Do you have a minority stake in your competitor? 300 million reasons to take care

The European Commission (EC) recently secured its first ever fine for cartel conduct by a shareholder who had a minority interest in its competitor, fining two of the largest food delivery companies in Europe, Delivery Hero (DH) and Glovo, €329 million.

This case is a timely reminder for firms that have shareholdings in their rivals to establish and implement appropriate guardrails and protocols to minimise the risk of anti-competitive conduct. 

The case is particularly important for firms that have minority shareholdings with a view to gaining control of their rival and when full integration can take place.

What was the case about? 

In July 2018, DH acquired a 15 per cent minority stake in Glovo, a privately held company, and gradually increased its stake through subsequent investments. Via the minority stake, DH gained the ability to vote at shareholder meetings and secure a board seat on Glovo. In July 2022, DH acquired Glovo outright in a deal approved by Spain’s competition authority. 

The EC alleged that from July 2018 to July 2022, DH and Glovo engaged in cartel conduct with DH progressively removing competitive constraints between the two companies. In particular, DH and Glovo: 

• agreed not to poach each other’s employees – while the shareholder agreement DH signed at the time of its initial acquisition of a minority non-controlling stake in Glovo included limited reciprocal no-hire clauses for certain employees, the arrangement over time expanded into a general agreement not to actively approach each other’s employees.
• exchanged commercially sensitive information which went beyond the scope expected of a normal investor relationship (e.g. the parties shared commercial strategies, prices, capacity, and costs), which enabled the companies to coordinate market conduct.
• allocated geographic markets amongst themselves, including agreeing not to enter into any country in which the other company was already active in, and coordinating which of them should enter new markets. 

DH and Glovo admitted their involvement in the above conduct. DH’s fine of €223.3 million and Glovo’s fine of €105.7 million represented a 10 per cent reduction from the maximum penalties. 

What are the lessons from this case?

While the conduct of DH and Glovo appears to be deliberate and knowingly engaged in, it also highlights the risks of firms that commence with a minority shareholding in a rival with a view to eventually gain full control of that rival. In these circumstances, the companies need to ensure they do not commence acting as one party until the acquisition that provides control is completed and, in some cases, regulatory approvals are obtained.

Indeed, in Australia serious cartel conduct may be prosecuted on a criminal basis which can result in imprisonment for individuals or on a civil basis which can result in very substantial fines.

What should you do? 

If you have any shareholding in your competitor, you should: 

1. Establish and implement appropriate protocols to ensure: 

• Competitively sensitive information or CSI such as pricing, marketing strategy, bids, customers, markets, capacity or volume in respect of which you compete, is not shared between the parties;
• to the extent a person is appointed to the board of both competitors, that person either should not have access to CSI on one competitor or if they do, they must be required not to disclose any CSI of one competitor to the decision making personnel of the other competitor but they can report generic, aggregated information as well as financial information (which is not considered to be CSI);
• if the relevant person is not to have access to CSI of one competitor, board papers and other documents to be accessed by the person are appropriately redacted and they excuse themselves from discussions about the rival where it relates to CSI;
• agendas and minutes of meetings are appropriately prepared and checked and sent to legal if there are any concerns; and
• the parties do not integrate until completion of any transaction that provides control. Parties should obtain legal advice and training on what they can and can’t do prior to completion in terms of integration planning.

2. Continue to compete vigorously against each other and make independent, unilateral decisions as to how they do and attract business. Any contract, arrangement or understanding with a competitor should not be finalised without appropriate legal review.