Partial Ownership of Competitors in Europe

Imagine you are Apple and you acquire a small, “non-controlling” stake in your direct competitor, Google. What is the motive and benefit for the acquirer of such shareholding and what the effects for the target as well as for competition and consumers? Or imagine you are BlackRock, a large institutional investor, with many diverse investments in your actively and passively managed portfolios, including parallel, non-controlling financial holdings in several industrial firms operating in the same industry (e.g. Delta, Southwest, American Airlines). And imagine further, a few large institutional investors with “passive” investment strategies (e.g. index funds) simultaneously have such financial holdings in several competing firms. What are the competitive implications of any indirect ownership link of rivals by the same common shareholder(s)?

Competition law and economics literature refers to the above business practices as “cross-ownership” and “common ownership” of rivals respectively. Either way, partial ownership of rivals is ubiquitous; it may serve socially beneficial purposes but it may also have anticompetitive effects in certain circumstances. From an antitrust perspective, the issue cuts across cartels, mergers, joint ventures, oligopoly theory and tacit collusion, dominance and monopolisation. At present, minority shareholdings and other structural links such as interlocking directorships are not regulated in a comprehensive or systematic fashion under EU competition law. It is an open question whether such links may present a competition law problem deserving closer attention.

The EU debate has become particularly interesting in this regard as it draws to opposite directions. On one hand, two public consultations on reform of the EU Merger Regulation specifically address the potential regulatory gap over structural links/ non-controlling minority shareholdings while two recent merger decisions (Dow/DuPont; Bayer/Monsanto) and public speeches of the EU Commissioner for Competition draw attention to the groundbreaking economic literature on common ownership of rival firms and its potential to create spillover effects on competition. One the other hand, there have been sustained efforts at EU level to push for an EU capital market union and increased shareholders’ rights as a means of improving the quality of corporate governance and the functioning of financial markets in Europe, which may amplify any EU competition law problem.

Against this backdrop, this presentation aims to provide an overview of the economic, legal and policy issues surrounding both partial cross-ownership and common ownership of competing firms. In particular, I will summarise and discuss the current state of play as to: i) the economic analysis of cross- and common shareholding and related theories of harm; ii) the EU competition law treatment of minority stakes with particular emphasis on merger control, and any regulatory or enforcement gaps in scrutinising minority stakes, as well as any residual ability under EU antitrust rules (Art.101 and 102 TFEU) to examine situations of cross- or common ownership; iii) a comparative analysis of the EU competition law regime with other legal systems within and outside the EU (not following the EU model of merger control) such as the UK, Germany and the US; iv) the policy outlook and recent discussions in Europe with regard to the problem of cross- and common shareholding, especially in light of potential reforms to the EU Merger Regulation as well as parallel corporate governance and finance policy developments in the EU. I will conclude with some thoughts on how to better frame any competition concerns linked to partial cross- and common ownership of rivals and propose solutions under the EU competition law system that may be commensurate to the extent and parameters of the identified concerns.