German merger control laws prevent parties from entering into M&A transactions before obtaining clearance of the proposed transaction with the Bundeskartellamt, the German Federal Cartel Office. Entering into an M&A transaction without obtaining clearance jeopardizes the legal effectiveness of the proposed transaction, at least with regard to any German element, and bears the risks of substantial fines for any individual violating German law.
In determining whether a proposed transaction needs to be notified to the Bundeskartellamt, German law sets up two thresholds (assuming the de minimis exception and the trifle market provision do not apply):
- First, the combined aggregate worldwide turnover of all companies involved with the proposed transaction needs to exceed an amount of €500 million.
- Second, the German turnover of at least one participating company needs to exceed €25 million.
These requirements do not necessarily take into account whether there is an actual competitive impact in Germany. In most cases, merger filings are submitted for non-German M&A transactions for precautionary reasons because one party alone exceeds the €25 million domestic threshold. If, for example, a company headquartered in the United States intends to acquire all the shares in another U.S. or other non-German company, a German merger filing will be required if the acquiring party (including all affiliated companies) has worldwide sales exceeding €500 million and the sales in Germany exceed €25 million. The question of market impact and relevance of the transaction from a German merger control perspective will then (in principal) only be examined on a second level once the notification to the Bundeskartellamt has been submitted.
The current German laws result in a factual duty to notify proposed transactions to the Bundeskartellamt, even if there are obviously no concerns from a merger control perspective. This results in respective costs but, more important, can also cause considerable delay if a transaction cannot close because the merger clearance is outstanding.
On July 23, 2008, the German Federal Government took the decision to introduce a new draft bill that, if implemented, would significantly reduce the number of merger filings. The draft of the so-called “Third Small Business Relief Act” (Drittes Mittelstandsentlastungsgesetz) intends to disburden small and mediumsized businesses (Mittelstand) in Germany from bureaucratic constraints. The competitiveness of the domestic medium-sized businesses, as well as the attractiveness of the business location in Germany, shall be improved.
With regard to German merger control laws, the draft bill proposes to introduce a new turnover threshold of €5 million that has to be exceeded by one of the parties, in addition to the existing turnover threshold of €25 million that has to be exceeded by one party only according to the current provisions. If neither of these two thresholds is met, there would be no requirement to notify a proposed transaction in Germany.
If implemented, the number of merger control procedures would be significantly decreased, which would relieve the companies concerned, may they be in Germany or abroad. The draft bill would therefore make a contribution that proposed transactions do not have to be notified to the FCO if they constitute only little or obviously no risks to the local markets.
The implementation would also align the current German laws to international merger control regimes. Compared with the current German regulations, in many other jurisdictions and even in the European Regulation EG/139/2004 (“EC Merger Control Regulation”), the aggregate turnover of more than one company involved in the merger has to exceed a certain domestic turnover threshold. Thus, compared with other jurisdictions, a considerably high number of cases, including cases in which the target is not even located in Germany, are brought before the FCO for merger control purposes each year at the moment.
The German antitrust authority has not yet commented on the proposed amendments. At this stage, it remains unclear whether and when this amendment will be adopted by the German parliament.