Background to the Finvinvest decision
Fininvest is an Italian investment vehicle of the Berlusconi family, of which Silvio Berlusconi is a majority shareholder. In 2015, the Italian bank Banca Mediolanum merged with its financial holding company Mediolanum (HoldCo). Through the process of merger by absorption an exchange of shares took place by which Fininvest, which had previously held shares in HoldCo, became a direct shareholder in Banca Mediolanum (the Merger).
This merger followed a 2014 decision by the Banca d’Italia that due to his conviction for tax fraud, Mr Berlusconi no longer met the reputation requirement for “qualifying shareholders” of credit institutions. The decision (later annulled by the Italian Council of State) suspended voting rights in HoldCo, ordered the transfer of shares exceeding 9.99% and refused authorisation to Mr Berlusconi’s application for the acquisition of a qualifying holding.
The Council of State annulled the 2014 decision in 2016 (which restored voting rights and annulled the requirement to sell shares in excess of 9.9%). The Banca d’Italia and the ECB then decided that the Merger triggered a new procedure for assessing the applicants’ acquisition of a “qualifying holding” (broadly defined as a stake of 10% or more) in Banca Mediolanum.
Acting on a draft decision by the Italian NCA, the ECB issued a decision in 2016 opposing the acquisition of the qualifying holding in Banca Mediolanum by Fininvest and Mr Berlusconi. The decision was again based on the grounds that Mr Berlusconi did not meet the “good reputation” condition and that there were serious doubts as to his ability to ensure in the future sound and prudent management of the bank.
The General Court’s decision
The action brought by Fininvest and Berlusconi challenged the ECB decision on a number of grounds, most notably the following:
- The ECB had wrongly classified the Merger as an “acquisition of a qualifying holding” which did not apply where shares are acquired by an existing shareholder (the No Acquisition Argument)
- The ECB had failed to state proper reasons as regards the criterion of “likely influence” of the acquirer on the credit institution (the Likely Influence Argument); and
- The right to be heard was infringed by the very short time limit available to submit comments on the contested decision (the Due Process Argument).
The No Acquisition Argument
The applicants’ first argument hinged on the interpretation of the meaning of “acquisition of a qualifying holding” under CRD. The argument alleged that the Merger was out of scope as it excluded a situation where a pre-existing acquirer’s shares are reshuffled within the existing group. Because the applicants had already held qualifying holding in Banca Mediolanum, the ECB had no power to initiate a new approval procedure.
The Court held that the concept of “acquisition of a qualifying holding” was an autonomous concept of EU law.
In the Court’s view both the ordinary sense of the word and a purposive interpretation led to the conclusion that the suggested interpretation of the applications was unduly narrow. On its natural meaning, the words were capable of referring to a number of transactions and were not limited to a purchase of shares on the market. Additionally, the purpose of the shareholder control procedure was to guarantee sound and prudent management of the institution targeted by the proposed acquisition, as well as the suitability of the proposed acquirer.
With regard to its purpose, the concept of "acquisition of a qualifying holding" could not be interpreted restrictively so as to exclude from its scope other types of acquisitions, such as exchange of shares, as that would permit circumvention of the procedure and remove certain transactions from the ECB’s supervision.
The Court held that because both direct and indirect acquisitions were subject to supervisory assessment, a change in such manner of holding, e.g. from an indirect holding to a direct holding or another modification in the holding structure (such as in the present case) must be considered as the acquisition of a qualifying holding within the meaning of these provisions.
Likely Influence Argument
The applicants asserted that the ECB committed an error as regards the assessment of the degree of likely influence on Banca Mediolanum following the Merger, and a manifest error of assessment in considering that this criterion was met.
The Court held that the criterion of the likely influence of a prospective acquirer must be taken into account for the purposes of assessing the suitability of the acquirer, but is not an element for the qualification of an acquisition as a “qualifying holding” (i.e., triggering a requirement for supervisory approval).
The fact that there was no change in the degree of likely influence that the acquirer would be exercising over the institution also did not mean that the control procedure was not applicable.
In addition, the assessment of the “good repute” of the acquirer did not depend on the extent of their likely influence on the credit institution in question.
The Due Process Argument
The applicants maintained that the prescribed time limit of three working days for providing comments on the contested decision was unduly short. They alleged that this short time limit infringed their right to be heard and rendered the decision unlawful.
The Court rejected this argument, holding that the set-up of the application for authorisation of an acquisition in a credit institution allows for extensive exchanges with the competent authority, thus ensuring that the affected parties would be heard. The brevity of the period itself could not be considered as contrary to the right to be heard, in particular because it could be extended where appropriate at the party’s request. It was upon the ECB to ensure compliance with the right to be heard in the individual case which the Court could verify. In the present case no breach had occurred.
Further issues
The applicants invoked a long list of further issues. Most notably, the Court did not assess alleged irregularities in the proceedings before the Banca d’Italia, an issue on which the Court of Justice had earlier decided that any such irregularities in national preparatory acts are to be solely assessed by EU courts.
Key takeaways
The meaning of “acquisition of a qualifying holding”
The decision is helpful in clarifying the autonomous concept of “acquisition of a qualifying holding” as being quite broad and capable of encapsulating a broad range of corporate transactions outside classic M&A that involve a change in the shareholding structure. It is a useful reminder that the shareholder control procedure may also be triggered in a corporate restructuring.
Meaning of “good repute”
Following the decision in Pilatus Bank in February 2022 that included important pronunciations on the meaning of “good repute”, the Court has again provided some clarification on the concept. It is clear from the decision that an acquirer’s likely influence is of no concern to the assessment of that person’s reputation. A “bad reputation” is not made good by a lesser degree of influence on a credit institution.
Further reading
The full decision is not available in English. Read a summary in the Court’s press release here.
