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Trends and climate
How would you describe the current merger control climate, including any trends in particular industry sectors?
The Austrian merger control climate is quite stable. However, recently the Federal Competition Authority (FCA) has monitored media mergers more rigorously.
In 2015 366 filings were received by the FCA, an increase of approximately 10% in relation to previous years. Five transactions were referred to the Cartel Court for Phase II investigation. Two of these cases, as well as a case that had been notified in 2014, received conditional Phase II clearance in 2015. Further, three notifications were withdrawn. So far in 2016 only three cases have been referred to Phase II; however, one concentration has been prohibited.
Are there are any proposals to reform or amend the existing merger control regime?
A recent draft proposal to amend the Cartel Act is under public consultation. The draft mainly focuses on transposing the EU Damages Directive into national law; however, in regard to the merger control regime, the draft foresees an extension of the Cartel Court’s competence to cover the evaluation of cooperative effects connected to full-function joint ventures. It is still unclear whether, and if so in what form, this will be implemented. In addition, there is a proposal for an additional threshold for merger filings in Austria linked to the value of the transaction and not only to turnover. The proposal has been drafted in light of the digital markets where, despite a low turnover, the value of transactions can still be substantial and sometimes have a major market impact. In order to cover these cases, the draft provides that a filing in Austria is triggered not only by turnover thresholds, but also if the value of the transaction amounts to €350 million and at least €5 million thereof is attributable to Austria because of market presence. However, the rule has already been criticised because the criteria of attribution to Austria remains unclear.
Legislation, triggers and thresholds
Legislation and authority
What legislation applies to the control of mergers?
The main statutes governing merger review in Austria are:
- the Cartel Act (BGBl I 61/2005) as amended by the Cartel and Competition Law Amendment Act (BGBl I 13/2013), which contains the main substantive body of rules; and
- the Competition Act 2002 as amended, which establishes and determines the investigatory powers of the Federal Competition Authority (FCA).
If the merger has an EU dimension, the European Commission has sole jurisdiction according to Article 1 of the EU Merger Control Regulation (139/2004). The regulation prevails over the Austrian provisions under the ‘one-stop shop’ principle – that is, no notification is necessary in Austria.
However, the Cartel Act contains specific rules on media mergers. In view of the exemption from the one-stop shop principle pursuant to Article 21(4) of the EU Merger Regulation, media mergers require a filing to both the European Commission and the FCA if the relevant thresholds are triggered.
What is the relevant authority?
In Austria, concentrations must be notified to the FCA and the so-called ‘official parties’, namely the FCA and the federal cartel prosecutor (FCP). The FCA is an independent body that administratively belongs to the Ministry of Economics, while the FCP reports to the federal minister of justice.
The FCA and the FCP assess notifications in Phase I of the proceedings. Should a notification raise competition concerns, they can apply to the Cartel Court to open Phase II proceedings. Cartel Court decisions may be appealed before the Supreme Cartel Court.
Finally, the Competition Commission is an advisory body that may give non-binding recommendations to the FCA as to whether to apply for an in-depth investigation of a notified merger.
Transactions caught and thresholds
Under what circumstances is a transaction caught by the legislation?
Merger control applies to all ‘concentrations’ within the meaning of the Cartel Act and which meet the qualification of the concentration. Certain relevant thresholds apply.
While most European merger control regimes cover only transactions that give rise to a change in a company’s control structure, Austrian merger control also catches transactions that do not give rise to a change of control. Pursuant to Section 7 of the Cartel Act, the following types of transaction are notifiable:
- the acquisition of an undertaking or part of an undertaking;
- the acquisition of rights with regard to the business of other undertakings (eg, certain contracts for the lease or management of the business);
- the direct or indirect acquisition of 25% or more or 50% or more of the shares or voting rights in an undertaking;
- cross-directorships (acts that bring about the identity of at least half of the members of the executive board or the supervisory board in two or more undertakings);
- any acquisition of a direct or indirect controlling influence over another undertaking; and
- the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity.
However, internal reorganisations are not notifiable. In addition, similar to the EU Merger Regulation, the Cartel Act provides for certain exceptions in the case of acquisitions by credit institutions and investment funds.
Do thresholds apply to determine when a transaction is caught by the legislation?
The types of transaction set out above will be notifiable if the parties meet the jurisdictional thresholds of Austrian merger control. Jurisdiction is determined based on the turnover achieved by the undertakings concerned (usually the acquirer and target, including the whole group turnover) in the last business year. The Austrian competition authorities have jurisdiction over a transaction if:
- the undertakings concerned achieved a combined global turnover of more than €300 million;
- the undertakings concerned achieved a combined turnover of more than €30 million in Austria; and
- at least two of the undertakings concerned each had a global turnover of more than €5 million.
If only one of the undertakings concerned has an Austrian turnover of more than €5 million, and the combined worldwide turnover of the other undertakings concerned does not exceed €30 million, the transaction will be exempt from the filing requirement.
While this exemption excludes some transactions (notably, acquisitions by Austrian firms of small foreign businesses) from the otherwise broad filing requirement, Austrian merger control nevertheless catches many transactions that seem incapable of producing domestic effects. If there is no effect on Austria, no notification is required; however, the application of the effects doctrine is very narrow in Austria.
In order to calculate turnover under the Austrian merger control regime, the whole group turnover must be taken into account but, other than under the EU Merger Regulation regime, all undertakings connected with a shares or voting rights of at least 25% must be taken into account with 100% of their turnover, irrespective of joint or sole control in association with this shareholding. Thus, in some cases, the group turnover relevant under Austrian merger control law can be substantially higher than the consolidated turnover.
Special turnover calculation rules also apply in the media sector. Depending on the activities of the undertakings concerned (eg, newspapers, publishers or news agencies), the respective turnover must be multiplied by a factor of 20 or 200.
Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?
The FCA and the FCP can be approached in a quite informal way in terms of both jurisdiction and substance. However, in general, specific guidance in most cases is given only after substantial information has been submitted. For questions of jurisdiction, in many cases the view is taken that if there are doubts over the effects on Austria, a notification should be filed. Thus, in cases with time constraints it may be advisable to make a precautionary filing. In any case, pre-notification talks are increasing. In 2015 the FCA reported 31 pre-notification talks out of 366 notifications.
Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?
Section 24(2) of the Cartel Act confirms that the effects doctrine applies to all areas of competition law, including merger control. According to the doctrine, a concentration is not subject to Austrian merger control if it has no effect on the domestic market. Hence, even if it meets the turnover thresholds, a transaction does not require notification if it has no domestic effect. However, the applicable thresholds exemption described above was designed specifically to avoid the capture of transactions which are unlikely to have an effect on Austria. Thus, the effects doctrine is applied only where the lack of effect in Austria is particularly clear cut. The FCA and FCP often take a strict approach – that is, they construe the effects doctrine narrowly. They often hold that the abstract possibility of a potential impairment of competitive conditions in Austria is sufficient to constitute domestic effect. For example, this would be the case where the relevant market is European wide, with Austria being part of this market, even though there are no actual sales in Austria.
What types of joint venture are caught by the legislation?
In line with Article 3 of the EU Merger Regulation, the creation of a full-function joint venture is subject to merger control. Austrian merger control rules catch both concentrative and cooperative full-function joint ventures.
In addition, the concept of full functionality corresponds with EU merger rules: a joint venture is deemed to be full-function if it will perform, on an ongoing basis, all functions of an independent economic entity – that is, it must:
- possess sufficient resources;
- be established permanently; and
- not only fulfil auxiliary functions for or depend on the business relations to its founders.
Moreover, it is a precondition that control over the joint venture is (legally or actually) jointly exercised by the parent undertakings.
However, the creation of a non-full-function joint venture could constitute a notifiable transaction if the assets contributed to the joint venture are considered to be substantial parts of undertakings. In this case, the transaction would qualify as a concentration within the meaning of the Austrian merger control regime if each parent company of the joint venture acquired shares or voting rights of at least 25% or 50%, respectively, or control over a part of an undertaking previously solely owned or controlled by the other parent company.
Process and timing
Is the notification process voluntary or mandatory?
Notification is mandatory if the transaction qualifies as a notifiable merger according to Section 9 of the Cartel Act. Any implementation of the transaction without clearance will be qualified as gun-jumping and may trigger fines.
What timing requirements apply when filing a notification?
The notification to the Federal Competition Authority (FCA) is subject to no deadlines (ie, there is no specific period within which notification must be submitted), but the undertakings are barred from implementing the deal before clearance. Hence, it is in the parties' interest not to wait too long to file the notification. It is also not necessary for the deal to have been signed before notification. Notifications may even be submitted before signing, provided that the parties can demonstrate a good-faith intent to enter into the transaction and there is a basic agreement as to the transaction’s structure and timing.
What form should the notification take? What content is required?
The FCA has developed a recommended form for notification which is available on its website and is commonly used in practice. The notification of a concentration must contain exact and complete information on all circumstances which are relevant for the creation or strengthening of a dominant position. The Cartel Act contains some basic rules regarding the necessary content of notifications – for example, the notification must mention the ownership and turnover of the undertakings concerned, their market shares and the general market structure.
Is there a pre-notification process before formal notification, and if so, what does this involve?
No specific pre-notification process is set out and pre-notification is still uncommon in cases that do not give rise to competition concerns. Further, notifications are typically submitted without prior consultation of the FCA or the federal cartel prosecutor (FCP). However, the authorities are open to pre-notification discussions if requested by the parties (in 2015 pre-notification talks took place in 31 out of 366 cases). Such contact may well be helpful in complex cases or notifications where undertakings with high market shares are involved. In particular, given the fact that Phase I in Austria is comparatively short, pre-notification contact can be useful to avoid the risk of the FCA or FCP requesting a Phase II investigation simply because they did not receive the necessary information or did not have time to process it. On its website the FCA indicates that pre-notification talks may be particularly helpful if the parties intend to offer remedies.
Can a merger be implemented before clearance is obtained?
A transaction subject to Austrian merger control must not be implemented before clearance from the FCA is obtained with no exemptions foreseen. A violation of this suspension obligation is an administrative offence and may be subject to fines of up to 10% of the total annual group turnover of the undertakings concerned. In addition, any legal acts which may qualify as implementing the transaction are invalid under Austrian civil law.
Guidance from authorities
What guidance is available from the authorities?
As already mentioned, Austrian competition authorities are quite informal. It is possible to approach them at any time; however, guidance on the substance of the case is likely to be provided only if substantial information has been provided. Further, there is some useful information on merger control proceedings on FCA’s website.
What fees are payable to the authority for filing a notification?
The filing fee for a Phase I investigation is €1,500, regardless of the size of the transaction or the turnover of the parties to the concentration. The applicant must pay the filing fee by cash deposit into the FCA’s account. Under proposed amendments, the filing fee will be increased to €3,500.
If the case is taken to the Cartel Court for Phase II, the court may order substantial higher court fees of up to €34,000.
The deadline for Phase I starts to run only once payment is received by the FCA, and on receipt of the filing at the earliest.
Publicity and confidentiality
What provisions apply regarding publicity and confidentiality?
Following filing, a short notice about the transaction containing the names of the parties, the type of concentration, a brief description of the transaction and the economic sector concerned is published on the Competition Authority’s website. Parties should provide proposed wording for this notice in the notification. A notice of clearance in Phase I, initiation of Phase II and the outcome is also published on the FCA’s website.
The notification will not be published or otherwise disclosed to the public during the process. However, it is mandatory to provide a non-confidential version of the filing form. It is not common practice for the FCA to send this version to other market participants, but this has been done in some specific cases.
Further, final decisions of the Cartel Court or the Cartel Court of Appeals are published. Only with Cartel Court decisions can the parties request the deletion of business secrets from the published version.
Are there any penalties for failing to notify a merger?
There are no penalties for not filing, but penalties do apply to:
- the implementation of a non-notified (but notifiable) or prohibited concentration; and
- failure to implement a concentration in accordance with restrictions or conditions imposed by the Cartel Court.
These infringements may trigger a fine of up to 10% of the worldwide turnover of the undertakings involved. There is a long history of decisions and fines in infringement proceedings. However, since most notification failures are merely due to negligence, fines range between €100,000 and €1.5 million.
The FCA is committed to publish unlawful implementations and the respective court decisions.
Procedure and test
Procedure and timetable
What procedures are followed by the authority? What is the timetable for the merger investigation?
For the examination of a proposed concentration, the Cartel Act provides for a two-phase procedure similar to the one established by the EU Merger Regulation. Phase I is conducted by the Federal Competition Authority (FCA) and the federal cartel prosecutor (FCP). If, following Phase I, one or both parties apply for an in-depth investigation to the Cartel Court, this initiates Phase II. The file is then sent to the Cartel Court, which carries out further investigation and decides on the merits of the case. The timing is as follows.
On notification, the FCA publishes a short summary of the transaction on its website. The waiting period in Phase I is four weeks from notification. This period may be extended by an additional two weeks (six weeks in total) at the request of the notifying party. In contrast, the Austrian authorities have no power to extend the deadline without the notifying party’s consent (ie, there is no ‘stop the clock’ mechanism).
On the working day following the expiry of the deadline, the FCA provides the notifying party with written confirmation that the transaction is no longer subject to the standstill obligation of Austrian merger control.
Phase I may be accelerated by up to one-and-a-half weeks at the express request of the notifying party (a request to waive the right to apply for Phase II). The FCA and the FCP have broad discretion in granting requests for expedited treatment. They will generally accept such requests only if the transaction does not give rise to competition concerns and if the parties are able to demonstrate an urgent need to have the transaction cleared before the statutory deadline.
If initiated, the deadline for Phase II is five months from the date of the Phase II request. The waiting period may be extended by one additional month at the request of the notifying party.
The Cartel Court’s decision can be appealed to the Cartel Court of Appeals, which then has two months on receipt of the appeal to rule on the case.
What obligations are imposed on the parties during the process?
The main obligation is the standstill obligation during the clearance process, as set out in Section 17 of the Cartel Act. Further, many procedural rules apply to the parties. One of the most important is not to provide misleading or incorrect information since this also could lead to fines up to 1% of the total group turnover.
What role can third parties play in the process?
In Austrian merger control proceedings, third parties are granted limited rights – in particular, third parties:
- have no right to apply for the initiation of proceedings;
- are not granted access to the file; and
- are not entitled to appeal against the Cartel Court’s decisions.
However, any person or undertaking whose legal or economic interest is affected by a planned concentration may submit written observations to the FCA or the FCP within 14 days of the notification (Phase I) being published. Third parties may also submit written statements in Phase II to the Cartel Court within four weeks of the publication of the fact that Phase II proceedings have been initiated.
However, undertakings which have submitted observations do not become parties to the merger control procedure and cannot appeal if the concentration is cleared.
Third parties also can bring actions before the Cartel Court if they think that a merger has been implemented without clearance. Further, third parties may enforce compliance with obligations attached to a clearance decision.
What is the substantive test applied by the authority?
Contrary to the EU Merger Regulation and unlike most other EU member states, which use the significant impediment of effective competition test, the Cartel Act applies the dominance test, thereby evaluating the creation or strengthening of a dominant position. A dominant position is given if an undertaking can prevent the maintaining of effective competition on the relevant market by being able to behave independently with regard to its competitors, customers and consumers to a notable extent (Styria Media AG, Case 16 Ok 46/05).
Does the legislation allow carve-out agreements in order to avoid delaying the global closing?
There is no provision or clear court ruling on the permissibility of carve-out mechanisms. In many cases, a carve-out of Austrian completion in an international transaction is difficult, unless the transaction is structured so that it would no longer be subject to Austrian merger control.
Test for joint ventures
Is a special substantive test applied for joint ventures?
For joint ventures the same test applies as for other concentrations.
What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.
If the notified merger raises serious concerns about anti-competitive effects, these concerns may be cleared subject to certain conditions.
Remedies under Austrian law and practice might either be agreed on with the Federal Competition Authority and the federal cartel prosecutor in either Phase I or Phase II, or may be finally imposed by the Cartel Court. Remedies can include behavioural or structural remedies, such as:
- prohibitions of further acquisitions in the relevant market for a certain time;
- commitments to grant access;
- reuse of existing distribution contracts;
- refraining from the right to cancel contracts;
- an obligation to keep up distribution agreement versus insourcing;
- selling at certain price levels; and
Right of appeal
Is there a right of appeal?
Clearance decisions rendered in Phase I by way of an informal letter of non-objection are not subject to appeal.
This also applies to unconditional clearance decisions in Phase II since there is no legal interest by the notifying parties for an appeal. However, the Federal Competition Authority (FCA) and the federal cartel prosecutor (FCP) can appeal to the Cartel Court of Appeals if they do not agree with a clearance decision. However, if the request for Phase II has been withdrawn (eg, following a commitment agreed with the parties), there is a good argument that they cannot appeal the subsequent decision because a lack of legal interest.
Prohibition decisions or decisions where the Cartel Court has imposed remedies can be appealed by the FCA, the FCP or the notifying parties.
Do third parties have a right of appeal?
Third parties have no right to appeal since they are not party to the proceedings. However, they can bring an action before the Cartel Court in case of non-compliance of a party with obligations attached to a clearance decision.
What is the time limit for any appeal?
Four weeks after reception of a decision.