Sale of State-Owned Bank

Sale of State-Owned Bank - 01.11.17 State aid

The sale of a public asset is free of State aid when it is open, transparent, non-discriminatory, unconditional and the award is made to the highest binding and credible offer.



The rules on State aid to financial institutions and banks have become very strict. Owners and creditors have to be bailed in [the so-called burden sharing] and the institution that finds itself in trouble [which in practice means with too many non-performing loans and too little statutory capital] must be “resolved”. Often resolution results in the sale of the “good” assets of the bank.

The Commission in decision SA.32745 concerning the sale of parts of Kommunalkredit, an Austrian bank, had to examine the sale procedure for possible State aid.[1] Austria sold parts of bank Kommunalkredit through an open tender. The sale was one of several measures for the resolution of the bank that, although it had earlier been bailed out with public money, it eventually became insolvent.

The Commission examined whether the sale contained State aid after receiving a complaint by one of the unsuccessful bidders. The winning consortium was “Pi”. The complainant was consortium “Epsilon”.

Before the sale, Austria calculated a minimum acceptable price for the value of the bank [this price was business secret].

The sale was effected in the following stages. A sale announcement was published in August 2014 in German and English language newspapers. In parallel to those announcements, potentially interested investors were also contacted. In total there were over 50 contacts with potential investors. The deadline for the expression of interest was set on 10 September 2014.

The first “Process Letter” of 17 September 2014 was sent to 9 potential bidders that complied with the criteria for entering into the first phase (out of 13 that had expressed interest in writing). Interested parties had to submit indicative, non-binding, offers by 8 October 2014. Five bidders submitted an indicative offer, one of which offered too low a price.


The second Process Letter of 15 October 2014 was sent to the four bidders that had submitted indicative offers and were shortlisted, among them Epsilon and Pi. The bidders were given access to the data room and set 10 December 2014 as a deadline for submission of binding offers. The virtual data room was opened for due diligence on 20 October 2014.

Four binding offers were submitted by 10 December 2014. On that basis, parallel negotiations were initiated with the bidders giving them the option to increase their binding offer in a final offer. Access to the data room was again granted from 19 December 2014 until 5 February 2015.

A third Process Letter invited bidders to submit “an unconditional, fully-financed final offer” by 5 February 2015. Three such offers were received. The third Process Letter contained precise information requests relating to transaction security such as the regulatory approvals potentially needed to complete the transaction and bank guarantees. Bidders were requested to state just a price. Price formulas or price ranges were explicitly excluded.

Pi offered the highest price [EUR 100-150 million] which was also higher than the calculated minimum price for the bank. One other final offer did not comply with the requirements regarding transaction security, and Epsilon’s last and final offer was significantly below the minimum price.

Assessment of the admissibility of the complaint

The Commission examined first whether Epsilon had legal standing to complain about the sale. The Commission made an important distinction between public procurement and State aid procedures.

“(37) In order to be an interested party within the meaning of Article 1(h) of the Procedural Regulation, the complainant must show that its “interests might be affected by the granting of aid”. The concept of an interested party is not limited to beneficiaries of the alleged aid, competing undertakings and trade associations, nor is there a need for a direct competitive relationship, as interpreted by the Court of Justice in Kronoply [C-83/09 P]. However, it is for the complainant to show that its interests might be adversely affected by the alleged granting of aid to consortium Pi, notably (i) to establish, to the requisite legal standard, that the aid is likely to have a specific effect on its situation and (ii) to show a legitimate interest that the aid measures at issue is implemented or not implemented or, if it had already been implemented, that it is maintained or not maintained.”

“(39) Whether a competing participant in a bidding process may qualify as an interested party in the context of legal proceedings that concern potential infringements of rules relating to procurement procedures, is not a question relevant for the notion of an “interested party” under State aid rules. In the present proceedings, without submitting any factual information on its activities and explanations as to possible effects of the alleged aid on its economic situation, such a participant does not, in the Commission’s view, automatically qualify as an interested party in the meaning of Article 1(h) of the Procedural Regulation. The Regulation belongs to State aid rules and therefore concerns distortive effects of State aid on competition. This includes potentially adverse effects on competitors as well as on the economic situation of other market participants. According to established case law, it is not necessary to demonstrate real effects but the complainant should, […], explain to the requisite legal standard that the aid can have a specific effect on its situation. However, the complainant refused to explain any such potential effects.”

Apparently, Epsilon refused to submit any information on the activities of the members of the consortium, so the Commission could not establish whether they were active in the banking sector. “(42) Thus, it has not been established that [Epsilon] or its shareholders are competitors of Pi on the same market(s) or have other economic relationships, for instance, in upstream or downstream markets. Since no other information has been provided about [Epsilon] and its members, its activities and related interests, it has not been established that [Epsilon] qualifies as an interested party regarding the alleged incompatible State aid to Pi.”

“(43) In view of the above, the Commission considers that the complainant is not an interested party in the meaning of Article 1(h) of the Procedural Regulation. In any event and as explained in the following section, the Commission considers that no State aid was granted to Pi in the context of the sales process in question.”

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Assessment of the sale procedure

The sale of the bank, that had been acquired by the state at the time it was bailed out, was an act of the state. The Commission confirmed that “privatisation” is a measure involving state resources and is imputable to the state. Since the measure was selective and there was little doubt that it could also affect trade, the Commission focused on the possible conferment of an advantage to the new owner. The advantage would be in the form of a price lower than the value of the bank.

To this extent, the Commission explained that “(47) economic transactions do not confer an advantage on either of the parties involved, and therefore do not constitute aid, if they are carried out in line with normal market conditions. In other words, a transaction does not confer any advantage if the Member State’s behaviour is consistent with that of a private, market economy operator or, more specifically in this context, market economy vendor (“private vendor test”). Where a sale is carried out by an open, transparent and unconditional tender procedure and where the asset or shareholding is sold to the bidder who made the highest binding and credible offer, market conditions can be presumed and, consequently, there is no advantage.”

Then the Commission proceeded to examine whether the following conditions held in that case: openness, transparency, non-discrimination, non-conditionality and whether the award was made to the highest binding and credible offer.

  1. Openness

“(49) The invitation to submit an expression of interest did not contain any limitation as to the parties that could submit offers. From the beginning it was clear that the offered price was the sole award criterion. Furthermore, the invitation to submit an expression of interest was announced by publications in the national and international press and by directly approaching potentially interested investors. The deadlines, in particular for submitting indicative, binding and final offers, […] gave enough time and were, therefore, not eliminatory.”

  1. Transparency

“(51) Clear guidance was given for each phase of the sales process by means of the Process Letters I, II and III […], by access to more than 2500 documents and the answering of roughly 300 questions during the process. This information was sufficient for the bidder to carry out a proper valuation. The same applies to the deadlines set by the Process Letters. During the sales process bidders had almost five months to value the sale’s object on the basis of progressively detailed information.”

“(53) Contrary to what the complainant claims, it was clear from the beginning that conditional price offers would not be accepted.” “(54) The consortium Epsilon, then with a different structure, submitted a binding offer below the minimum price which moreover, […], only included a fixed price amounting to 54% of the offer. However, […], the remaining bidders could still increase their offers in a final round.”

  1. Non-discrimination

(57) The Commission, based on the available documents, has also not seen any evidence that the sales process was discriminatory at any stage. All bidders received the same information at the same time. This included all relevant information about the sales object, the bidding rules and procedures, deadlines for submission of offers, and information on the sales object as well as the access to documents and the data room. All bidders that had submitted binding offers were given the opportunity to improve their bids and could make, before the SPA was finalised, mark-up proposals and enter subsequently in parallel negotiations. To the Commission’s knowledge, no bidder was offered exclusivity at any stage of the process.”

  1. Non-conditionality

“(59) The sales process including the public announcement and Process Letters did not impose any conditions on potential bidders that are not customary in comparable transactions between private parties and capable of potentially reducing the sales price. Apart from standard requirements such as the bidder’s disposal over sufficient financial resources and the non-existence of a priori hindrances for regulatory approvals, no conditions were attached. All investors that met those standard requirements were eligible, and the offered price was the sole award criterion. The narrowing of the bidders’ circle following the expression of interests – from nine that received Process Letter I to five that submitted indicative offers, four of which were shortlisted and submitted binding offers to, finally, three that submitted final offers – were based, according to the available information, on the clear criteria communicated in the Process Letters. Those criteria did not contain any non-standard conditions either but only concretised formal requirements such as the description of the bidder, the calculation of the price offer or the financing, in particular if the bidder opted for external financing so that, for instance, bank commitment letters had to be submitted.”

  1. Sale to the highest bidder

“(61) The Commission observes that the shareholding in [the bank] was sold, in compliance with the sole award criterion as communicated to all bidders, to the bidder that offered the highest price, namely the consortium Pi […]. […] Pi fulfilled all requirements of the Process Letters and offered not only the highest fixed price but it was also the only bidder that offered a price above the (confidential) minimum price Austria had calculated for the sale to be rational from an economic viewpoint.”

“(62) [Epsilon], in contrast, offered a fixed, unconditional price significantly below the minimum price and below the price Pi offered. The conditional price elements of [Epsilon’s] offer […] could not be taken into account because price elements that were contingent on future events such as the realisation of certain profits or the continuation of contracts with third parties, were to be excluded according to the requirements in the Process Letters that applied equally to all potential bidders. Such requirements ensured the credibility of the submitted offers.”

“(63) The exclusion of conditional price offers does not run counter to the private vendor test since also a hypothetical private vendor in a similar situation could have decided to exclude price offers that depend on the materialisation of certain conditions or future developments of the business. The disregard of conditional offers avoids the seller’s future exposure to risks. In line with case law, the benchmark for the market economy operator test includes a prudent operator, i.e. a profit-oriented operator who does not want to take excessive risks compared with other participants in the market. Furthermore, according to case law in case of a sale by a public vendor, it can be assumed that the highest offer resulting from an open, transparent and unconditional tender procedure corresponds to the market price provided, inter alia, that “that offer is binding and credible”.” [The case law cited by the Commission in this paragraph is T-228/99, Westdeutsche Landesbank Girozentrale v Commission; T-268/08, Land Burgenland v Commission.]

“(64) Against this background, it is obvious that the exclusion of conditional price elements does not only avoid lengthy debates on the likelihood of future events but also reduces incalculable risks and, therefore, is economically rational, also for a public and a private vendor.”

On the basis of the above analysis, the Commission concluded that the sale was free of State aid as it complied with the Market Economy Vendor Test.


[1] The full text of the Commission decision can be accessed at:



Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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