Navigating the minority investment tightrope – Lessons learned from Delivery Hero / Glovo
The European Commission recently published its (settlement) decision imposing a €329 million fine on two competitors in the online food delivery sector – Delivery Hero and Glovo – for:
- agreeing not to poach each other’s employees;
- dividing countries between them; and
- exchanging commercially sensitive information (“CSI”).
The infringements flowed from Delivery Hero’s non-controlling minority shareholding in Glovo (starting at 15% and gradually increasing to 37.4%). In the context of the minority shareholding, Delivery Hero and Glovo concluded a shareholders’ agreement that entitled Delivery Hero to board representation.
The decision of the Commission provides valuable insights into – and a stark reminder of – the competition law risks associated with non-controlling minority investments in competitors (of any size, including investments in start-ups by strategic investors). Although owning such a stake is of course not in itself illegal, the decision is a textbook example of what can go wrong in practice. In this blog post we explore the key risks and how to manage them.
The importance of control
The question of whether a minority stake results in control is critical, not only for the potential regulatory approval requirements (under merger control rules, foreign investment screening and/or the FSR) but also for compliance purposes. Controlling stakes may trigger more filing requirements, but (once approved) allow more room to restrict competition between the JV and its parents as far as the activities of the JV are concerned. The Commission’s Ancillary Restraints Notice, for example, allows for non-compete and non-solicitation obligations between a controlling parent and its JV (for the duration of the JV). This “safe harbour” does not apply to similar restrictions between a non-controlling parent and the JV.
Conceptually, from a competition law perspective, a non-controlling stake is considered to entail only a financial investment, not a strategic one. The investor and target are required to remain fully independent and should act accordingly on the market when they are competitors. Competition rules therefore place far-reaching restrictions on non-controlling shareholdings in competitors.
What constitutes a competitor?
Another critical question is what constitutes a competitor for (EU) competition law purposes. This is a broad concept that includes potential competitors, i.e., companies active in adjacent product or geographic markets or with competing R&D activities or pipeline products. There must however be a ‘real and concrete possibility’ of the company entering the market for it to be regarded as a potential competitor for EU competition law purposes.
What constitutes CSI?
There is no fixed definition of CSI in EU competition law. Information is considered commercially sensitive if its exchange creates conditions of competition that do not correspond to the normal conditions of the market in question. More concretely, information is considered CSI when its content reduces (strategic) uncertainty regarding the future operations of (potential) competitors on the market. Information about future pricing, costs, output, market shares, customers and business strategy is typically considered commercially sensitive.
What constitutes CSI is market-specific. In relation to online food delivery (and platform markets), for example, the Commission also considered information concerning production capacity sensitive as this directly affects service speed and coverage, both crucial determinants of market leadership in the sector. The sharing of information on organisational algorithms was also highlighted as pivotal in such markets, given its impact on an undertaking’s operational efficiency and competitiveness. Overall, the Commission emphasised that in fast-evolving sectors, information exchanges need not be limited to price or quantity. Strategic details on service organisation, infrastructure, and operational methods may prove equally decisive and are scrutinised accordingly when assessing anti-competitive effects.
Key antitrust risks flowing from minority investments in competitors, and how to mitigate them
| The risk | How to manage | |
| 1 | Rationale of the investment. When internal documents or communications display an anti-competitive rationale behind the investment, this creates risks. In the Glovo case, internal documents revealed that Delivery Hero intended to influence and receive information from a fast-growing competitor. |
Document the legitimate business rationale for the investment and ensure that it is consistently reflected in all internal and external communications. Ambiguous marketing, investor- and sales-related communications, both internal and external, must be avoided. It is essential that board presentations and similar materials are reviewed in advance by legal and compliance personnel with expertise in competition law. If the investment rationale envisages close (operational) cooperation, it should be considered whether acquiring a controlling stake would be more appropriate (even if this might require merger filings). |
| 2 | Shareholder arrangements. Minority investments are often governed by a shareholders’ agreement, which can contain problematic clauses such as no-poach, non-compete or market allocation arrangements. |
Ensure any arrangements are reviewed by legal and compliance before they are entered into. Particular attention should be paid to clauses in a shareholders’ agreement and any accompanying documents (also drafts) that may restrict competition, such as non-compete and no-poach clauses. |
| 3 | Influencing the target’s business strategy. Minority investments can enable participation in board or shareholder decisions, providing opportunities to influence a target’s strategy. For instance, Delivery Hero (as a strategic investor) influenced Glovo’s business both directly, by exercising or threatening voting rights in minority reserved matters, and indirectly, by shaping the views of other shareholders. Delivery Hero’s involvement in informal discussions before board meetings, on topics like market expansion and product development, allowed it to use its expertise to shape strategic outcomes and facilitate agreements such as market sharing, despite holding only limited voting rights. The Commission’s position is that protecting the (financial) value of an investment does not require exchanging detailed information about pricing, offer development or specific customer topics should not be discussed. Instead, the exchange should focus on aggregate data and the company’s overall financial results. |
Implement safeguards to prevent undue influence. Another way to manage the risk is to ensure that the representative is independent/external or not involved in strategic/commercial decision-making at the investor in relation to products or services of the investor that (potentially) compete with those of the target. These preventive measures should not only be applied for the board meetings themselves, but also for any informal exchanges, for example before the official board meeting happened, as in the case at hand. |
| 4 | Information flows linked to board representation. Minority investments may be coupled with board representation, which creates information flows potentially including CSI. For example, Delivery Hero's representative on Glovo’s board shared Glovo board documents with Delivery Hero’s management who then discussed and analysed them. From a corporate law perspective, the sharing of information by a director with the shareholder that has nominated the director is generally permitted where it is necessary to enable such shareholder to exercise its rights, provided that disclosure is proportionate and corporate interests are respected. From a competition law perspective however, any exchange of CSI can give rise to risk regardless of the way in which the information is exchanged (e.g., via board documents (invitations, agendas, presentations, minutes), emails, WhatsApp, meetings, etc.). |
What is discussed in the board should stay in the board. Implement information barriers to avoid the flow of CSI from the board or shareholders’ meeting to the wider organisation. Investor’s representatives in the target should be “clean”, i.e., not involved in strategic/commercial decision-making in relation to products or services of the investor that (potentially) compete with those of the target. The representatives should then receive clear instructions (and acknowledge their receipt in writing) that any CSI they receive in their role as representative is (1) only used for the purpose of exercising the representative role of protecting the investment and (2) not distributed more widely within the parent organisation (e.g., not to HR departments). Appropriate IT measures may be required to ensure confidentiality (firewalls, etc.). An alternative set-up is for the target to manage/restrict the flow of CSI from the target to representatives of non-controlling investors. |
| 5 | Staff interactions. Minority shareholdings may create ties between staff at different levels of the organisations that go beyond what is required for the financial investment. In Delivery Hero and Glovo, multiple staff connections led to mutual invitations to general meetings and knowledge sharing discussions. This in turn led to employees on both sides viewing each other as ‘partners’ and wanting to ‘learn from each other’. This creates risks of collusion on various levels and beyond any control of legal/compliance and key decision makers. |
Establish and maintain a compliance culture that fosters the right mindset for staff interactions. - Maintaining separate office premises.
- Setting clear agendas for meetings. - Avoiding joint staff events such as shared holiday celebrations. - Ensuring separation of IT systems. - No exchange of any kind of CSI without prior approval by legal/compliance departments. To successfully implement these measures, it is critical that leadership at both senior and middle management levels fully endorse and communicate this strict approach throughout the organisations. |
| 6 | Creeping non-compliance. In practice there is often a strong focus on compliance at the start of an investment, but lines may gradually blur as projects progress and relationships are built (case in point is the Commission’s AdBlue case). In the Glovo case, the scope of the no-poach agreement was initially narrow and targeted but was expanded at a later stage to a general agreement not to actively approach each other’s employees. |
Continuous improvement of the compliance programme and appropriate risk management procedures. Establishing a robust speak-up and compliance culture is essential for mitigating compliance risks, including those relating to competition law. Encouraging personnel at all levels to raise concerns and ask questions, alongside clear policies and effective training, supports early identification and management of potential issues. This proactive approach strengthens the organisation’s overall commitment to ethical conduct and legal compliance. |
Corporate law implications
As set out above, managing the risks associated with minority investments may entail placing restrictions on (board) representatives of the investor in the target. It may mean, for example, that the board member cannot receive certain sensitive information and/or must excuse themselves from certain sensitive discussions (e.g., by invoking conflict of interest mechanisms). Restrictions of this sort may raise questions around the fiduciary duty that board members have towards the company, which is a question of (national) corporate law. It is therefore important to involve corporate lawyers when designing a compliance framework.
Scope of the infringement – putting the Glovo case in context
The Glovo case is particularly grave, involving no-poach and marketing partitioning arrangements, both of which are considered “hardcore” violations of EU competition law. One may question whether the Commission would have gone after the Glovo case if it had only concerned the exchange of CSI, and not also the other two infringements. The Commission has not done so before in the context of a minority shareholding. It is however currently – and for the first time – investigating the exchange of CSI between competitors as a potential stand-alone infringement.
Increased risk of detection
When considering the risks associated with minority shareholdings, it is also important to note that leniency applications are on the rise again, many authorities have introduced (anonymous) whistleblower procedures and authorities are increasingly sophisticated in detecting potential infringements (including through the use of AI). There is therefore an increased risk of detection. The Glovo case originated from a tip from the Spanish competition authority (which cleared the acquisition of control by Delivery Hero over Glovo), a whistleblower and monitoring by the Commission.
