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

C  66/14

EN

Official  Journal  of  the  European  Communities

2.3.98

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

COMMISSION  NOTICE

(98/C  66/03)

(Text  with  EEC  relevance)

I. 

INTRODUCTION

II.  THE  CONCEPT  OF  UNDERTAKING  CONCERNED

III.  IDENTIFYING  THE  UNDERTAKINGS  CONCERNED  IN  DIFFERENT  TYPES  OF  OPERATIONS

1.  Mergers

2.  Acquisition  of  sole  control

2.1.  Acquisition  of  sole  control  of  the  whole  company

2.2.  Acquisition  of  sole  control  of  part  of  a  company

2.3.  Acquisition  of  sole  control  after  reduction  or  enlargement  of  the  target  company

2.4.  Acquisition  of  sole  control  through  a  subsidiary  of  a  group

3.  Acquisition  of  joint  control

3.1.  Acquisition  of  joint  control  of  a  newly-created  company

3.2.  Acquisition  of  joint  control  of  a  pre-existing  company

3.3.  Acquisition  of  joint  control  with  a  view  to  immediate  partition  of  assets

4.  Acquisition  of  control  by  a  joint  venture

5.  Change  from  joint  control  to  sole  control

6.  Change  in  the  shareholding  in  cases  of  joint  control  of  an  existing  joint  venture

6.1.  Reduction  in  the  number  of  shareholders  leading  to  a  change  from  joint  to  sole  control

6.2.  Reduction  in  the  number  of  shareholders  not  leading  to  a  change  from  joint  to  sole  control

6.3.  Any  other  changes  in  the  composition  of  the  shareholding

7. 

‘Demergers’  and  the  break-up  of  companies

8.  Exchange  of  assets

9.  Acquisitions  of  control  by  individual  persons

10.  Management  buy-outs

11.  Acquisition  of  control  by  a  state-owned  company

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I. INTRODUCTION

II. THE  CONCEPT  OF  UNDERTAKING  CONCERNED

1. 

2. 

3. 

4. 

of 

is  to  clarify  the
The  purpose  of  this  notice 
Commission’s 
term
the 
interpretation 
‘undertakings  concerned’  used  in  Articles  1  and  5
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’)
and  to  help  identify  the  undertakings  concerned  in
the  most  typical  situations  which  have  arisen  in
cases  dealt  with  by  the  Commission  to  date.  The
principles  set  out  in  this  notice  will  be  followed
and 
the  Commission’s
practice  in  individual  cases.

further  developed  by 

This  Notice  replaces  the  Notice  on  the  notion  of
undertakings  concerned (3).

According  to  Article  1  of  the  Merger  Regulation,
the  Regulation  only  applies  to  operations  that
satisfy  two  conditions.  First,  several  undertakings
must  merge,  or  one  or  more  undertakings  must
acquire  control  of  the  whole  or  part  of  other
undertakings  through  the  proposed  operation,
which  must  qualify  as  a  concentration  within  the
meaning  of  Article  3  of  the  Regulation.  Secondly,
those  undertakings  must  meet 
turnover
thresholds  set  out  in  Article  1.

the 

From the point of view of determining jurisdiction,
the  undertakings  concerned  are,  broadly  speaking,
the  actors  in  the  transaction  in  so  far  as  they  are
the  merging,  or  acquiring  and  acquired  parties;  in
addition,  their  total  aggregate  economic  size  in
terms  of  turnover  will  be  decisive  in  determining
whether  the  thresholds  are  met.

The  Commission’s  interpretation  of  Articles  1  and
5  with  respect  to  the  concept  of  undertakings
concerned 
the
interpretation which may be given by the Court of
Justice  or  by  the  Court  of  First  Instance  of  the
European  Communities.

is  without 

prejudice 

to 

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

21.9.1990,  p.  13.

(2)  OJ  L  180,  9.7.1997,  p.  1.
(3)  OJ  C  385,  31.12.1994,  p.  12.

5. 

Undertakings  concerned  are  the  direct  participants
in  a  merger  or  acquisition  of  control.  In  this
respect,  Article  3(1)  of  the  Merger  Regulation
provides  that:

‘A  concentration  shall  be  deemed  to  arise  where:

(a)  two 

or  more 

previously 

independent

undertakings  merge,  or

(b) —  one  or  more  persons  already  controlling  at

least  one  undertaking,  or

—  one  or  more  undertakings

acquire,  whether  by  purchase  of  securities  or
assets,  by  contract  or  by  any  other  means,
direct  or  indirect  control  of  the  whole  or  parts
of  one  or  more  other  undertakings’.

the  case  of  a  merger, 

In 
the  undertakings
concerned  will  be  the  undertakings  that  are
merging.

In  the  remaining  cases,  it  is  the  concept  of
‘acquiring  control’  that  will  determine  which  are
the undertakings concerned. On the acquiring side,
there can be one or more companies acquiring sole
or joint control. On the acquired side, there can be
one  or  more  companies  as  a  whole  or  parts
thereof,  when  only  one  of  their  subsidiaries  or
some  of  their  assets  are  the  subject  of  the
transaction.  As  a  general  rule,  each  of  these
companies  will  be  an  undertaking  concerned
within  the  meaning  of  the  Merger  Regulation.
features  of  specific
However, 
this
transactions  require  some  refinement  of 
principle,  as  will  be  seen  below  when  analysing
different  possible  scenarios.

the  particular 

ignored  when 

In  concentrations  other  than  mergers  or  the
setting-up  of  new  joint  ventures,  i. e.  in  cases  of
sole  or  joint  acquisition  of  pre-existing  companies
or parts of them, there is an important party to the
agreement that gives rise to the operation who is to
be 
identifying  the  undertakings
concerned:  the  seller.  Although  it  is  clear  that  the
operation  cannot  proceed  without  his  consent,  his
role  ends  when  the  transaction  is  completed  since,
by  definition,  from  the  moment  the  seller  has
relinquished all control over the company, his links
with  it  disappear.  Where  the  seller  retains  joint
(or
control  with 

acquiring 

company 

the 

6. 

7. 

8. 

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companies),  it  will  be  considered  to  be  one  of  the
undertakings  concerned.

or, while remaining separate legal entities, to create
a  single  economic  unit.  As  mentioned  earlier,  the
undertakings  concerned  are  each  of  the  merging
entities.

9. 

the  undertakings  concerned  have  been
Once 
identified  in  a  given  transaction,  their  turnover  for
the  purposes  of  determining  jurisdiction  should  be
calculated  according  to  the  rules  set  out  in  Article
5  of  the  Merger  Regulation (4).  One  of  the  main
provisions  of  Article  5 
the
undertaking  concerned  belongs  to  a  group,  the
turnover of the whole group should be included in
the  calculation.  All  references  to  the  turnover  of
the  undertakings  concerned  in  Article  1  should
therefore  be  understood  as  the  turnover  of  their
entire  respective  groups.

that  where 

is 

the 

10.  The  same  can  be  said  with  respect  to  the
substantive  appraisal  of 
impact  of  a
concentration  in  the  market  place.  When  Article  2
of  the  Merger  Regulation  provides  that  the
Commission  is  to  take  into  account  ‘the  market
position  of  the  undertakings  concerned  and  their
economic  and  financial  power’,  that  includes  the
groups  to  which  they  belong.

2.  Acquisition  of  sole  control

2.1.  Acquisition  of  sole  control  of  the  whole

company

13.  Acquisition  of  sole  control  of  the  whole  company
is  the  most  straightforward  case  of  acquisition  of
control;  the  undertakings  concerned  will  be  the
acquiring  company  and  the  acquired  or  target
company.

2.2.  Acquisition  of  sole  control  of  part  of  a

company

11. 

in 

the 

involved 

terminology  used 

It  is  important,  when  referring  to  the  various
undertakings  which  may  be 
in  a
procedure,  not 
the  concept  of
to  confuse 
‘undertakings  concerned’  under  Articles  1  and  5
the  Merger
with 
Regulation  and  in  Commission  Regulation  (EC)
No  447/98  of  1  March  1998  on  the  notifications,
time-limits  and  hearings  provided  for  in  Council
Regulation (EEC) No 4064/89 (hereinafter referred
to as the ‘Implementing Regulation’) (5) referring to
the various undertakings which may be involved in
a  procedure.  This  terminology  refers  to  the
notifying  parties,  other 
involved  parties,  third
parties  and  parties  who  may  be  subject  to  fines  or
periodic penalty payments, and they are defined in
Chapter  III  of  the  Implementing  Regulation,  along
with  their  respective  rights  and  duties.

III. IDENTIFYING  THE  UNDERTAKINGS  CONCERNED  IN
DIFFERENT  TYPES  OF  OPERATIONS

1.  Mergers

that  when 

14.  The  first  subparagraph  of  Article  5(2)  of  the
Merger  Regulation  provides 
the
operation  concerns  the  acquisition  of  parts  of  one
or  more  undertakings,  only  those  parts  which  are
the  subject  of  the  transaction  shall  be  taken  into
account  with  regard  to  the  seller.  The  concept  of
‘parts’ is to be understood as one or more separate
legal  entities 
internal
subdivisions within the seller (such as a division or
unit),  or  specific  assets  which  in  themselves  could
constitute  a  business  (e. g.  in  certain  cases  brands
or  licences)  to  which  a  market  turnover  can  be
clearly  attributed.  In  this  case,  the  undertakings
concerned  will  be  the  acquirer  and  the  acquired
part(s)  of  the  target  company.

subsidiaries), 

(such  as 

15.  The second subparagraph of Article 5(2) includes a
special  provision  on  staggered  operations  or
follow-up  deals,  whereby  if  several  acquisitions  of
parts  by  the  same  purchaser  from  the  same  seller
occur  within  a  two-year  period,  these  transactions
are  to  be  treated  as  one  and  the  same  operation
arising  on  the  date  of  the  last  transaction.  In  this
case,  the  undertakings  concerned  are  the  acquirer
and  the  different  acquired  part(s)  of  the  target
company  taken  as  a  whole.

12. 

In  a  merger,  several  previously 
independent
companies come together to create a new company

2.3.  Acquisition of sole control after reduction or

enlargement  of  the  target  company

(4)  The rules for calculating turnover in accordance with Article
5  are  detailed  in  the  Commission  Notice  on  calculation  of
turnover.

(5)  OJ  L  61,  2.3.1998,  p.  1.

16.  The  undertakings  concerned  are  the  acquiring
company and the target company or companies, in
their  configuration  at  the  date  of  the  operation.

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17.  The  Commission  bases  itself  on  the  configuration
of  the  undertakings  concerned  at  the  date  of  the
event  triggering  the  obligation  to  notify  under
Article  4(1)  of  the  Merger  Regulation,  namely  the
conclusion  of  the  agreement,  the  announcement  of
the  public  bid  or  the  acquisition  of  a  controlling
interest.  If  the  target  company  has  divested  an
entity  or  closed  a  business  prior  to  the  date  of  the
event  triggering  notification  or  where  such  a
divestment  or  closure  is  a  pre-condition  for  the
operation (6),  then  sales  of  the  divested  entity  or
closed  business  are  not  to  be  included  when
calculating  turnover.  Conversely, 
if  the  target
company  has  acquired  an  entity  prior  to  the  date
of the event triggering notification, the sales of the
latter  are  to  be  added (7).

or  that  they  are  not  (for  example,  if  a  group  was
split  into  two  companies  each  with  a  Community
turnover  below  ECU  250  million).

20.  However,  even  though  there  can  only  be  one
undertaking concerned within a group, Article 5(4)
of  the  Merger  Regulation  provides  that  it  is  the
turnover  of  the  whole  group  to  which  the
undertaking  concerned  belongs 
that  shall  be
included  in  the  threshold  calculations (8).

3.  Acquisition  of  joint  control

3.1.  Acquisition 

of 

joint 

control 

of 

a

newly-created company

2.4.  Acquisition  of  sole  control 

through  a

subsidiary  of  a  group

18.  Where  the  target  company  is  acquired  by  a  group
through  one  of  its  subsidiaries,  the  undertakings
concerned  for  the  purpose  of  calculating  turnover
the  acquiring
are 
actual
subsidiary.  However, 
notification,  this  can  be  made  by  the  subsidiary
concerned  or  by  its  parent  company.

target  company  and 

regarding 

the 

the 

19.  All 

the  companies  within  a  group 

(parent
companies,  subsidiaries,  etc.)  constitute  a  single
economic  entity,  and  therefore  there  can  only  be
one  undertaking  concerned  within  the  one  group  -
i. e. the subsidiary and the parent company cannot
each  be  considered  as  separate  undertakings
concerned, either for the purposes of ensuring that
the 
(for
example,  if  the  target  company  does  not  meet  the
ECU  250  million  Community-turnover  threshold),

threshold  requirements  are 

fulfilled 

21. 

22. 

the 

company, 

In  the  case  of  acquisition  of  joint  control  of  a
newly-created 
undertakings
concerned  are  each  of  the  companies  acquiring
control of the newly set-up joint venture (which, as
it does not yet exist, cannot be considered to be an
undertaking  concerned  and  moreover,  as  yet,  has
no  turnover  of  its  own).

3.2.  Acquisition  of  joint  control  of  a  pre-existing

company

company 

In  the  case  of  acquisition  of  joint  control  of  a
pre-existing 
the
undertakings  concerned  are  each  of  the  companies
acquiring  joint  control  on  the  one  hand,  and  the
pre-existing  acquired  company  or  business  on  the
other.

business (9), 

or 

23.  However,  where  the  pre-existing  company  was
under the sole control of one company and one or
several  new  shareholders  acquire  joint  control
while  the  initial  parent  company  remains,  the
the
undertakings 
jointly-controlling  companies  (including  this  initial
shareholder).  The  target  company  in  this  case  is
not  an  undertaking  concerned,  and  its  turnover  is
part  of 
initial  parent
company.

turnover  of 

concerned 

each 

are 

the 

the 

of 

(6)  See  judgment  of  the  Court  of  First  Instance  of  24  March
1994  in  Case  T-3/93  —  Air  France  v  Commission  [1994]
ECR  II-21.

(7)  The  calculation  of  turnover  in  the  case  of  acquisitions  or
divestments  subsequent  to  the  date  of  the  last  audited
accounts 
in  the  Commission  Notice  on
calculation  of  turnover,  paragraph  27.

is  dealt  with 

(8)  The calculation of turnover in the case of company groups is
dealt  with  in  the  Commission  Notice  on  calculation  of
turnover,  paragraphs  36  to  42.

(9)  i. e. two or more companies (companies A, B, etc.) acquire a
pre-existing  company  (company  X).  For  changes  in  the
shareholding  in  cases  of  joint  control  of  an  existing  joint
venture,  see  Section  III.6.

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3.3.  Acquisition  of  joint  control  with  a  view  to

immediate  partition  of  assets

the 

there 

is  no 

transaction, 

24.  Where  several  undertakings  come  together  solely
for the purpose of acquiring another company and
agree to divide up the acquired assets according to
a  pre-existing  plan  immediately  upon  completion
of 
effective
concentration  of  economic  power  between  the
acquirers  and  the  target  company  since  the  assets
acquired  are  jointly  held  and  controlled  for  only  a
‘legal instant’. This type of acquisition with a view
to  immediate  partition  of  assets  will  in  fact  be
considered  to  be  several  operations,  whereby  each
of  the  acquiring  companies  acquires  its  relevant
part  of  the  target  company.  For  each  of  these
operations, 
concerned  will
therefore  be  the  acquiring  company  and  that  part
of  the  target  which  it  is  acquiring  (just  as  if  there
was  an  acquisition  of  sole  control  of  part  of  a
company).

the  undertakings 

25.  This  scenario  is  referred  to  in  recital  24  of
Regulation  (EEC)  No  4064/89,  which  states  that
the  Regulation  applies  to  agreements  whose  sole
object 
the  assets  acquired
immediately  after  the  acquisition.

to  divide  up 

is 

4.  Acquisition  of  control  by  a  joint  venture

26. 

In  transactions  where  a  joint  venture  acquires
control  of  another  company,  the  question  arises
whether  or  not,  from  the  point  of  view  of  the
joint  venture  should  be
acquiring  party,  the 
regarded  as  a  single  undertaking  concerned  (the
turnover  of  which  would  include  the  turnover  of
its  parent  companies),  or  whether  each  of  its
parent  companies  should  individually  be  regarded
as  undertakings  concerned.  In  other  words,  the
issue is whether or not to ‘lift the corporate veil’ of
the 
intermediate  undertaking  (the  vehicle).  In
principle,  the  undertaking  concerned  is  the  direct
participant  in  the  acquisition  of  control.  However,
there  may  be  circumstances  where  companies  set
up  ‘shell’  companies,  which  have  little  or  no
turnover  of  their  own,  or  use  an  existing  joint
venture  which  is  operating  on  a  different  market
from  that  of  the  target  company  in  order  to  carry
out acquisitions on behalf of the parent companies.
Where  the  acquired  or  target  company  has  a
less  than  ECU  250
Community  turnover  of 
the
million, 

the  question  of  determining 

for
undertakings  concerned  may  be  decisive 
jurisdictional  purposes (10). 
type  of
situation, 
the
economic  reality  of  the  operation  to  determine
which  are  the  undertakings  concerned.

the  Commission  will 

look  at 

this 

In 

27.  Where 

the  acquisition 

is  carried  out  by  a
full-function  joint  venture,  i. e.  a  joint  venture
which  has  sufficient  financial  and  other  resources
to operate a business activity on a lasting basis (11)
the
is  already  operating  on  a  market, 
and 
Commission  will  normally  consider  the 
joint
venture  itself  and  the  target  company  to  be  the
undertakings  concerned 
joint
venture’s  parent  companies).

(and  not 

the 

28.  Conversely,  where 

the 

joint  venture  can  be
regarded  as  a  vehicle  for  an  acquisition  by  the
parent  companies,  the  Commission  will  consider
each  of  the  parent  companies  themselves  to  be  the
undertakings  concerned,  rather  than  the 
joint
venture,  together  with  the  target  company.  This  is
the case in particular where the joint venture is set
up  especially  for  the  purpose  of  acquiring  the
target  company,  where  the  joint  venture  has  not
yet  started  to  operate,  where  an  existing  joint
venture  has  no  legal  personality  or  full-function
character  as  referred  to  above  or  where  the  joint
venture  is  an  association  of  undertakings.  The
same  applies  where  there  are  elements  which
demonstrate  that  the  parent  companies  are  in  fact
the  real  players  behind  the  operation.  These
elements  may  include  a  significant  involvement  by
the  parent  companies  themselves  in  the  initiation,
the  operation.
organisation  and 
to  a
Moreover,  where 
substantial diversification in the nature of the joint
venture’s  activities,  this  may  also  indicate  that  the

financing  of 
the  acquisition 

leads 

(10) The 

target  company  hypothetically  has  an  aggregate
Community  turnover  of  less  than  ECU  250  million,  and  the
acquiring  parties  are  two  (or  more)  undertakings,  each  with
a  Community  turnover  exceeding  ECU  250  million.  If  the
target  is  acquired  by  a  ‘shell’  company  set  up  between  the
acquiring  undertakings,  there  would  only  be  one  company
(the  ‘shell’  company)  with  a  Community  turnover  exceeding
ECU  250  million,  and  thus  one  of  the  cumulative  threshold
conditions for Community jurisdiction would not be fulfilled
(namely,  the  existence  of  at  least  two  undertakings  with  a
exceeding  ECU  250  million).
Community 
Conversely,  if  instead  of  acting  through  a  ‘shell’  company,
the  acquiring  undertakings  acquire  the  target  company
themselves,  then  the  turnover  threshold  would  be  met  and
the  Merger  Regulation  would  apply  to  this  transaction.  The
turnover
same  considerations  apply 
thresholds  referred  to  in  Article  1(3).

the  national 

turnover 

to 

(11) The  criteria  determining  the  full-function  nature  of  a  joint
venture  are  contained  in  the  Commission  Notice  on  the
concept  of  full-function  joint  ventures.

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29. 

30. 

parent  companies  are  the  real  players  in  the
operation. This will normally be the case when the
joint  venture  acquires  a  target  company  operating
on  a  different  product  market.  In  those  cases,  the
parent  companies  are  regarded  as  undertakings
concerned.

In  the  TNT  case (12),  joint  control  over  a  joint
venture  (JVC)  was  to  be  acquired  by  a  joint
venture 
five  postal
administrations  and  another  acquiring  company
the  Commission
this  case, 
(TNT  Ltd). 

(GD  NET  BV)  between 

In 

to  ensure 

spoke  and  acted  as  one; 

considered that the joint venture GD NET BV was
simply  a  vehicle  set  up  to  enable  the  parent
companies  (the  five  postal  administrations)  to
participate  in  the  resulting  JVC  joint  venture  in
facilitate  decision-making  amongst
to 
order 
the  parent
themselves  and 
this
companies 
configuration  would  ensure 
the  parent
companies  could  exercise  a  decisive  influence  with
the  other  acquiring  company,  TNT,  over  the
resulting  joint  venture  JVC  and  would  avoid  the
situation  where  that  other  acquirer  could  exercise
sole  control  because  of  the  postal  administrations’
inability  to  reach  a  unified  position  on  any
decision.

that 

that 

Canada
Post

DBP
Postdienst

La  Poste

PTT
Post

Sweden
Post

Joint  venture  GD  NET  BV

TNT  Ltd

Joint  venture  JVC

5.  Change  from  joint  control  to  sole  control

the 

shareholder  acquires 

In  the  case  of  a  change  from  joint  control  to  sole
control,  one 
stake
previously  held  by  the  other  shareholder(s).  In  the
case  of  two  shareholders,  each  of  them  has  joint
control  over  the  entire  joint  venture,  and  not  sole
control over 50 % of it; hence the sale of all of his
shares  by  one  shareholder  to  the  other  does  not
lead  the  sole  remaining  shareholder  to  move  from
sole control over 50 % to sole control over 100 %
of the joint venture, but rather to move from joint
control  to  sole  control  of  the  entire  company
(which, subsequent to the operation, ceases to be a
‘joint’  venture).

32.  The  ICI/Tioxide  case (13)  involved  such  a  change
from  joint  (50/50)  control  to  sole  control.  The
Commission  considered  that  ‘. .  decisive  influence
exercised solely is substantially different to decisive
influence  exercised  jointly,  since  the  latter  has  to
take  into  account  the  potentially  different  interests
of  the  other  party  or  parties  concerned  . . .  By
changing the quality of decisive influence exercised
by ICI on Tioxide, the transaction will bring about
a durable change of the structure of the concerned
parties 
the  undertakings
this  case, 
concerned  were  held  to  be  ICI  (as  acquirer)  and
Tioxide as a whole (as acquiree), but not the seller
Cookson.

. . .’. 

In 

31. 

In  this  situation,  the  undertakings  concerned  are
the remaining (acquiring) shareholder and the joint
venture.  As  is  the  case  for  any  other  seller,  the
‘exiting’ 
is  not  an  undertaking
concerned.

shareholder 

6.  Change  in  the  shareholding  in  cases  of  joint

control  of  an  existing  joint  venture

33.  The  decisive  element  in  assessing  changes  in  the
shareholding  of  a  company 
the
operation  leads  to  a  change  in  the  quality  of
control.  The  Commission  assesses  each  operation

is  whether 

(12) Case  IV/M.102  —  TNT/Canada  Post,  DBP  Postdienst,  La
Poste,  PTT  Post  and  Sweden  Post,  of  2  December  1991.

(13) Case  IV/M.023  —  ICI/Tioxide,  of  28  November  1990.

C  66/20

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on  a  case-by-case  basis,  but  under  certain
hypotheses,  there  will  be  a  presumption  that  the
given  operation  leads,  or  does  not  lead,  to  such  a
change 
in  the  quality  of  control,  and  thus
constitutes,  or  does  not  constitute,  a  notifiable
concentration.

34.  A  distinction  must  be  made  according  to  the
circumstances  of  the  change  in  the  shareholding;
firstly,  one  or  more  existing  shareholders  can  exit;
secondly, one or more new additional shareholders
can  enter;  and  thirdly,  one  or  more  existing
shareholders  can  be  replaced  by  one  or  more  new
shareholders.

6.1.  Reduction  in  the  number  of  shareholders
leading  to  a  change  from  joint  to  sole
control

35. 

in 

is  not 

the  reduction 

It 
the  number  of
shareholders  per  se  which  is  important,  but  rather
the  fact  that  if  some  shareholders  sell  their  stakes
in  a  given  joint  venture,  these  stakes  are  then
acquired  by  other  (new  or  existing)  shareholders,
and  thus  the  acquisition  of  these  stakes  or
additional  contractual  rights  may  lead  to  the
acquisition of control or may strengthen an already
existing  position  of  control  (e.g.  additional  voting
rights  or  veto  rights,  additional  board  members,
etc.).

control  and  without  any  new  entry  or  substitution
of  shareholders  acquiring  control  (see  Section
III.6.3.), the proposed transaction will normally be
presumed not to lead to a change in the quality of
control  and  will  therefore  not  be  a  notifiable
concentration.  This  would  be  the  case  where,  for
example,  five  shareholders  initially  have  equal
stakes  of  20 %  each  and  where,  after 
the
operation, one shareholder exits and the remaining
four  shareholders  each  have  equal  stakes  of
25 %.

39.  However,  this  situation  would  be  different  where
there  is  a  significant  change  in  the  quality  of
control, notably where the reduction in the number
of  shareholders  gives  the  remaining  shareholders
rights  or  additional  board
additional  veto 
members,  resulting  in  a  new  acquisition  of  control
by  at  least  one  of  the  shareholders,  through  the
application  of  either  the  existing  or  a  new
shareholders’  agreement. 
the
case, 
the
undertakings  concerned  will  be  each  of 
remaining shareholders which exercise joint control
and the joint venture. In Avesta II (14), the fact that
the  number  of  major  shareholders  decreased  from
led  to  one  of  the  remaining
four  to  three 
shareholders  acquiring  negative  veto  rights  (which
it  had  not  previously  enjoyed)  because  of  the
provisions  of  the  shareholders’  agreement  which
remained  in  force (15).  This  acquisition  of  full  veto
rights  was  considered  by  the  Commission  to
represent  a  change  in  the  quality  of  control.

this 

In 

36.  Where  the  number  of  shareholders  is  reduced,
there  may  be  a  change  from  joint  control  to  sole
control  (see  also  Section  III.5.),  in  which  case  the
remaining  shareholder  acquires  sole  control  of  the
company.  The  undertakings  concerned  will  be  the
remaining (acquiring) shareholder and the acquired
company  (previously  the  joint  venture).

37. 

In  addition  to  the  shareholder  with  sole  control  of
the company, there may be other shareholders, for
example  with  minority  stakes,  but  who  do  not
have  a  controlling  interest  in  the  company;  these
shareholders  are  not  undertakings  concerned  as
they  do  not  exercise  control.

40. 

41. 

6.3.  Any  other  changes  in  the  composition  of  the

shareholding

Finally, in the case where, following changes in the
shareholding,  one  or  more  shareholders  acquire
control,  the  operation  will  constitute  a  notifiable
operation  as  there  is  a  presumption  that  it  will
normally  lead  to  a  change  in  the  quality  of
control.

Irrespective of whether the number of shareholders
decreases, 
same
subsequent  to  the  operation,  this  acquisition  of
control  can  take  any  of  the  following  forms:

increases  or 

remains 

the 

6.2.  Reduction in the number of shareholders not
leading  to  a  change  from  joint  to  sole
control

38.  Where  the  operation  involves  a  reduction  in  the
number  of  shareholders  having 
joint  control,
without  leading  to  a  change  from  joint  to  sole

(14) Case  IV/M.452  —  Avesta  II,  of  9  June  1994.
(15) In  this  case,  a  shareholder  who  was  a  party  to  the
shareholders’ agreement sold its stake of approximately 7 %.
As  the  exiting  shareholder  had  shared  veto  rights  with
another  shareholder  who  remained,  and  as  the  shareholders’
agreement  remained  unchanged,  the  remaining  shareholder
now  acquired  full  veto  rights.

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—  entry  of  one  or  more  new  shareholders  (change
from  sole  to  joint  control,  or  situation  of  joint
control  both  before  and  after  the  operation),

—  acquisition  of  a  controlling  interest  by  one  or
more  minority  shareholders  (change  from  sole
to  joint  control,  or  situation  of  joint  control
both  before  and  after  the  operation),

—  substitution  of  one  or  more  shareholders
(situation of joint control both before and after
the  operation).

42.  The  question 

is  whether 

the  undertakings
concerned  are  the  joint  venture  and  the  new
shareholder(s)  who  would  together  acquire  control
of  a  pre-existing  company,  or  whether  all  of  the
shareholders (existing and new) are to be regarded
as  undertakings  concerned  acquiring  control  of  a
new  joint  venture.  This  question  is  particularly
relevant  when  there 
is  no  express  agreement
between one (or more) of the existing shareholders
and  the  new  shareholder(s),  who  might  only  have
had an agreement with the ‘exiting’ shareholder(s),
i.e.  the  seller(s).

43.  A  change  in  the  shareholding  through  the  entry  or
substitution  of  shareholders  is  considered  to  lead
to  a  change  in  the  quality  of  control.  This  is
because the entry of a new parent company, or the
substitution of one parent company for another, is
not comparable to the simple acquisition of part of
a  business  as  it  implies  a  change  in  the  nature  and
quality  of  control  of  the  whole  joint  venture,  even
when,  both  before  and  after  the  operation,  joint
is  exercised  by  a  given  number  of
control 
shareholders.

44.  The  Commission  therefore  considers  that  the
undertakings  concerned  in  cases  where  there  are
changes  in  the  shareholding  are  the  shareholders
(both  existing  and  new)  who  exercise  joint  control
and  the  joint  venture  itself.  As  mentioned  earlier,
non-controlling  shareholders  are  not  undertakings
concerned.

49. 

the  pre-existing  joint  venture  was  replaced  by  a
new  parent  company.  Both  parent  companies  with
joint  control  (the  existing  one  and  the  new  one)
and  the  joint  venture  were  considered  to  be
undertakings  concerned.

7.  ‘Demergers’  and  the  break-up  of  companies

46.  When  two  undertakings  merge  or  set  up  a  joint
venture,  then  subsequently  demerge  or  break  up
their  joint  venture,  and  in  particular  the  assets (17)
are 
‘demerging’  parties,
the 
particularly  in  a  configuration  different  from  the
original,  there  will  normally  be  more  than  one
acquisition  of  control  (see  the  Annex).

split  between 

47. 

For  example,  undertakings  A  and  B  merge  and
then  subsequently  demerge  with  a  new  asset
configuration.  There  will  be  the  acquisition  by
undertaking  A  of  various  assets  (assets  which  may
previously  have  been  owned  by 
itself  or  by
undertaking  B  and  assets  jointly  acquired  by  the
entity  resulting  from  the  merger),  with  similar
acquisitions  by  undertaking  B.  Similarly,  a
break-up  of  a  joint  venture  can  be  deemed  to
involve  a  change  from  joint  control  over  the  joint
venture’s  entire  assets  to  sole  control  over  the
divided  assets (18).

48.  A  break-up  of  a  company 

(for 

this  way 

concerned 

in 
such  a  demerger, 

is
the
‘asymmetrical’.  For 
undertakings 
each  break-up
operation)  will  be,  on  the  one  hand,  the  original
parties  to  the  merger  and,  on  the  other,  the  assets
that  each  original  party  is  acquiring.  For  the
break-up  of  a  joint  venture,  the  undertakings
concerned  (for  each  break-up  operation)  will  be,
on  the  one  hand,  the  original  parties  to  the  joint
venture,  each  as  acquirer,  and,  on  the  other,  that
part of the joint venture that each original party is
acquiring.

8.  Exchange  of  assets

those 

transactions  where 

In 
(or  more)
companies  exchange  assets,  regardless  of  whether
legal  entities  or  not,  each
these  constitute 

two 

45.  An example of such a change in the shareholding is
the  Synthomer/Yule  Catto  case (16),  in  which  one
of  two  parent  companies  with  joint  control  over

(16) Case  IV/M.376  —  Synthomer/Yule  Catto,  of  22  October

(17) The term ‘assets’ as used here means specific assets which in
themselves  could  constitute  a  business  (e.g.  a  subsidiary,  a
division  of  a  company  or,  in  some  cases,  brands  or  licences)
to  which  a  market  turnover  can  be  clearly  attributed.

(18) Case  IV/M.197  —  Solvay-Laporte/Interox,  of  30  April

1993.

1997.

C  66/22

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2.3.98

it 

acquisition  of  control  constitutes  an  independent
concentration.  Although 
is  true  that  both
transfers of assets in a swap are usually considered
by  the  parties  to  be  interdependent,  that  they  are
often  agreed  in  a  single  document  and  that  they
may even take place simultaneously, the purpose of
the  Merger  Regulation  is  to  assess  the  impact  of
the  operation  resulting  from  the  acquisition  of
control  by  each  of  the  companies.  The  legal  or
even economic link between those operations is not
sufficient 
to  qualify  as  a  single
for 
concentration.

them 

50.  Hence the undertakings concerned will be, for each
property transfer, the acquiring companies and the
acquired  companies  or  assets.

9.  Acquisitions  of  control  by  individual  persons

51.  Article  3(1)  of  the  Merger  Regulation  specifically
provides  that  a  concentration  is  deemed  to  arise,
inter  alia,  where  ‘one  or  more  persons  already
controlling  at 
least  one  undertaking’  acquire
control  of  the  whole  or  parts  of  one  or  more
undertakings.  This  provision 
that
acquisitions  of  control  by  individuals  will  bring
about  a  lasting  change  in  the  structure  of  the
companies  concerned  only  if  those  individuals
carry  out  economic  activities  of  their  own.  The
Commission  considers 
the  undertakings
the
concerned  are 
individual  acquirer  (with  the  turnover  of  the
undertaking(s)  controlled  by  that  individual  being
included  in  the  calculation  of  the  individual’s
turnover).

target  company  and 

indicates 

that 

the 

52.  This  was  the  view  taken  in  the  Commission
decision  in  the  Asko/Jacobs/Adia  case (19),  where
Asko, a German holding company with substantial
retailing  assets,  and  Mr  Jacobs,  a  private  Swiss
investor,  acquired  joint  control  of  Adia,  a  Swiss
company  active  mainly  in  personnel  services.  Mr
Jacobs  was  considered  to  be  an  undertaking
concerned  because  of  the  economic  interests  he
held  in  the  chocolate,  confectionery  and  coffee
sectors.

10. Management  buy-outs

53.  An acquisition of control of a company by its own
managers is also an acquisition by individuals, and
what  has  been  said  above 
is  therefore  also
applicable  here.  However,  the  management  of  the
company  may  pool  its  interests  through  a  ‘vehicle
company’,  so  that  it  acts  with  a  single  voice  and
also  to  facilitate  decision-making.  Such  a  vehicle
company  may  be,  but 
is  not  necessarily,  an
undertaking  concerned.  The  general  rule  on
acquisitions  of  control  by  a  joint  venture  applies
here  (see  Section  III.4.).

54.  With  or  without  a  vehicle  company, 

the
management  may  also  look  for  investors  in  order
to  finance  the  operation.  Very  often,  the  rights
investors  according  to  their
granted  to  these 
shareholding  may  be  such  that  control  within  the
meaning of Article 3 of the Merger Regulation will
be  conferred  on  them  and  not  on  the  management
itself,  which  may  simply  enjoy  minority  rights.  In
the  CWB/Goldman  Sachs/Tarkett  decision (20),  the
two  companies  managing  the  investment  funds
taking part in the transaction were those acquiring
joint  control,  and  not  the  managers.

11. Acquisition  of  control  by  a  State-owned

company

55. 

In  those  situations  where  a  State-owned  company
merges  with  or  acquires  control  of  another
company  controlled  by  the  same  State (21),  the
question  arises  as  to  whether  these  transactions
really constitute concentrations within the meaning
of  Article  3  of  the  Merger  Regulation  or  rather
internal  restructuring  operations  of  the  ‘public
sector  group  of  companies’ (22).  In  this  respect,
recital  12  of  Regulation  (EEC)  No  4064/89  sets
out  the  principle  of  non-discrimination  between
public and private sectors and declares that ‘in the
public  sector,  calculation  of  the  turnover  of  an
undertaking  concerned  in  a  concentration  needs,
therefore,  to  take  account  of  undertakings  making

(20) Case  IV/M.395  —  CWB/Goldman  Sachs/Tarkett,  of  21

February  1994.

(21) The  term  ‘State’  as  used  here  means  any  legal  public  entity,
i.e. not only Member States, but also regional or local public
entities  such  as  provinces,  departments,  Länder,  etc.

(22) See also Commission Notice on the concept of concentration,

(19) Case  IV/M.082  —  Asko/Jacobs/Adia,  of  16  May  1991.

paragraph 8.

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up an economic unit with an independent power of
decision,  irrespective  of  the  way  in  which  their
capital  is  held  or  of  the  rules  of  administrative
supervision  applicable  to  them’.

56.  A merger or acquisition of control arising between
two  companies  owned  by  the  same  State  may

constitute a concentration and, if so, both of them
will  qualify  as  undertakings  concerned,  since  the
mere  fact  that  two  companies  are  both  owned  by
the same State does not necessarily mean that they
belong  to  the  same  ‘group’.  Indeed,  the  decisive
issue  will  be  whether  or  not  these  companies  are
both  part  of  the  same  industrial  holding  and  are
subject  to  a  coordinated  strategy.  This  was  the
approach  taken  in  the  SGS/Thomson  decision (23).

(23) Case 

Industrie/France
Telecom/Finmeccanica/SGS-Thomson,  of  22  February  1993.

IV/M.216 

CEA 

— 

C  66/24

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2.3.98

ANNEX

‘DEMERGERS’  AND  BREAK-UP  OF  COMPANIES (24)

Merger  scenario

Before  merger

Company  A

After  merger

Company  B

Merged  company

Combined  assets

After  breaking  up  the  merger

Company  A:

Company  B:

Divided  assets  of  merged  company:
— some  (initial)  assets  of  A
— some  (initial)  assets  of  B
— some  (subsequent)  assets  of  the  merged-company

Divided  assets  of  merged  company:
— some  (initial)  assets  of  A
— some  (initial)  assets  of  B
— some  (subsequent)  assets  of  the  merged-company

Joint  venture  scenario  (JV)

Before  JV

Company  A

Assets  of  A  for  the  JV

Assets  of  B  for  the  JV

Company  B

After  JV

Company  A

After  breaking  up  the  JV

Joint  venture

Combined  assets

Company  B

Company  A

Divided  assets  of  joint  venture:

Divided  assets  of  joint  venture:

Company  B

— some  initial  (assets)  of  A

— some  initial  (assets)  of  B

— some  initial  (assets)  of  A

— some  initial  (assets)  of  B

— some  (subsequent)  assets  of  the  JV

— some  (subsequent)  assets  of  the  JV

(24)  The  term  ‘assets’  as  used  here  means  specific  assets  which  in  themselves  could  constitute  a  business  (e.g.  a  subsidiary,  a  division  of  a  company  or,  in

some  cases,  brands  or  licences)  to  which  a  market  turnover  can  be  clearly  attributed.