Sole control exists when one company alone has decisive influence over another company. Article 5 of the Communiqué 2010/4 Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board (“Communiqué No. 2010/4”) assesses “decisive influence over the company’s strategic commercial decisions”. In general, sole control manifests itself in two ways:
- The company with sole control enjoys the right to determine the strategic commercial decisions of the controlled company on its own. This right is usually achieved by the acquisition of the majority of the other company’s voting rights. That being said, there are cases where a minority shareholder can hold the sole control of a company.
- The shareholder with sole control has the power to veto strategic decisions in a company; however, he does not have the power to make such decisions by himself. This is called “negative sole control”. In contrast to the situation in a jointly controlled company, the shareholder who enjoys negative sole control over the company does not necessarily need to cooperate with other shareholders in determining strategic behaviors of the company.
Sole control can be acquired by other means apart from voting rights, for instance through the purchase of assets.
According to the Guidelines on Cases Considered as a Merger or an Acquisition and the Concept of Control (“Guidelines”), sole control can be acquired on a de jure and on a de facto basis.
I. De jure sole control
The most common way of acquiring de jure sole control is the acquisition of the majority of the target company’s voting rights. This does not always mean acquiring the majority of the shares. That is because acquisition of the majority of the company capital (shares) may not confer control if, at the same time, it does not include the majority of voting rights. Majority of voting rights would be the acquirer’s tool for decisive influence over the company’s strategic commercial decisions.
On the other hand, acquisition of a simple majority of the voting rights may not confer the power to the acquirer in a case where the articles of association of the target company require a qualified majority for strategic decisions. In such a case, the acquirer may have veto rights over strategic commercial decisions of the company. These veto rights over strategic commercial decisions grant him decisive influence over strategic commercial decisions. This is called negative sole control. The most typical cases of negative sole control are (i) where one shareholder holds 50 % in a company while other shareholders hold the remaining 50 % (assuming this does not lead to positive sole control on a de facto basis) and (ii) where there is a qualified majority requirement for strategic decisions and only one (minority or majority) shareholder has a veto right.
Furthermore, Guidelines provides that de jure sole control can also be acquired through minority shares with specific rights attached to them. These may be preferential shares to which special rights are attached enabling the minority shareholder to determine the strategic behavior of the target company (i.e. the power to appoint more than half of the members of the administrative board).
II. De facto sole control
A minority shareholder may be deemed to have sole control on a de facto basis in the event that he is highly likely to achieve a majority at the shareholders' meetings, something that is assessed based on past voting patterns. In this case, the Board also makes an assessment regarding the position and role of other shareholders, as well as foreseeable changes of the shareholders' presence which may arise after the transaction. Criteria such as whether the remaining shares are widely dispersed among different shareholders, whether other important shareholders have structural, economic or family links with the large minority shareholder or whether other shareholders have a strategic or a purely financial interest in the target company are taken into account during the assessment.
In exceptional cases, the existence of an option to purchase or convert shares can confer de facto sole control, provided that the option will be exercised in the near future according to legally binding agreements.
Please also see the “merger control notification form” for further information.