New rules in the EU when acquiring (or increasing) stakes in financial sector targets

The guidance from the ESAs will have a noticeable impact on a number of areas (see below). Whilst the guidelines are limited to investments in the financial sector, it is possible that they will have wider impact. Note also that we are seeing some regulators already take these guidelines into consideration.

The guidelines provide:

• More granularity on the notion of acting in concert, usefully specifying that shareholder engagement (ie discussions in relation to points to be raised with a company’s management) should not be considered to be acting in concert.

• Clarity on the notion of significant influence - which is important as a proposed acquisition or increase in a holding which does not amount to 10% of the capital or voting rights of the target will still be subject to prior notification and prudential assessment if such holding would enable the proposed acquirer to exercise a significant influence over the management of the target, whether such influence is actually exercised or not.

• Important changes to the notion of indirect holdings. Currently a number of national laws (including in France) only treat a holding as an indirect holding if an investor has corporate control over the target.

For example, if Holding Company A owns 60% of Intermediary B, which in turn owns 45% of Target C; Holding Company A indirectly owns 45% of Target C (because it controls Intermediary B).

To the extent that a holding company does not have an indirect holding via corporate control of an intermediary, the guidelines will now require national competent authorities to consider if a holding company has indirect ownership using the “multiplication criterion”. In effect, adapting the above example: if Holding Company A owned just 33% of Intermediary B, which in turn owns 45% of Target C; Holding Company A would not indirectly own 45% of Target C (as it has no corporate control of Intermediary B). However, the guidelines would require Holding Company A to consider that it has 33% of Intermediary B’s 45% holding (ie just under 15%) and so Holding Company A would be subject to prior notification and prudential assessment.

• Non-exhaustive guidance on the decision to acquire exemption. Whilst the guidelines do state that a “narrow interpretation” should be taken, they do provide a degree of comfort in relation to passive increases in a holding.

• Additional precisions with respect to the proportionality principle and the notification/authorisation process itself (including the assessment criteria for potential acquirers).