EU merger control

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EU merger control

Jun 5, 2021, 01:46 AM
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https://www.lexisnexis.com/uk/lexispsl/competition/document/391332/5D9K-CMC1-F187-73D1-00000-00
417
EU merger control
Produced in partnership with Van Bael & Bellis
EU merger control#1. Have there been any recent developments regarding EU merger control and are any updates/developments expected in the coming year? Are there any other ‘hot’ EU merger control issues?#2. Please explain the EU 'control test', including providing comments on the position regarding 'minority (non-controlling) shareholdings'.#3. Are joint ventures caught by the EU merger control provisions (including non-structural, cooperative joint ventures)?#4. What are the merger control thresholds and would a purely foreign-to-foreign transaction be caught (commenting on any ‘effects’ doctrine/policy if relevant and the position in relation to joint ventures implemented fully outside the EEA)?#5. In order to determine whether the turnover thresholds mentioned in question 4 are met, the parties should take into account the group turnover in the most recent complete financial year of the so-called 'undertakings concerned' derived from the sale of products and services falling within the undertakings’ ordinary activities, after deduction of sales rebates, VAT and other taxes directly related to turnover.#6. Where the jurisdictional thresholds are met:#(a) What are the implications in terms of Member States’ jurisdiction to review (including any procedure by which referral between the Commission and a Member State operates)?#(b) Is notification mandatory and must closing be suspended pending clearance?#7. Is there any discretion to review transactions that fall below the notification thresholds?#8. Is it possible to close the deal globally prior to clearance by the European Commission?#9. Who is responsible for filing a notifiable transaction—noting also any process (prescribed or otherwise) proceeding formal notification, whether there is a specific form/document used and whether there is any filing fee?#10. Is there a deadline for filing a notifiable transaction and what is the timetable thereafter for review by the European Commission?#11. Please confirm/comment on the penalties for failing to notify or suspend transactions pending clearance and the European Commission’s record/stance in terms of pursuing parties for failing to notify (or suspend closing) relevant transactions (commenting, if relevant, on any statute of limitations regarding sanctions for infringements of the applicable law).#12. Are there any other 'stakeholders' other than the European Commission?
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A conversation with Johan Van Acker, partner, and Catherine Gordley senior associate, in the Brussels office of specialist competition law firm Van Bael & Bellis, on key issues of EU merger control. This is part of our collection of over 125 maintained national merger control guides.

EU merger control

A conversation with Johan Van Acker, partner, and Catherine Gordley senior associate, in the Brussels office of specialist competition law firm Van Bael & Bellis, on key issues of European Union merger control.

NOTE–to see whether notification thresholds in the EU and throughout the world are met, see Where to Notify.

1. Have there been any recent developments regarding EU merger control and are any updates/developments expected in the coming year? Are there any other ‘hot’ EU merger control issues?

On 31 January 2020, the United Kingdom left the EU, and on 31 December 2020, transitional arrangements governing merger control between the regions also came to an end. As a consequence, the EU’s ‘one-stop-shop’ merger clearance process no longer applies to the UK, and mergers that meet the relevant jurisdictional thresholds in the EU and UK are subject to investigation in both jurisdictions. From an EU merger control perspective, this means that UK turnover is no longer counted towards the EU jurisdictional threshold, and that the Commission will no longer consider a merger’s effect on competition in UK national or sub-national markets as part of its substantive assessment. It is nevertheless anticipated that the Commission will cooperate actively with the UK’s Competition and Markets Authority on cases that affect both jurisdictions, much as it already does with the US FTC and other competition regulators. The Commission, however, will continue to exercise jurisdiction over the UK aspects of any transactions that were formally notified to it before the end of 2020.

The outbreak of the COVID-19 pandemic in Europe in early 2020 gave rise to debates concerning how the Commission should assess mergers in markets deeply affected by the crisis. The Commission made clear that, despite the pandemic, it would not alter the strict standard needed to successfully mount a ‘failing firm’ defence, or otherwise relax its competitive assessment. The Commission did, however, loosen its procedural rules in response to the crisis, dispensing with requirements that merger parties submit hard copies of merger filings and holding video rather than in-person meetings. It remains to be seen whether these measures will continue after the pandemic.

The European Commissionis currently reviewing its Notice on Market Definition, adopted in 1997. For instance, the Commission will look at how digitisation, with the proliferation of free services and multi-product ecosystems, would impact on long-standing market definition concepts, including the ‘SSNIP test’ and product substitution. Moreover, as regards geographic market definition, the review is expected to take into account the effect of globalisation, considering competition from outside the EEA in assessing competitive constraints. In 2020, the Commission completed the public consultation portion of its assessment.

Depending on its outcome, this review could have a material impact on the Commission’s merger control assessment of certain cases. For instance, if the Commission starts taking more account of competition from outside the EEA in defining geographic markets, this could affect the assessment of transactions that create so-called ‘European champions’–strong players in Europe, that face competition at a global level from major rivals based in, for example, China.

The debate generated by the Commission’s Siemens/Alstom (M.8677) decision of February 2019 concerning the role of the Commission in reviewing transactions that create ‘European champions’ remains ongoing. Certain Member States (notably France and Germany) remain critical of what they view as the Commission’s overly-rigid approach to assessing the emerging competitive threat posed by non-European (and particularly Chinese) industry.

While the French and German governments have proposed procedural changes to the EU merger control system in order to address their concerns, these changes are unlikely to be implemented anytime soon. Following the outbreak of the COVID-19 pandemic, the Commission did not show any signs of softening its stance toward the ‘European champions’ argument. However, it is still uncertain whether any lasting economic effects of the pandemic in Europe may ultimately shift the Commission’s policy in this area.

The Commission has, however, taken notice of the potential distortion of competition that may occur in EU mergers as the result of substantial financial investments from non-Member States. On 17 June 2020, the Commission published a White Paper on foreign subsidies, which, among other things, addressed the role of foreign subsidies in facilitating the acquisition of EU companies. The White Paper discussed the potential introduction of a mandatory FDI screening process for companies benefitting from non-EU financial support that would run parallel to the Commission’s normal merger control assessment and which would also have a suspensory effect. It remains to be seen whether the Commission will adopt any such FDI review process in the future.

2. Please explain the EU 'control test', including providing comments on the position regarding 'minority (non-controlling) shareholdings'.

EU merger control only catches so-called 'concentrations'. In essence, these are certain transactions—mergers, acquisitions and full-function joint ventures (see question 3 for more on 'full-function' joint ventures)—that bring about a lasting change in 'control' of the companies concerned. 'Control' is defined as the ability to exercise decisive influence on a company. There is no specific shareholding or other threshold for control to be established, and each case is decided on the facts.

While a transaction is only notifiable if it gives rise to a change in control, this change in control can take various forms. EU merger control covers not only acquisitions of sole control but also acquisitions of joint control, as well as changes in the quality of control (where a company goes from having sole control to having joint control or vice versa, or where there is an increase in the number or change in the identity of jointly controlling companies).

Sole control is most commonly acquired through a purchase by one company of a majority of the voting shares of another company, insofar as this gives the acquirer the power to exercise decisive influence on the target by determining its strategic commercial behaviour. In exceptional cases, a minority shareholding may also be sufficient to establish sole control if, for example, the acquirer is vested with other rights allowing it to determine the strategic commercial behaviour of the target company. Joint control exists where two or more companies have the possibility of exercising decisive influence on another company. Decisive influence in this sense normally means the power of two or more shareholders to block actions which determine the strategic commercial behaviour of the target (in particular as concerns its business plan, operating budget and/or the appointment of senior management). The standard example of joint control is where each parent company has equal voting rights and representation on the joint venture’s management board and other decision-making bodies, where decisions are taken by a simple majority, thus giving each the power to deadlock decisions on the strategic commercial behaviour of the company. In contrast, veto rights normally accorded to minority shareholders to protect their financial interests (eg concerning changes in the statutes, an increase or decrease in capital, or liquidation) but which do not concern the strategic commercial behaviour of the target company are usually not sufficient to confer joint control.

See further, A 'concentration' with an EU dimension and EU merger rules—minority shareholdings.

3. Are joint ventures caught by the EU merger control provisions (including non-structural, cooperative joint ventures)?

EU merger control catches the creation of so-called ‘full function’ joint ventures.

The 'full-function' criterion means that the joint venture must perform on a lasting basis all the functions of an autonomous economic entity. Essentially, the joint venture should have sufficient resources to carry out on a lasting basis and by itself the same functions as other companies operating in the same market. This generally requires that the joint venture has its own management, as well as access to staff, assets and sufficient capital to allow for its long-term sustainability. In addition, the joint venture’s operations should generally not be limited to carrying out a particular aspect of its parents’ businesses (eg not just production, sales or research & development), the joint venture should not in the long term be overly reliant on its parents as either supplier or customer, and the joint venture should be intended to operate on a lasting basis.

This means that purely cooperative joint ventures limited to a particular function, such as joint R&D or joint marketing, will not qualify as full-function joint ventures and will, thus, fall outside the scope of EU merger control. While such joint ventures will not have to be notified to the Commission, they may still be reviewed by the Commission under the EU rules on restrictive agreements (Article 101 TFEU). In addition, these kinds of joint ventures may also be subject to the merger control rules of certain EU Member States, such as Germany, that do not require joint ventures to be full-function in order to be notifiable.

See further, EU merger rules—joint ventures.

4. What are the merger control thresholds and would a purely foreign-to-foreign transaction be caught (commenting on any ‘effects’ doctrine/policy if relevant and the position in relation to joint ventures implemented fully outside the EEA)?

Concentrations have to be notified to, and approved by, the Commission if they meet either of the following two alternative jurisdictional thresholds (see question 5 for more on the 'undertakings concerned' referred to in the thresholds):

  1. Threshold 1:

    1. the combined aggregate worldwide turnover of all the undertakings concerned is more than €5,000m

    2. the aggregate EU-wide turnover of each of at least two of the undertakings concerned is more than €250m

    3. unless, each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within one and the same Member State

  2. Threshold 2:

    1. the combined aggregate worldwide turnover of all the undertakings concerned is more than €2,500m

    2. in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than €100m

    3. in each of at least the same three Member States included for the purpose of the above criterion, the aggregate turnover of each of at least two of the undertakings concerned is more than €25m, and

    4. the aggregate EU-wide turnover of at least two of the undertakings concerned is more than €100m

    5. unless, each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within one and the same Member State.

Both thresholds are based exclusively on turnover criteria. Where the parties are headquartered, whether or not they have subsidiaries or assets within the EU, the law governing the transaction agreements, whether or not the transaction gives rise to competition concerns or in fact has any effects on competition in the EEA, are all irrelevant to the question of jurisdiction.

This means that concentrations (including purely foreign-to-foreign transactions) that meet either of these thresholds cannot escape EU merger control on the basis that the deal would not have any effects in Europe. In fact, the European courts have held that a concentration that meets the EU thresholds is presumed to have a sufficient effect on the EU for the Commission to have jurisdiction.

For instance, joint ventures that are implemented entirely outside of the EEA but where the parent companies meet either of the above mentioned thresholds (even if only because of EU turnover generated by the parent companies in an industry that is entirely unrelated to the joint venture) will have to be notified to the Commission and cannot escape EU merger control based on a lack of effects argument.

See further, A 'concentration' with an EU dimension — Notification thresholds.

Note–the UK has now left the EU one-stop shop, meaning UK turnover is no longer relevant for the purposes of applying the EU notification thresholds.

5. In order to determine whether the turnover thresholds mentioned in question 4 are met, the parties should take into account the group turnover in the most recent complete financial year of the so-called 'undertakings concerned' derived from the sale of products and services falling within the undertakings’ ordinary activities, after deduction of sales rebates, VAT and other taxes directly related to turnover.

As a starting point for determining the relevant turnover, the 'undertakings concerned' should be identified. As a general rule of thumb, the 'undertakings concerned' are:

  1. in the case of a merger: all merging parties

  2. in the case of an acquisition of sole control: the acquiring company and the target company; the seller is not an undertaking concerned. Where only parts of a company are acquired, only the turnover of those parts is taken into account for the target company

  3. in the case of an acquisition of joint control of a newly established company: each of the companies acquiring control. The joint venture does not as yet have any turnover of its own and thus is not considered as an undertaking concerned

  4. in the case of an acquisition of joint control of a pre-existing company: each of the companies acquiring control, as well as the existing company being acquired.

For each undertaking concerned, the turnover should include the entire group-wide turnover in the most recent complete financial year prior to the date of the transaction for which audited accounts are available. As a basic rule, this group-wide turnover includes turnover of all companies that have direct or indirect control-based links with the undertaking concerned (such as its parent companies and their parent companies, its subsidiaries and their subsidiaries, its sister companies, and companies jointly controlled by two or more companies of the group). As an exception to this basic rule, in the case of a sale of part of a company, only the

The following Competition practice note provides comprehensive and up to date legal information on EU merger control

EU merger control

A conversation with Johan Van Acker, partner, and Catherine Gordley senior associate, in the Brussels office of specialist competition law firm Van Bael & Bellis, on key issues of European Union merger control.

NOTE–to see whether notification thresholds in the EU and throughout the world are met, see Where to Notify.

1. Have there been any recent developments regarding EU merger control and are any updates/developments expected in the coming year? Are there any other ‘hot’ EU merger control issues?

On 31 January 2020, the United Kingdom left the EU, and on 31 December 2020, transitional arrangements governing merger control between the regions also came to an end. As a consequence, the EU’s ‘one-stop-shop’ merger clearance process no longer applies to the UK, and mergers that meet the relevant jurisdictional thresholds in the EU and UK are subject to investigation in both jurisdictions. From an EU merger control perspective, this means that UK turnover is no longer counted towards the EU jurisdictional threshold, and that the Commission will no longer consider a merger’s effect on competition in UK national or sub-national markets as part of its substantive assessment. It is nevertheless anticipated that the Commission will cooperate actively with the UK’s Competition and Markets Authority on cases that affect both jurisdictions, much as it already does with the US FTC and other

EU merger control

A conversation with Johan Van Acker, partner, and Catherine Gordley senior associate, in the Brussels office of specialist competition law firm Van Bael & Bellis, on key issues of European Union merger control.

NOTE–to see whether notification thresholds in the EU and throughout the world are met, see Where to Notify.

1. Have there been any recent developments regarding EU merger control and are any updates/developments expected in the coming year? Are there any other ‘hot’ EU merger control issues?

On 31 January 2020, the United Kingdom left the EU, and on 31 December 2020, transitional arrangements governing merger control between the regions also came to an end. As a consequence, the EU’s ‘one-stop-shop’ merger clearance process no longer applies to the UK, and mergers that meet the relevant jurisdictional thresholds in the EU and UK are subject to investigation in both jurisdictions. From an EU merger control perspective, this means that UK turnover is no longer counted towards the EU jurisdictional threshold, and that the Commission will no longer consider a merger’s effect on competition in UK national or sub-national markets as part of its substantive assessment. It is nevertheless anticipated that the Commission will cooperate actively with the UK’s Competition and Markets Authority on cases that affect both jurisdictions, much as it already does with the US FTC and other

competition regulators. The Commission, however, will continue to exercise jurisdiction over the UK aspects of any transactions that were formally notified to it before the end of 2020.

The outbreak of the COVID-19 pandemic in Europe in early 2020 gave rise to debates concerning how the Commission should assess mergers in markets deeply affected by the crisis. The Commission made clear that, despite the pandemic, it would not alter the strict standard needed to successfully mount a ‘failing firm’ defence, or otherwise relax its competitive assessment. The Commission did, however, loosen its procedural rules in response to the crisis, dispensing with requirements that merger parties submit hard copies of merger filings and holding video rather than in-person meetings. It remains to be seen whether these measures will continue after the pandemic.

The European Commissionis currently reviewing its Notice on Market Definition, adopted in 1997. For instance, the Commission will look at how digitisation, with the proliferation of free services and multi-product ecosystems, would impact on long-standing market definition concepts, including the ‘SSNIP test’ and product substitution. Moreover, as regards geographic market definition, the review is expected to take into account the effect of globalisation, considering competition from outside the EEA in assessing competitive constraints. In 2020, the Commission completed the public consultation portion of its assessment.

Depending on its outcome, this review could have a material impact on the Commission’s merger control assessment of certain cases. For instance, if the Commission starts taking more account of competition from outside the EEA in defining geographic markets, this could affect the assessment of transactions that create so-called ‘European champions’–strong players in Europe, that face competition at a global level from major rivals based in, for example, China.

The debate generated by the Commission’s Siemens/Alstom (M.8677) decision of February 2019 concerning the role of the Commission in reviewing transactions that create ‘European champions’ remains ongoing. Certain Member States (notably France and Germany) remain critical of what they view as the Commission’s overly-rigid approach to assessing the emerging competitive threat posed by non-European (and particularly Chinese) industry.

While the French and German governments have proposed procedural changes to the EU merger control system in order to address their concerns, these changes are unlikely to be implemented anytime soon. Following the outbreak of the COVID-19 pandemic, the Commission did not show any signs of softening its stance toward the ‘European champions’ argument. However, it is still uncertain whether any lasting economic effects of the pandemic in Europe may ultimately shift the Commission’s policy in this area.

The Commission has, however, taken notice of the potential distortion of competition that may occur in EU mergers as the result of substantial financial investments from non-Member States. On 17 June 2020, the Commission published a White Paper on foreign subsidies, which, among other things, addressed the role of foreign subsidies in facilitating the acquisition of EU companies. The White Paper discussed the potential introduction of a mandatory FDI screening process for companies benefitting from non-EU financial support that would run parallel to the Commission’s normal merger control assessment and which would also have a suspensory effect. It remains to be seen whether the Commission will adopt any such FDI review process in the future.

2. Please explain the EU 'control test', including providing comments on the position regarding 'minority (non-controlling) shareholdings'.

EU merger control only catches so-called 'concentrations'. In essence, these are certain transactions—mergers, acquisitions and full-function joint ventures (see question 3 for more on 'full-function' joint ventures)—that bring about a lasting change in 'control' of the companies concerned. 'Control' is defined as the ability to exercise decisive influence on a company. There is no specific shareholding or other threshold for control to be established, and each case is decided on the facts.

While a transaction is only notifiable if it gives rise to a change in control, this change in control can take various forms. EU merger control covers not only acquisitions of sole control but also acquisitions of joint control, as well as changes in the quality of control (where a company goes from having sole control to having joint control or vice versa, or where there is an increase in the number or change in the identity of jointly controlling companies).

Sole control is most commonly acquired through a purchase by one company of a majority of the voting shares of another company, insofar as this gives the acquirer the power to exercise decisive influence on the target by determining its strategic commercial behaviour. In exceptional cases, a minority shareholding may also be sufficient to establish sole control if, for example, the acquirer is vested with other rights allowing it to determine the strategic commercial behaviour of the target company. Joint control exists where two or more companies have the possibility of exercising decisive influence on another company. Decisive influence in this sense normally means the power of two or more shareholders to block actions which determine the strategic commercial behaviour of the target (in particular as concerns its business plan, operating budget and/or the appointment of senior management). The standard example of joint control is where each parent company has equal voting rights and representation on the joint venture’s management board and other decision-making bodies, where decisions are taken by a simple majority, thus giving each the power to deadlock decisions on the strategic commercial behaviour of the company. In contrast, veto rights normally accorded to minority shareholders to protect their financial interests (eg concerning changes in the statutes, an increase or decrease in capital, or liquidation) but which do not concern the strategic commercial behaviour of the target company are usually not sufficient to confer joint control.

See further, A 'concentration' with an EU dimension and EU merger rules—minority shareholdings.

3. Are joint ventures caught by the EU merger control provisions (including non-structural, cooperative joint ventures)?

EU merger control catches the creation of so-called ‘full function’ joint ventures.

The 'full-function' criterion means that the joint venture must perform on a lasting basis all the functions of an autonomous economic entity. Essentially, the joint venture should have sufficient resources to carry out on a lasting basis and by itself the same functions as other companies operating in the same market. This generally requires that the joint venture has its own management, as well as access to staff, assets and sufficient capital to allow for its long-term sustainability. In addition, the joint venture’s operations should generally not be limited to carrying out a particular aspect of its parents’ businesses (eg not just production, sales or research & development), the joint venture should not in the long term be overly reliant on its parents as either supplier or customer, and the joint venture should be intended to operate on a lasting basis.

This means that purely cooperative joint ventures limited to a particular function, such as joint R&D or joint marketing, will not qualify as full-function joint ventures and will, thus, fall outside the scope of EU merger control. While such joint ventures will not have to be notified to the Commission, they may still be reviewed by the Commission under the EU rules on restrictive agreements (Article 101 TFEU). In addition, these kinds of joint ventures may also be subject to the merger control rules of certain EU Member States, such as Germany, that do not require joint ventures to be full-function in order to be notifiable.

See further, EU merger rules—joint ventures.

4. What are the merger control thresholds and would a purely foreign-to-foreign transaction be caught (commenting on any ‘effects’ doctrine/policy if relevant and the position in relation to joint ventures implemented fully outside the EEA)?

Concentrations have to be notified to, and approved by, the Commission if they meet either of the following two alternative jurisdictional thresholds (see question 5 for more on the 'undertakings concerned' referred to in the thresholds):

  1. Threshold 1:

    1. the combined aggregate worldwide turnover of all the undertakings concerned is more than €5,000m

    2. the aggregate EU-wide turnover of each of at least two of the undertakings concerned is more than €250m

    3. unless, each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within one and the same Member State

  2. Threshold 2:

    1. the combined aggregate worldwide turnover of all the undertakings concerned is more than €2,500m

    2. in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than €100m

    3. in each of at least the same three Member States included for the purpose of the above criterion, the aggregate turnover of each of at least two of the undertakings concerned is more than €25m, and

    4. the aggregate EU-wide turnover of at least two of the undertakings concerned is more than €100m

    5. unless, each of the undertakings concerned achieves more than two-thirds of its aggregate EU-wide turnover within one and the same Member State.

Both thresholds are based exclusively on turnover criteria. Where the parties are headquartered, whether or not they have subsidiaries or assets within the EU, the law governing the transaction agreements, whether or not the transaction gives rise to competition concerns or in fact has any effects on competition in the EEA, are all irrelevant to the question of jurisdiction.

This means that concentrations (including purely foreign-to-foreign transactions) that meet either of these thresholds cannot escape EU merger control on the basis that the deal would not have any effects in Europe. In fact, the European courts have held that a concentration that meets the EU thresholds is presumed to have a sufficient effect on the EU for the Commission to have jurisdiction.

For instance, joint ventures that are implemented entirely outside of the EEA but where the parent companies meet either of the above mentioned thresholds (even if only because of EU turnover generated by the parent companies in an industry that is entirely unrelated to the joint venture) will have to be notified to the Commission and cannot escape EU merger control based on a lack of effects argument.

See further, A 'concentration' with an EU dimension — Notification thresholds.

Note–the UK has now left the EU one-stop shop, meaning UK turnover is no longer relevant for the purposes of applying the EU notification thresholds.

5. In order to determine whether the turnover thresholds mentioned in question 4 are met, the parties should take into account the group turnover in the most recent complete financial year of the so-called 'undertakings concerned' derived from the sale of products and services falling within the undertakings’ ordinary activities, after deduction of sales rebates, VAT and other taxes directly related to turnover.

As a starting point for determining the relevant turnover, the 'undertakings concerned' should be identified. As a general rule of thumb, the 'undertakings concerned' are:

  1. in the case of a merger: all merging parties

  2. in the case of an acquisition of sole control: the acquiring company and the target company; the seller is not an undertaking concerned. Where only parts of a company are acquired, only the turnover of those parts is taken into account for the target company

  3. in the case of an acquisition of joint control of a newly established company: each of the companies acquiring control. The joint venture does not as yet have any turnover of its own and thus is not considered as an undertaking concerned

  4. in the case of an acquisition of joint control of a pre-existing company: each of the companies acquiring control, as well as the existing company being acquired.

For each undertaking concerned, the turnover should include the entire group-wide turnover in the most recent complete financial year prior to the date of the transaction for which audited accounts are available. As a basic rule, this group-wide turnover includes turnover of all companies that have direct or indirect control-based links with the undertaking concerned (such as its parent companies and their parent companies, its subsidiaries and their subsidiaries, its sister companies, and companies jointly controlled by two or more companies of the group). As an exception to this basic rule, in the case of a sale of part of a company, only

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