Control and Material Influence Compared

Whether a transaction is a combination requiring notification frequently turns on whether control is acquired, and the standard has moved steadily downward. Control once meant the ability to run the enterprise; the Commission then developed material influence as the lowest rung of a ladder of control; and the amendment of 2023 wrote that standard into the statute, so that control now means the ability to exercise material influence over the management or affairs or strategic commercial decisions of an enterprise. The practical result is that many minority acquisitions are now notifiable.

1. The Statutory Position

Before the amendment, the Explanation to Section 5 defined control as including controlling the affairs or management by one or more enterprises, either jointly or singly, over another enterprise or group. The definition was circular and said nothing about degree, and the Commission filled the gap in its decisions on minority acquisitions by holding that rights falling well short of decisive influence could confer control. The amendment of 2023 adopted that approach in terms, and control is now defined by reference to the ability to exercise material influence, in any manner whatsoever, over the management or affairs or strategic commercial decisions.

2. The Ladder

Level	What it means	Typical indicia
Sole control	The ability alone to determine the strategic commercial decisions of the enterprise	A majority of voting rights, the power to appoint a majority of the board, or contractual arrangements producing the same result
Joint control	Two or more persons must concur before a strategic decision can be taken, so each can block	Equal shareholdings, a shareholders agreement requiring the consent of both, deadlock provisions, equal board representation
Negative or veto control	The ability to prevent rather than to determine	Veto rights over the business plan, the budget, material investment or the appointment of key management
Material influence	The ability to influence the affairs or strategic decisions without being able to determine or to block them	An accumulation of shareholding, board or observer representation, special rights, financial or structural arrangements, and access to commercially sensitive information

3. Material Influence in Practice

It is established cumulatively. No single factor decides it. A ten per cent shareholding alone is unlikely to suffice; the same shareholding with a board seat, a right to receive management accounts and a veto over the annual plan very likely will.
The subject matter of the rights matters more than the percentage. Rights going to strategic commercial decisions, being pricing, output, markets, capital expenditure and the appointment of senior management, indicate control. Rights protecting an investor's financial position, such as a veto on amendment of the articles, on further issues of shares or on related party transactions, ordinarily do not.
Information rights count. Access to commercially sensitive information, particularly where the acquirer holds interests in competing businesses, is treated as a source of influence and as a competition concern in its own right.
Structural and financial dependence counts. Where the target depends on the acquirer for finance, supply, technology or distribution, the commercial reality may confer influence that the shareholding does not.
The test is ability, not exercise. A right that has never been used still confers the ability, and the question is what the acquirer can do rather than what it has done.

⚠ Why the standard was lowered

Two reasons. The first is structural: an acquirer with material influence over a competitor of its own can soften competition between them without owning either outright, and the acquisition of significant minority stakes across an industry produces exactly that effect. The second is practical: a bright line drawn at a percentage is easy to engineer around, by taking a stake just below it coupled with contractual rights that deliver the same influence. A standard expressed as material influence in any manner whatsoever cannot be engineered around in that way, at the price of certainty for the parties, which is the standing criticism of it.

4. Consequences for Transaction Planning

Assess control before assuming an exemption applies. Every category in the Competition (Criteria for Exemption of Combinations) Rules, 2024 is conditioned on the absence of a change of control, so a finding of material influence defeats all of them.
Examine the whole package. The percentage in the share purchase agreement is only the start; the shareholders agreement, the investor rights, the board composition and the information covenants must be read together.
Consider the counterparty's other holdings. Material influence over two competing enterprises raises concerns beyond notifiability.
Where the position is finely balanced, use pre-filing consultation, since the consequence of getting it wrong is a gun-jumping penalty under Section 43A computed on the higher of turnover, assets or the value of the transaction.

5. Related Topics and Provisions

Topic or provision	Connection
Important Definitions under Section 2	Acquisition, control and group
Regulation of Combinations: Sections 5 and 6	When a transaction must be notified
The Criteria for Exemption of Combinations Rules, 2024	Exemptions defeated by a change of control
Sections 2(a), 5, 6 and 43A, Competition Act, 2002	The provisions relied on here