On 17 March 2016, the German Federal Minister for Economic Affairs and Energy Minister (the Minister) approved the acquisition of 450 branches of the German supermarket chain Kaiser’s Tengelmann (KT) by EDEKA, imposing far-reaching conditions, but overturning a previous prohibition decision by the German Federal Cartel Office (FCO). This alert reflects on the impact of the Minister’s decision to reverse a prohibition decision by the FCO. It will show that Germany is not the only EU Member State where the government can overturn decisions of generally independent competition authorities (one prominent example for a similar regime being the UK). In practice, however, a revision of an original prohibition decision by the respective government will only be a measure of last resort and will be limited to cases that attract the highest level of publicity and attention.
The EDEKA/KT case
Following an in-depth Phase 2 analysis of EDEKA’s plan to acquire around 450 branches of KT supermarkets in Germany, the FCO prohibited the acquisition on 31 March 2015. According to the FCO, the transaction would have considerably worsened competitive conditions on a large number of highly concentrated regional markets and in municipal districts in greater Berlin, Munich, Upper Bavaria and North Rhine-Westphalia. The takeover of Kaiser's Tengelmann would have greatly limited choice for local consumers and the possibilities for them to switch to another retailer. The elimination of an important competitor would also have given the remaining competitors greater leeway for raising prices in the future.
According to the FCO, the transaction would have also caused competition problems in the procurement markets. If the merger had been implemented, manufacturers of branded products would have lost an important independent buyer. The strong bargaining power of the leading group of retailers consisting of EDEKA, REWE and the Schwarz group with Kaufland and Lidl in the procurement of branded products, in particular, would have further increased compared to that of their competitors.
Commitments submitted by the parties following the FCO’s statement of objections were not adequate to solve the competition problems on the markets affected.
The parties to the transaction originally challenged the prohibition decision in court by way of appeal to the Higher Regional Court of Düsseldorf. The appeal relied on a technicality and was dismissed by both the Higher Regional Court of Düsseldorf and the German Supreme Court (Bundesgerichtshof).
In parallel, the parties asked the German ministry for Economic Affairs and Energy (BMWi) to reverse the FCO’s prohibition decision. Under the German Act against Restraints of Competition (ARC), the Minister can, upon application, authorise a concentration prohibited by the FCO if, in the individual case, (i) the restraint of competition is outweighed by advantages to the economy as a whole resulting from the concentration; or (ii) if the concentration is justified by an overriding public interest.1 In the past, the BMWi received a total of 21 requests. Out of these, the original prohibition decision was reversed in eight cases (38 percent of the requests received).
On 17 March 2016, the Minister overturned the original decision and approved the takeover of KT by EDEKA, imposing far-reaching conditions.2 More specifically:
- EDEKA can only consume the transaction following the signing of a labour agreement between EDEKA on the one hand and two unions on the other hand.
- In this labour agreement, EDEKA will, inter alia, have to commit to (i) not sell any KT branches without consent of the unions for a period of five years; (ii) not lay off any employees; (iii) protect employee participation in decision-making procedures; and (iv) not close a specific meat processing plant.
- EDEKA must hold the shares in KT for a period of at least five years.
- The minister’s approval would automatically be withdrawn in case of a violation against some of the aforementioned conditions (inter alia, transfer of the shares in KT; branch closures; and laying off of employees).
- EDEKA has to provide the BMWi with annual reports on the implementation of the conditions and the BMWi must first approve the labour agreement with the unions before the transaction can be implemented.
As can be seen from these conditions, the Minister disregarded potential competition issues entirely and focused solely on employment issues. The Minister confirmed this in his press conference announcing the decision: “When weighing the public interests of job security and maintaining employee rights against the restraints on competition found by the FCO, it was clear for me: the public interests outweigh the restraints on competition.”3 This decision has already caused (and will likely continue to cause) controversy: The president of the German Monopoly Commission resigned on the same day referring to a negative impact on competition.4 Competitor Rewe expressed its intention to challenge the Minister’s decision by way of appeal to the Higher Regional Court of Düsseldorf.5
Comparison to other countries & general impact
The Edeka/KT case shows that the ARC conveys a broad margin of discretion to the Minister. When exercising this discretion, he is clearly not bound to mere considerations of competitive advantages and disadvantages resulting from a specific transaction. Instead, he is free to find an overriding public interest that may well be entirely outside the sphere of competition. Notably, the Minister’s conditions in Edeka/KT focus entirely on job security and rights of employees of the merged entity.
Germany is not the only EU Member State where, in exceptional cases, “political” decisions based on public interest may override competition concerns. For example, the UK’s Enterprise Act 2002 stipulates that the Secretary of State may issue an intervention notice to the CMA if he believes that it is or may be the case that one or more public interest considerations are relevant to the consideration of the relevant merger situation.6 Following such an intervention notice, the Secretary of State then becomes the decision maker for whether a reference into Phase 2 will be made. While he is bound to the CMA’s findings on competition issues, he is free to decide in favour of overriding public interest considerations.7 Differently than in Germany, public interest grounds have to be stipulated by law in the UK (cf. Section 58 Enterprise Act 2002). The Secretary of State can, however, even while reviewing pending cases introduce new public interest grounds and ask Parliament to approve them.
This is exactly what happened in the last case in which the Secretary of State cleared a merger case where the UK competition authority (then the OFT) was tending towards a referral into Phase 2 based on competition grounds: In Lloyds/HBOS, then Secretary of State Lord Mandelson decided not to refer HBOS’ plan to acquire Lloyds to the Competition Commission.8 In order to be able to do so and to override the OFT’s competition concerns, the government introduced (and Parliament approved) the introduction of a new public interest consideration9, i.e. “the interest of maintaining stability of the UK financial system”.10
Other examples of Member States where public interest considerations may eventually override competition concerns are France11 and Spain12.
Against this backdrop, the EDEKA/KT decision should be a reminder that in many EU Member States the competition authorities do not necessarily have the last word. Relying on politicians to overturn prohibition decisions taken by independent competition authorities will, however, be limited to cases of significant political/public interest and will, therefore, in most cases not be a real option.