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Legal Update

Too Little Too Late: the Commission imposes a record fine for failure to notify the acquisition of a minority shareholding

12 June 2009
Mayer Brown Legal Update

On 10 June, the European Commission (the "Commission") announced that it has decided to fine Electrabel €20 million for acquiring control of Compagnie Nationale du Rhône ("CNR") without the Commission's prior approval under the EC Merger Regulation (the "ECMR").  This decision highlights the importance of properly assessing whether an acquisition of a minority shareholding has to be notified to the Commission, or other competition authority, prior to implementation. 


In December 2003, Electrabel, an electricity producer and retailer belonging to the Suez Group, increased its shareholding in CNR, another electricity producer, to 47.88%.  It subsequently increased its shareholding to just under 50%, and notified this as an acquisition of sole control of CNR to the Commission on 26 March 2008.  The Commission cleared the acquisition on 29 April 2008 but left open the precise date on which control had been acquired.  A transfer of control gives rise to a requirement under the ECMR to obtain clearance for the transaction from the Commission prior to the transfer being implemented.

The requirement to notify

Article 4(1) ECMR requires "concentrations with a Community dimension" to be notified to the Commission prior to their implementation.  A "concentration" is defined as a change of control on a lasting basis resulting from the acquisition of direct or indirect control of the whole or parts of one or more undertakings.[1]  A concentration has a "Community dimension" where the parties to it meet certain jurisdictional thresholds, based on turnover, which are set out in Article 1 ECMR.

Pursuant to Article 7(1) ECMR, a concentration with a Community dimension cannot be implemented until it has been cleared by the Commission, and pursuant to Article 14(2), the Commission can impose fines of up to 10% of an undertaking's aggregate turnover where the undertaking:

  1. fails to notify a concentration prior to implementation; or
  2. notifies a concentration but:

    (i) implements it prior to receiving a clearance decision from the Commission;
    (ii) implements it after receiving a prohibition decision from the Commission; or
    (iii) fails to comply with a condition attached to a Commission clearance decision.


The issue in this case was at what point Electrabel acquired control over CNR, thus giving rise to a concentration.  Under the ECMR, "control" can consist of rights, contracts or any other means which confer on the acquiring party the possibility of exercising decisive influence on an undertaking.[2]  Control can exist on a legal or a de facto basis. 

Legal control

Legal control is normally acquired when an undertaking acquires a majority shareholding in a company but can also occur, for example, where preferential rights, such as voting rights or the power to appoint more than half the board, are attached to a minority shareholding or are accorded under a shareholders' agreement.

De facto control

A minority shareholder may be deemed to have control on a de facto basis where there is a large number of shareholders and particularly if shares are widely dispersed among the public, so that the shareholder in question is likely to be able to achieve a majority at shareholders' meetings.

In the past, shareholdings of less than 25% have been found to confer the possibility of exercising decisive influence: for example, in CCIE/GTE,[3] CCIE was found to have acquired control via its acquisition of 19% of the voting rights in EDIL since the remaining shares were held by an independent investment bank whose approval was not needed for important commercial decisions.

Electrabel's stake in CNR

When Electrabel acquired 47.88%. of the shares in CNR in December 2003, it became by far the largest shareholder.  Due to wide dispersion of the remaining shares and past attendance rates at shareholder meetings, it enjoyed a stable majority at such meetings.  Finally, it was the sole industrial shareholder of CNR and had a key role in the operational management of the power plants and the marketing of CNR.  The Commission therefore concluded that Electrabel acquired sole control over CNR at this point and not at the later point when it increased its shareholding to very slightly under 50%.

Sanctions for failure to notify

As stated above, the Commission can impose a fine of up to 10% of the aggregate turnover of a company for failure to notify a concentration prior to implementation.  When fixing the amount of the fine, it will have regard to the nature, gravity and duration of the infringement.[4]
Prior to Electrabel, the Commission had only twice fined companies for a failure to notify:


    • In February 1998, it fined Samsung for failing to notify in due time its acquisition of AST Research.[5]  A relatively small fine of €33,000 was imposed because the breach was not intentional and the concentration had no damaging effect on competition.
    • A.P. Møller was fined €219,000 in July 1999 for three separate failures to notify mergers in due time, the earliest of which dated back to 1997.[6]  Again, the failure to notify was unintentional and there had been no harm to competition.

    The €20 million fine imposed on Electrabel far exceeded both of these previous fines, and may suggest the adoption of a stricter approach by the Commission.  Although the fact that that transaction did not give rise to any competition concerns and the fact that Electrabel subsequently voluntarily informed the Commission of the acquisition of control were taken into account in its favour, the Commission took into account the following factors to increase the level of the fine:

    1. the so-called standstill obligation is a "cornerstone" of the EU merger control system;
    2. Electrabel is a large company with experience in EU merger control procedures[7] and should have known that the 2003 transaction resulted in an acquisition of control requiring notification to the Commission under the ECMR; and
    3. the infringement lasted for over four years.

    Points (a) and (b) may indicate a shift in policy towards higher fines. 

    Companies should also note that national competition authorities have shown a readiness to impose considerable fines for similar breaches.  For example, in December 2008, the German competition authority, the Bundeskartellamt, imposed a €4.5 million fine on Mars Inc for implementing its acquisition of US animal feed producer Nutro without clearance.

    Companies should therefore make a careful assessment of whether transactions in which they are involved need to be notified to the competition authorities.  A failure to do so can be costly.For further information please contact Frances Murphy or Gillian Sproul of the EU & UK Antitrust/Competition Group:

    Tel: +44 20 3130 3200

    Tel: +44 20 3130 3313


    1. Article 3(1) ECMR
    2. Article 3(2) ECMR
    3. Case M258, decision of 25 September 1992
    4. Article 14(3) ECMR
    5. Case IV/M.920, decision of 26 May 1997
    6. Case IV/M.969, decision of 10 February 1999
    7. Many would not describe Electrabel's experience of EU merger control as being extensive: its last notification prior to this one was over six years previously: Case M.3003 Electrabel/ Energia/ Italiana/ Interpower.

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