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Control “material influence”

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Control “material influence”

[122] As we indicated earlier in this decision we have no reason to depart from the factual findings on control that informed our February decision.

[123] A recent case in the United Kingdom based on the question of what constitutes material influence has been decided by their Competition Commission and there control was found to exist when the acquirer acquired only a 17% stake in the target firm. We examine that decision now to see why it does not alter our conclusions.

[124] First we consider our section 12(2) (g) which is linguistically similar to the English provision: In terms of section 12(2) (g) “A person controls a firm if that person has the ability to materially influence policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).”

[125] In the UK case, the Competition Commission had had referred to it by the Secretary of State for Trade and Industry, a merger in which British Sky Broadcasting Group (BSkyB) took a stake of 17,9 % in rival ITV Plc. It is thus a stake analogous to the 18, 17% financial stake Primedia will indirectly own in Kaya.

[126] A threshold issue for the Commission to decide was whether a relevant merger situation had been created. Under section 23 of the Enterprise Act, a merger situation is created when two or more enterprises cease to be distinct. Under section 26(1) they cease to be distinct when they are brought under common ownership and common control. Under section 26(3):

A person or group of persons, able directly or indirectly, to control or materially to influence the policy of a body corporate, or the policy of any person in carrying on an enterprise but without having a controlling interest in that body corporate or in that enterprise, may, for the purpose of subsections (1) and (2) be treated as having control over it.”

[127] The English test of material influence is similar to our own. On what basis did they find control when we had not? BSky B is interesting because the UK Commission found that BSkyB had acquired “material influence” over ITV, despite its very low stake. But in its analysis the Commission relied on two factors not present in the matter before us;

  1. They found that after examining voting records of ITV, a publicly held company, that a shareholder with 17% could have a sufficient majority to constitute at least 25% plus one of the voting quorum present, and thus could block a special resolution

  2. That it was the largest shareholder in the company and was very large relative to the size of the next largest shareholder at just more than 5 %, and the next, three with just over 3%.71

[128] Neither of these factors is present in this transaction. Nail is not the largest shareholder; it is joint second behind Thebe which has 45, 2%. Its stake at 24, 9% is insufficient on its own to block a special resolution (presumably why it was set where it was) and given that this is a private company with four shareholders, shareholder apathy is unlikely to be a factor at general meetings.

[129] Note that the conclusion in BSkyB is in any event reported to be on appeal.72 But even if the decision is upheld, and we agree in any event with the reasoning, that case is distinguishable on the facts from the one in casu, and hence we have no reason to alter our previous decision on control.

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