Calculation of fine
On April 28 2011 the Federal Cartel Office (FCO) imposed a fine of €206,000 on a company in the recycling sector for having breached the prohibition on implementing a transaction before obtaining clearance by the FCO ('suspension obligation'). The fine was the result of a settlement between the company and the FCO.
In September 2007 a former company shareholder notified the acquisition of a 40% share in the company, as well as an option to purchase another 9% ('call option') from the former sole shareholder, a natural person who was at that time also the managing director of the company. The execution of the call option was intended to be accompanied by changes in the company's statutes, which would have led to the acquisition of joint control over the company by the notifying shareholder.
In its clearance decision of 2007, the FCO held that at the time that the decision was delivered, only the acquisition of the 40% share qualified as a concentration under German merger control law which could be cleared, but that the clearance decision did not cover the call option. The FCO stated explicitly that the execution of the call option would have to be re-notified when the acquiring shareholder actually intended to execute it.
The call option was exercised one year later without such re-notification and thus without having sought clearance by the FCO; the company's statutes were also changed. When the breach of the suspension obligation was discovered a year later, the acquiring shareholder immediately re-notified the exercise of the call option and the changes in the company's statutes to the FCO in order to obtain clearance by the FCO so as to benefit from a civil law perspective from the healing effect of such clearance regarding the acquisition of the 9% share. The FCO, in turn, was quick to initiate fine proceedings which eventually resulted in a €206,000 fine settlement.
Calculation of fine
The FCO based its fine calculation on its 2006 Guidelines on the Setting of Fines. It took into account several mitigating factors, for example:
- It was the acquisition of only a 9% share that was at stake and not a 'full' acquisition;
- The case did not give rise to competition concerns; and
- The parties disclosed the breach of the suspension obligation voluntarily to the FCO.
It is also noteworthy that the FCO chose to fine the target and not the acquiring company (the notifying shareholder) - presumably because it was easier for the FCO to establish negligent behaviour on part of the target's managing director, which could be attributed to the company itself. The fine would have been significantly higher had the company not accepted the settlement.
This is the first known case where the FCO imposed a fine on a company for a breach of the suspension obligation where undisputedly it was the company's first such breach and where (also undisputedly) the case was far from problematic in terms of competitive concerns. Also, with this decision, the FCO has abandoned its decade-long practice not to impose fines in cases of a first breach of the suspension obligation where the parties did not intend to circumvent the suspension obligation deliberately. During the settlement proceedings the FCO made it very clear that, with this decision, it intended to send a clear signal to the business community that it is determined to track down breaches of the suspension obligation regardless of whether the case is problematic, and that companies must thus be very careful when assessing merger control notification obligations in Germany.
Therefore, companies considering acquiring a participation in other companies doing business in Germany (be it by way of a share deal or an asset deal) must always run a thorough assessment of merger control notification obligations under German merger control law, irrespective of their market shares; otherwise they face substantial fines. Breaches of the suspension obligation under German merger control law can ultimately result in a fine of up to 10% of a company's global turnover. Moreover, German law provides that legal transactions violating the suspension obligation are void from a civil law perspective.
For further information on this topic please contact Harald Kahlenberg or Mathias Traub at CMS Hasche Sigle by telephone (+49 711 97 64 0), fax (+49 711 97 64 96 939) or email ([email protected] or [email protected]).