Yesterday, the German parliament passed a major amendment to the German Act Against Restraints of Competition. The amendment includes far-reaching changes to the German merger control regime. It will significantly cut red tape for many M&A deals.
Increased Domestic Turnover Thresholds
Fewer transactions will be subject to German merger control in the future as turnover thresholds are increased drastically. While the original draft bill had already foreseen a significant increase in domestic turnover thresholds, the competent parliamentary committee made last-minute changes in order to further reduce the workload of the German Federal Cartel Office (FCO), thereby freeing up resources to tackle the market power of digital giants.
In the future, transactions will only need to be reported to the FCO if they meet all of the following three thresholds:
(1) the combined worldwide turnover of all participating companies exceeds EUR 500 million; (2) at least one participating company has a German turnover exceeding EUR 50 million; and (3) (a) at least one further participating company has a German turnover exceeding EUR 17.5 million; or (3) (b) the transaction value amounts to more than EUR 400 million and the target has significant activities in Germany, but achieves a German turnover below EUR 17.5 million.
New Merger Control Tool
The law introduces a completely new form of filing requirement: The FCO may order large companies to file certain acquisitions which do neither meet the turnover thresholds nor the transaction value threshold. This amendment is a reaction to a concentration in the German waste management industry through many acquisitions of very small competitors which did not meet the turnover thresholds.
The new instrument will, however, only apply to a handful of companies at a given time. This is because the FCO may only issue such an order after a sector investigation (and subject to further preconditions). In addition, the new instrument is mostly irrelevant to international transactions as it only applies to the acquisition of companies that achieve more than two thirds of their revenues in Germany.
Hospital and Print Media Mergers Benefit Most
Certain hospital mergers will be exempted from merger control altogether until at least 2027. In the last 15 years, the FCO prohibited about one hospital merger a year. This approach never fit well with the political goal of promoting (and even subsidising!) consolidation in the German hospital sector.
The print media sector benefits from a reduction of the turnover multiplier from eight to four. In contrast, the turnover multiplier for radio and television broadcasting remains at eight.
Little Substantive Changes
The substantive framework remains unchanged, with one exception: The FCO may not prohibit mergers insofar as they affect "de-minimis markets" that have existed for at least five years (except in transaction value cases and for markets on which services are rendered free of charge). The respective threshold is increased from EUR 15 million to EUR 20 million, but from now on all relevant de-minimis markets combined must remain below that threshold.
Some Procedural Fine-Tuning
The maximum duration of Phase II proceedings is prolonged by one month to a total of five months (one month for Phase I plus four months for Phase II). The practical implications are very limited: Already today, the FCO is allowed more time for its Phase II review in case of extension requests, commitment proposals and belated responses to formal information requests.
Finally, the administrative burden on notifying companies is reduced by additional possibilities for digital submissions, the option to provide turnover figures on the basis of IFRS financial statements and the elimination of the implementation notice.
Fewer Reportable Acquisitions, Relatively More Reportable JVs
In practical terms, the most important change to the German merger control regime is the long awaited increase of Germany's notoriously low turnover thresholds. In the last years, the FCO reviewed about 1,200 to 1,400 notifications per year, most with little or no effect on competition in Germany.
We expect the amendment to reduce the number of German merger control filings by a third. Acquisitions of small German companies and acquisitions of foreign companies with limited exports to Germany will benefit most. In contrast, establishments of joint ventures and co-investments that are reportable today will often continue to be reportable. This is because a typical parent company or co-investor (together with its company group) is larger than a typical target company.