joint control is not incompatible with the fact that
one  of  the  parent  companies  enjoys  specific
knowledge of and experience in the business of the
joint  venture.  In  such  a  case,  the  other  parent

company  can  play  a  modest  or  even  non-existent
role  in  the  daily  management  of  the  joint  venture
where  its  presence  is  motivated  by  considerations
of  a  financial,  long-term-strategy,  brand  image  or
general  policy  nature.  Nevertheless,  it  must  always
retain 
the
decisions  taken  by  the  other  parent  company,
without  which  there  would  be  sole  control.

the  real  possibility  of  contesting 

37. 

For  joint  control  to  exist,  there  should  not  be  a
casting  vote 
for  one  parent  company  only.
However,  there  can  be  joint  control  when  this
casting  vote  can  be  exercised  only  after  a  series  of
stages  of  arbitration  and  attempts  at  reconciliation
or  in  a  very  limited  field (24).

2.5.  Joint  control  for  a  limited  period

38.  Where  an  operation  leads  to  joint  control  for  a
starting-up  period (25)  but,  according  to  legally
binding  agreements,  this  joint  control  will  be
converted 
the
shareholders, the whole operation will normally be
considered  to  be  an  acquisition  of  sole  control.

sole  control  by  one  of 

to 

3.  Control by a single shareholder on the basis of

veto  rights

39.  An  exceptional  situation  exists  where  only  one
shareholder is able to veto strategic decisions in an
undertaking,  but  this  shareholder  does  not  have
the  power,  on  his  own,  to  impose  such  decisions.
This  situation  occurs  either  where  one  shareholder
holds 50 % in an undertaking whilst the remaining
50 % 
two  or  more  minority
shareholders,  or  where  there  is  a  quorum  required
for  strategic  decisions  which  in  fact  confers  a  veto
right  upon  only  one  minority  shareholder (26).  In
these  circumstances,  a  single  shareholder  possesses
the  same  level  of  influence  as  that  normally
enjoyed  by  several  jointly-controlling  shareholders,
i. e.  the  power  to  block  the  adoption  of  strategic

is  held  by 

(24) Case  IV/M.425  —  British  Telecom/Banco  Santander,  of  28

March  1994.

(25) This  starting-up  period  must  not  exceed  three  years.  Case

IV/M.425  —  British  Telecom/Banco  Santander,  ibid.

(26) Case IV/M.258 — CCIE/GTE, of 25 September 1992, where
the  veto  rights  of  only  one  shareholder  were  exercisable
through  a  member  of 
this
shareholder.

the  board  appointed  by 

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2.3.98

decisions.  However,  this  shareholder  does  not
enjoy the powers which are normally conferred on
an undertaking with sole control, i. e. the power to
impose  strategic  decisions.  Since  this  shareholder
can  produce  a  deadlock  situation  comparable  to
that  in  normal  cases  of  joint  control,  he  acquires
decisive  influence  and  therefore  control  within  the
meaning  of  the  Merger  Regulation (27).

4.  Changes  in  the  structure  of  control

includes  the  change  from 

40.  A  concentration  may  also  occur  where  an
operation  leads  to  a  change  in  the  structure  of
joint
control.  This 
control to sole control as well as an increase in the
number  of  shareholders  exercising  joint  control.
The  principles  for  determining  the  existence  of  a
concentration  in  these  circumstances  are  set  out  in
detail in the Notice on the concept of undertakings
concerned (28).

43. 

—  the acquiring undertaking must not exercise the
voting  rights  with  a  view  to  determining  the
strategic  commercial  behaviour  of  the  target
company  or  must  exercise  these  rights  only
with  a  view  to  preparing  the  total  or  partial
disposal  of  the  undertaking, 
its  assets  or
securities,

—  the  acquiring  undertaking  must  dispose  of  its
controlling  interest  within  one  year  of  the  date
of  the  acquisition,  that  is,  it  must  reduce  its
shareholding  within  this  one-year  period  at
least to a level which no longer confers control.
This  period,  however,  may  be  extended  by  the
Commission  where  the  acquiring  undertaking
can  show  that  the  disposal  was  not  reasonably
possible  within  the  one-year  period.

Secondly,  there  is  no  change  of  control,  and  hence
no concentration within the meaning of the Merger
Regulation,  where  control 
is  acquired  by  an
office-holder  according  to  the  law  of  a  Member
State 
liquidation,  winding-up,
insolvency, cessation of payments, compositions or
analogous  proceedings  (Article  3(5)(b));

relating 

to 

IV. EXCEPTIONS

41.  Article  3(5)  sets  out  three  exceptional  situations
where the acquisition of a controlling interest does
not  constitute  a  concentration  under  the  Merger
Regulation.

42. 

First,  the  acquisition  of  securities  by  companies
whose  normal  activities  include  transactions  and
dealing  in  securities  for  their  own  account  or  for
the account of others is not deemed to constitute a
concentration if such an acquisition is made in the
framework  of  these  businesses  and  if  the  securities
are  held  on  only  a  temporary  basis  (Article
3(5)(a)).  In  order  to  fall  within  this  exception,  the
following  requirements  must  be  fulfilled:

—  the  acquiring  undertaking  must  be  a  credit  or
other 
insurance
company  the  normal  activities  of  which  are
described above,

institution  or 

financial 

44.  Thirdly,  a  concentration  does  not  arise  where  a
financial  holding  company  within  the  meaning  of
the  Fourth  Council  Directive  78/660/EEC (29)
acquires  control,  provided  that  this  company
exercises  its  voting  rights  only  to  maintain  the  full
value  of  its  investment  and  does  not  otherwise
the  strategic
determine  directly  or 
controlled
conduct 
commercial 
undertaking.

indirectly 

the 

of 

45. 

In the context of the exceptions under Article 3(5),
the  question  may  arise  whether  a  rescue  operation
constitutes  a  concentration  under  the  Merger
Regulation.  A  rescue  operation  typically  involves
the  conversion  of  existing  debt 
into  a  new
company, through which a syndicate of banks may
acquire  joint  control  of  the  company  concerned.

—  the  securities  must  be  acquired  with  a  view  to

their resale,

(27) Since  this  shareholder  is  the  only  undertaking  acquiring  a
controlling  influence,  only  this  shareholder  is  obliged  to
submit  a  notification  under  the  Merger  Regulation.

(28) Paragraphs  30  to  48.

(29) OJ  L  222,  14.8.1978,  p.  11,  as  last  amended  by  the  Act  of
Accession  of  Austria,  Finland  and  Sweden.  Article  5(3)  of
this  Directive  defines  financial  holding  companies  as  ‘those
companies  the  sole  objective  of  which  is  to  acquire  holdings
in other undertakings, and to manage such holdings and turn
them  to  profit,  without  involving  themselves  directly  or
indirectly  in  the  management  of  those  undertakings,  the
foregoing  without  prejudice  to  their  rights  as  shareholders’.

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Where  such  an  operation  meets  the  criteria  for
joint control, as outlined above, it will normally be
considered to be a concentration (30). Although the
primary intention of the banks is to restructure the
financing  of  the  undertaking  concerned  for  its
subsequent  resale,  the  exception  set  out  in  Article
3(5)(a)  is  normally  not  applicable  to  such  an
the  restructuring
operation.  This 
is  because 
programme  normally  requires 
the  controlling
the  strategic  commercial
banks 
the 
behaviour 
undertaking.
Furthermore, 
is  not  normally  a  realistic
proposition to transform a rescued company into a
commercially  viable  entity  and  to  resell  it  within
the  permitted  one-year  period.  Moreover,  the

to  determine 
of 
it 

rescued 

length  of  time  needed  to  achieve  this  aim  may  be
so  uncertain  that  it  would  be  difficult  to  grant  an
extension  of  the  disposal  period.

V. FINAL

46.  The Commission’s interpretation of Article 3 as set
out  in  this  Notice  is  without  prejudice  to  the
interpretation which may be given by the Court of
Justice  or  the  Court  of  First  Instance  of  the
European  Communities.

(30) Case  IV/M.116  —  Kelt/American  Express,  of  28  August

1991.