Under German merger control rules, the acquisition of a minority share which does not constitute an acquisition of a (jointly) controlling influence on a target company is also subject to merger control by the German Federal Cartel Office (FCO). This applies to acquisitions of shares of at least 25%, but also to smaller shares if the acquirer of such shares acquires at the same time a competitively significant influence on the target company. If the acquisition of such a minority share leads to the creation or strengthening of a dominant position (the same substantive test as for acquisitions of majority shares), it may be prohibited by the FCO. According to the FCO's February 29 2012 press release, this was the case for the acquisition of a 25.1% share by HASPA Finanzholding in Kreissparkasse Lauenburg.
HASPA is the owner of Hamburger Sparkasse, a savings bank with primary activities in Hamburg. The FCO found that Hamburger Sparkasse also had substantial activities in a neighbouring territory where Kreissparkasse Lauenburg, in which HASPA intended to acquire a 25.1% share and which is also a savings bank, has its core business activities. The FCO found that Kreissparkasse Lauenburg had the largest market shares in its local core business area on the markets for loans to small and medium-sized enterprises and for current accounts for private consumers. Hamburger Sparkasse had the second-largest share on the local market for loans to small and medium-sized enterprises and the third-largest share on the local market for current accounts for private consumers. According to the FCO, the acquisition of the minority share would have substantially reduced competition between Kreissparkasse Lauenburg and Hamburger Sparkasse, thereby reinforcing the existing strong position of Kreissparkasse Lauenburg in its local territory.
In Germany, savings banks often have a comparatively strong market position in their respective business areas (local districts), since German state laws and statutes require that savings banks' business activities concentrate on the territory of their shareholders, which are almost always municipalities or local districts. Thus, savings banks are usually publicly owned. There are more than 400 savings banks in Germany, the size of which varies considerably. Although the German savings banks have a strong nationwide brand, they must – from a competition law point of view – be treated as independent of each other, as they have different owners and do not belong to one group.
The FCO's prohibition of HASPA's acquisition of the share in Kreissparkasse Lauenburg is noteworthy given that its merger control prohibitions are generally rare. In 2009 and 2010 the FCO received a total number of 1,985 merger control notifications. Only four of these cases resulted in a prohibition, none of which concerned the acquisition of a minority share. In most merger control cases, the FCO's competitive concerns can be resolved through commitments by the transaction parties and the FCO clears such cases subject to conditions and obligations imposed on the parties.
It is particularly noteworthy that the FCO's prohibition in this instance was based on a narrow, local definition of the geographic markets. This narrow market definition is in line with the FCO's established practice of recent years. The FCO's main argument for this definition is that loans to small and medium-sized enterprises usually require intensive advice and negotiations, and therefore the local presence of the bank giving the loan is required. With regard to current accounts for private consumers, the FCO found that a local market definition was justified due to consumer preferences for local branches of 'their' bank. It seems very questionable whether the FCO's local approach to the definition of the geographic markets for private consumers' current accounts is still justified today given online banking and the competitive pressure exercised by 'direct' banks which do not operate local branches.
As a trend, the FCO's narrow local approach to the geographically relevant markets is unfavourable for banks which must limit their business activities primarily to a certain territory, since their respective market position will always be higher on such local markets as opposed to, for example, nationwide markets.
The good news for such banks is that this does not always put them at a disadvantage. In a 2010 decision the FCO cleared a merger between two savings banks in the area of Karlsruhe, southwest Germany, despite the fact that:
- their business activities geographically overlapped in some areas substantially; and
- their combined market shares were considerable on some relevant local markets.
In that decision, the FCO found – among other things – that competitors (both local cooperative banks and banks of the private sector which also operate outside the relevant local markets) exercised substantial competitive pressure on these two savings banks.
Thus, each case must be assessed on its own merits. The predominantly local presence of savings banks does not necessarily mean that they are necessarily dominant on the local markets. The FCO acknowledged this in its recent decision by clarifying that its prohibition was particularly based on the peculiarities of the competitive situation in the Hamburg area.
For further information on this topic please contact Harald Kahlenberg or Mathias Traub at CMS Hasche Sigle by telephone (+49 711 976 40) or by fax (+49 711 976 49 00) or by email ([email protected] or [email protected]).