7 Chain Structures and Control
7.1 General Remarks
Pyramid structures and other control-enhancing mechanisms can provide a means
to control legal entities with a smaller capital investment.^1 An external study
commissioned by the Commission examined ownership and control of companies
listed in the EU as well as the range and prevalence of legally available control-
enhancing mechanisms (CEMs) in them.^2 The report identified 13 types of CEMs,
ranging from pyramid structures and multiple voting rights to cross-holdings and
shareholders’ agreements.^3 According to the study, pyramid structures are the
most important and widely available form of CEM in the EU.
Pyramid structures involve the chaining of several companies. A chain of legal
entities where one entity controls a second entity, and the second entity a third
one, enables an investor to control the last entity in the chain with a smaller capital
investment, if each entity in the chain has raised funding from external non-
controlling investors. The funding provided by external investors can be in the
form of shareholders’ capital, debt, or mezzanine financing.
The process can be repeated several times. The more times the process is re-
peated, the less capital the investor needs to control the last entity.
7.2 Examples of Cases...............................................................................
Well-known examples of chain structures include the Agnelli case, the Wallen-
berg case, and the Bouygues case.
(^1) See, for example, Morck R, Wolfenzon D, Yeung B, Corporate governance, economic
entrenchment and growth, J Econ Lit 43 (2005) pp 655–720; Claessens S, Djankov S,
Lang LHP, The separation of ownership and control in East Asian corporations, J Fin
Econ 58 (2000) pp 81–112. See also Tricks of the trade, The Economist, June 2007;
Pharaoh capitalism, The Economist, February 2009.
(^2) Report on the Proportionality Principe in the European Union, 18 May 2007. It was pre-
pared by Institutional Shareholder Services, the European Corporate Governance Insti-
tute, and Shearman & Sterling LLP.
(^3) Multiple voting right shares; non-voting shares; non-voting preference shares; pyramid
structures; priority shares; depository certificates; voting right ceilings; ownership ceil-
ings; supermajority provisions; golden shares; partnerships limited by shares; cross-
shareholdings; and shareholders’ agreements.
P. Mäntysaari, The Law of Corporate Finance: General Principles and EU Law,
DOI 10.1007/ 978-3-642-03058-1_7, © Springer-Verlag Berlin Heidelberg 2010