Competition law risks associated with non-controlling shareholdings in competing undertakings

Background

The European Commission's recent EUR 329 million fine imposed on the food delivery companies Delivery Hero and Glovo underscores several key competition law risks. The infringement was facilitated by Delivery Hero's minority shareholding in Glovo, which created a forum for coordination and the exchange of commercially sensitive information between the two undertakings, i.e., between two competing entities belonging to separate economic entities (groups). 

In our previous insight, we examined the decision's implications for no-poach agreements, highlighting the European Commission's strict enforcement approach to such arrangements. In this insight, we turn to the lessons learned regarding non-controlling minority investments in competing undertakings, with recent enforcement practice demonstrating that even non-controlling minority shareholdings may trigger significant antitrust concerns, particularly when combined with governance rights or information exchange arrangements.

Legal basis 

In certain instances, commercial or regulatory considerations may dictate that acquiring a controlling stake in a competing undertaking is not an attractive proposition, prompting investors to opt for a non-controlling minority shareholding instead. Although, in most EU Member States, such a transaction falls outside the scope of traditional merger control, it remains essential to consider the distinct competition law risks associated with holding a non-controlling shareholding. 

Because no controlling interest is obtained, the two undertakings remain independent entities for competition law purposes, that is, they continue to belong to separate economic entities, and, consequently, any exchange of commercially sensitive information between them will, as a rule, be prohibited under both EU and Danish competition law.

Businesses should therefore be particularly mindful of whether structural links created through minority shareholdings could facilitate illegal exchange of commercially sensitive information. This risk is particularly relevant where a minority investment is accompanied by governance rights that extend beyond those rights necessary for mere financial participation, such as rights to board representation, consultation rights, or any entitlement to receive regular updates on financial performance, strategic plans, pricing strategies, or customer data. 

Exchange of commercially sensitive information may occur in various ways, including through board meetings, regular shareholder meetings or updates, or informal bilateral discussions. Importantly, the prohibition against exchanging commercially sensitive information applies irrespective of the size of the undertaking involved, and therefore also covers minority investments in start-up companies. 

Ensuring competition law compliance 

Accordingly, there is a compelling case for undertakings to implement robust competition law compliance measures in connection with (non-controlling) minority investments in competing undertakings. Such compliance is best achieved through a comprehensive, multi-layered approach.

First, the parties must ensure that any exchange of commercially sensitive information is strictly limited to what is necessary for the minority investor to protect its investment. Importantly, this should be considered at an early stage, ideally during the drafting of the share purchase agreement and/or the shareholders' agreement. 

For instance, in case of board representation, the parties should establish an explicit protocol governing the board's functioning, including appropriate step-out procedures that specify which matters may or may not be discussed in the presence of the minority investor's representative. From a practical standpoint, this also includes establishing and adhering to best practices, such as circulating a sufficiently detailed agenda in advance of each board meeting to prevent any disclosure of competitively sensitive information.

Second, the parties must establish strict firewalls and safeguards to govern any exchange of commercially sensitive information deemed necessary for the minority investor to protect its investment. Even before completing the investment, the investor should implement appropriate clean team arrangements, and similar measures should remain in place following the investment to prevent any flow of commercially sensitive information between the undertakings. 

The general principles governing clean team arrangements apply equally in this context, particularly with respect to the selection of participants. Where a minority investment involves board representation, it is essential to appoint an individual who is sufficiently distanced from the investor's day-to-day business operations. Otherwise, it would be unrealistic to expect that person to completely disregard information obtained through their board role or to prevent it from – consciously or subconsciously – influencing strategic decisions within the minority investor's organisation.

Want to know more?

Please feel free to reach out to any member of Plesner's EU and Competition Law team. 

The Commission's decision in Delivery Hero / Glovo is available here. 

The Danish Competition and Consumer Authority has also addressed cross-ownership among competitors in previous publications, available here and here (in Danish)