On 24 October 2013, the German Federal Cartel Office (Bundeskartellamt) cleared the acquisition of Permaswage Holding SAS registered in Les Clayes-sous-Bois, France, by Precision Castparts Corporation, a US company, in second phase proceedings. Both companies manufacture and sell fluid fittings used to secure tube and piping systems in aircraft (a market with a rising worldwide turnover of EUR 200-300 million per year). Some of the main competitors in this market are Aerofit, Alcoa, Allan Aircraft, Eaton and Parker Hannifin.
There are two interesting aspects of this decision:
Firstly, the Bundeskartellamt cleared the merger although Precision Castparts will become the leader on the world market for fluid fittings as a result of the merger. The Bundeskartellamt argued that, in spite of Precision Castparts’ strengthened position, its competitors will still be in a position to compete with the company. The Bundeskartellamt considered that there were no significant barriers to market entry. Furthermore, Boeing, Airbus, Bombardier and major component suppliers to the aerospace industry are the biggest purchasers of permanent and separable fluid fittings. By being able to switch supplier or support new manufacturers, these major purchasers are in a position to control the activity of the participants of the merger ensuring no one company retains a monopoly.
Secondly, it is notable that the Bundeskartellamt decided to rule on the merger at all as the target had no German subsidiaries. The target company, Permaswage Holding SAS, is registered in France and the purchaser, Precision Castparts Corporation, is a US company. Furthermore the merger had also been examined and cleared by the US competition authority. However the Bundeskartellamt stated that the rationale behind their intervention lies in the fact that the parties to the merger supplied a considerable volume of their products to customers in Germany.
According to the German Act Against Restraints of Competition (“ARC”), German competition law shall apply to all restraints of competition having an effect within Germany, (the “effects doctrine” – “Auswirkungsprinzip”). Accordingly, the Bundeskartellamt has already decided on cases concerning the merger of exclusively foreign entities (without German holding entities and/or subsidiaries) which generated only a small percentage of their worldwide turnovers in Germany. One could question however if the mere effect of the merger in Germany is sufficient to prohibit a merger taking place abroad, when neither the target nor the buyer are German entities?
In the current case, the Bundeskartellamt once more confirmed its approach that it is competent to decide on such mergers. In Phonak/GN ReSound (2007) the Bundeskartellamt already prohibited a merger where both participants only generated 8% and 6% respectively of their world wide turnovers in Germany. The participants only operated through sales entities and were not German companies. In Sulzer/Kelmix (2007), the Bundeskartellamt prohibited the acquisition of the Swiss-Liechtenstein group Klemix/Werfo by the Swiss undertaking Sulzer. Although Klemix/Werfo had no subsidiaries in Germany and its sales to German customers represented only 15% of its overall sales, the Bundeskartellamt prohibited the acquisition. This case confirms the Bundeskartellamt’s approach that even mergers which are exclusively implemented abroad are subject to German merger control.
Hence, a notification to the German Bundeskartellamt always needs to be considered if both companies generate considerable sales to German customers, even if the target has no subsidiary in Germany.