Joint control exists where two or more companies or persons have the ability to exercise decisive influence over a company. Decisive influence is assessed under the principles of Article 5 of the Communiqué No. 2010/4 Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board (“Communiqué No. 2010/4”). It refers to the power to exert decisive influence over actions which determine the strategic commercial behavior of a company, for example by blocking them (i.e. negative control).
According to the Guidelines on Cases Considered as a Merger or an Acquisition and the Concept of Control (“Guidelines”), joint control can be acquired on a de facto or on a de jure basis and it manifests itself in the below mentioned cases.
(i) Equality in Voting Rights or Appointment to Decision-making Bodies
Two parent companies may equally share the voting rights or have the right to appoint an equal number of members to the decision-making bodies of the joint venture. It is not necessary that there be an agreement between the parent companies. If there is, however, it must be on the grounds of equality.
(ii) Veto Rights
Minority shareholders may have rights allowing them to veto decisions essential for the strategic commercial behavior of the joint venture. Veto rights may be set out in the articles of association of the joint venture or the shareholders' agreement between the parent companies, and they typically refer to decisions for (i) budget, (ii) business plan, (iii) major investments or (iv) appointment of senior management. Having veto rights over at least one of the foregoing decisions would be sufficient to confer joint control. It is not necessary that the minority shareholders actually make use of their decisive influence or that they have decisive influence on the day-to-day running of the company. For there to be joint control, the veto rights must go beyond statutory minority protection rights such as rights over the decisions that concern the capital/equity of the company.
(iii) Joint Exercise of Voting Rights
Two or more companies acquiring minority shares in the target company may obtain joint control even without specific veto rights. Where the minority shareholders together have a majority of the voting rights and act together in exercising them (and thus control the target company), the minority shareholders may enjoy joint control. Such joint control may result from a legally binding agreement between the minority shareholders or it may be established on a de facto basis.
Joint exercise of voting rights may also exist when a majority shareholder is highly dependent on a minority shareholder. If the joint venture financially depends on the minority shareholder or if only the minority shareholder has the required know-how for the operation of the joint venture whereas the majority shareholder is a mere financial investor, then the minority shareholder may enjoy joint control without any veto. In this case, the majority shareholder will not be able to act on its own and the minority shareholder may be able to block strategic decisions, therefore both parent companies will have to cooperate permanently.
(iv) Other factors related to joint control
- Unequal Role of the Parent Companies
Joint control may exist if one parent company has specific knowledge and experience in the business area of the joint venture. In this case, the other parent company does not have a role or has a limited role in the daily management of the joint venture. However, if the latter does not retain the real possibility of objecting to the decisions taken by the first parent company, then the first parent company has sole control.
- Casting Vote
Joint control exists if the casting vote belongs to both parent companies. Nevertheless, joint control can also exist when the casting vote belongs to one parent company, provided that its importance and effectiveness are in practice limited.
Please also see the “merger control notification form” for further information.