Section 12 of the Competition Act states that a merger “occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm”.
Whilst the acquisition of a minority share does not traditionally constitute “control” within the ambit of legislation such as the Companies Act, 2008 (“the Companies Act”) (i.e. the majority of voting rights or ability to appoint and elect the majority of directors), it must be emphasised that the concept of “control” is afforded a far wider and more encompassing meaning within the confines of the Competition Act.
In addition to the more obvious forms of control (so called “positive control”), the Competition Act also recognises “negative control” as a form of “control” which could conceivably be acquired by a transacting party. In terms of section 12(2)(g) of the Competition Act, a minority shareholder may be deemed to have acquired control for notification purposes if the minority shareholder has the ability to materially influence the company’s policies. Notably, section 12(2)(g) relates to a mere ability on the part of a person to exercise material influence and not necessarily the actual influence of the policy of the firm.
The Competition Act provides minimal guidance in relation to what is contemplated by the concept of “material influence”. The approach adopted by the Competition authorities, which is guided by local and international precedent and best practice, has however focused on linking “material influence” to the ability to influence strategic decisions, commercial strategies and to provide a decisive influence.
The Competition Appeal Court has in a number of past decisions stated that the list contained in section 12(2) of the Competition Act represents examples of control and is not to be regarded as an exhaustive or closed list. Consequently, and by virtue of the body of case law on the matter, negative control can be said to arise where a minority stakeholder, by means of an agreement (for example) acquires or establishes the right to veto (or block resolutions) for
- the adoption of important policies within the company/business;
- material strategic decisions such as the adoption of the budget or the business plan;
- major investments; or
- the appointment of or removal of directors or senior management.
