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Trends and climate
How would you describe the current merger control climate, including any trends in particular industry sectors?
The Federal Cartel Office (FCO) continues to take an active approach to merger control enforcement. In 2016, like in 2015, a total of approximately 1,200 merger notifications were filed with the FCO. Only 10 transactions went into Phase II proceedings. Of these, none were prohibited but four were withdrawn by the parties. The digital economy will continue to be a focus for the FCO, especially since the FCO has just received additional powers to investigate such mergers. Another area of particular attention is the food retail sector.
Are there are any proposals to reform or amend the existing merger control regime?
The ninth reform of the Act against Restraints of Competition entered into force on June 9 2017. It has introduced an alternative merger control threshold based on the transaction value. This is to cover specifically acquisitions of young internet and pharmaceutical companies with a relatively small turnover but significant economic importance and potential for growth. The legislative reform has also brought along changes to:
- the reportability of mergers involving broadcasters,
- the reportability of mergers involving certain financial services providers,
- the procedure for ministerial authorisations and
- the assessment of markets in which services are rendered free-of-charge.
There are no proposals for further reforms of the merger control regime in Germany at this stage.
Legislation, triggers and thresholds
Legislation and authority
What legislation applies to the control of mergers?
The legal basis of German merger control is the Act against Restraints of Competition. In addition, the Federal Cartel Office (FCO) has issued several guidelines and notices for the interpretation and practice of merger control. Most of these documents are also available in English on the FCO's website at www.bundeskartellamt.de.
What is the relevant authority?
The German authority in charge of merger control enforcement is the FCO, which is based in Bonn. It falls under the Federal Ministry of Economy and Technology, but operates independently and free from political orders. The FCO enforces competition law through 13 independent decision boards, nine of which handle merger cases.
Transactions caught and thresholds
Under what circumstances is a transaction caught by the legislation?
The following types of transaction are considered to be concentrations and are subject to German merger control (Section 37 of the Act against Restraints of Competition):
- the acquisition of all or a substantial part of the assets of another undertaking;
- the acquisition of (direct or indirect) control over another undertaking or parts thereof by one or several undertakings;
- the acquisition of shares in another undertaking leading to a situation where the purchaser holds 25% (or more) or 50% (or more) of the shares or voting rights; and
- any other combination of undertakings that enables one or several of them to exercise (directly or indirectly) a competitively significant influence on another undertaking.
The notion of a ‘substantial part’ of the assets is broad and determined more by the assets' importance to the seller's market position than by the mere quantity.
The concept of ‘control’ resembles its counterpart in the EU merger control regime. It encompasses rights, contracts or any other means which, either separately or in combination and with regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on the activities of an undertaking – particularly on its assets or managing bodies.
Share acquisitions exceeding the relevant thresholds are subject to merger control, irrespective of whether the purchaser gains control. This means that acquisitions of minority shareholdings can be subject to merger control in Germany.
‘Any other combination’ covers acquisitions of minority shareholdings below the 25% threshold where additional factors de facto grant the purchaser influence over the undertaking's activities in a manner which is comparable to someone holding 25% or more of the shares. Examples of additional factors are the right to nominate members of the board of directors and certain veto rights.
Do thresholds apply to determine when a transaction is caught by the legislation?
Under Section 35 of the Act against Restraints of Competition, German merger control applies where:
- the combined aggregate worldwide turnover of all participating undertakings exceeds €500 million;
- at least one participating undertaking has a turnover in Germany exceeding €25 million; and
- at least one further participating undertaking has a turnover in Germany exceeding €5 million; or, alternatively to this third threshold, the transaction value amounts to more than €400 million and the target undertaking has significant activities in Germany.
In contrast, German merger control does not apply where:
- the above thresholds are not satisfied;
- the transaction falls within the scope of the EU merger control regime;
- the transaction meets the conditions of the de minimis clause: a transaction is considered to be de minimis where one party to the transaction – which is not a controlled undertaking – has a worldwide turnover of less than €10 million; or
- all participating undertakings are members of a saving or cooperative banks association and primarily provide services for members of that association.
Turnover is calculated by reference to the net consolidated group sales of the participating undertakings in the financial year before the transaction. Value added tax and intra-group sales are excluded. Special rules for turnover calculation apply for:
- trading in goods – the turnover is multiplied by 0.75;
- print media, radio and television broadcasting – the turnover is multiplied by eight;
- financial institutions – the financial income is relevant; and
- insurers – the premium income is relevant.
Transaction value includes the purchase price and any liabilities assumed by the purchaser.
Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?
The FCO is generally open to informal and confidential discussions on jurisdictional and substantive questions. However, pre-notification consultations with the FCO are not standard practice and are done only in more complex cases.
Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?
Foreign-to-foreign mergers are subject to the German merger control regime if the relevant turnover thresholds are satisfied and the transaction has an effect in Germany. This assessment is straightforward in the following cases:
- The turnover thresholds are not met – the transaction is not subject to German merger control.
- The turnover thresholds are met and only two undertakings are involved – German merger control applies. The domestic effects have already been established by the fact that both undertakings have significant turnovers in Germany.
A more detailed local impact test is necessary in all other cases, typically concerning joint ventures. Whether the transaction has an ‘appreciable effect’ within Germany must be examined. The fact that all turnover thresholds are met already gives a strong indication that the transaction has an appreciable effect in Germany. However, foreign joint ventures may still fall outside the FCO's jurisdiction if they have no significant activities within Germany (and no plans to start such activities in the foreseeable future) and if the parent companies are not competitors with significant market shares on either the joint venture’s market or the respective upstream or downstream markets.
For details see "Guidance on domestic effects in merger control", published by the FCO in September 2014. The document is available in English on the FCO's website at www.bundeskartellamt.de.
What types of joint venture are caught by the legislation?
A joint venture must be notified to the FCO irrespective of whether it is set up as a full-function or a non-full function joint venture. Instead, the general rules on the notion of concentration and thresholds apply. Accordingly, every creation of a joint venture or transfer of shares in a joint venture resulting in two or more shareholders holding 25% or more of the shares or voting rights constitutes a joint venture and is deemed a concentration of the parent undertakings on the markets in which the joint venture is active.
If the parent companies are competitors, joint ventures may also be reviewed by the FCO as restrictive practices (Section 1 of the Act against Restraint on Competition). This is sometimes done in a separate administrative procedure which is not subject to the strict time limits of the merger control regime. This may lead to a situation where the transaction is cleared under the merger control procedure but subsequently blocked under the general cartel prohibition.
Process and timing
Is the notification process voluntary or mandatory?
The notification process is mandatory if a transaction is subject to the German merger control regime.
What timing requirements apply when filing a notification?
No timing requirement for filing a notification exists, but a transaction may not be implemented before merger clearance has been obtained. Thus, mergers should be notified in time to allow for completion on the planned date.
A merger can be notified to the Federal Cartel Office (FCO) at any stage of the transaction before its completion. No definitive agreement is required for that purpose, not even a letter of intent. However, the parties should be able to describe the transaction in sufficient detail (ie, parties, structure and ancillary restraints) in order to allow for a substantive merger control analysis. The parties should also be reasonably confident that an agreement will be reached in order to avoid unnecessary administrative fees. The loss of confidentiality after submitting a merger notification may also affect the timing of the notification. The FCO publishes the fact that a transaction was notified within two to three days after receipt of the notification on its website. For that reason, it is common to submit a notification only after a definitive agreement has been signed and the parties are comfortable with the transaction to be disclosed to the public.
What form should the notification take? What content is required?
There is no mandatory form for the notification of a merger to the FCO. In practice, merger notifications are generally made in the form of a letter to the FCO, which must contain the following information (Section 39 of the Act against Restraints of Competition):
- the form of the concentration;
- the name, place of business (or registered seat) and type of business of each affiliated undertaking concerned and the type of affiliation;
- turnover figures in Germany, the European Union and worldwide on a consolidated group basis;
- market shares, even for markets which are not affected by the transaction (and including the bases for their calculation), if the combined market share of the undertakings concerned amounts to 20% or more in Germany or a substantial part thereof;
- for acquisitions of shares, the amount of the shareholding acquired and the amount of the total shareholding held by the purchaser afterwards;
- for acquisitions which are only reportable due to the transaction value, information on the transaction value, the basis for its calculation and the type and scale of the business activities in Germany; and
- for parties based outside of Germany, the contact details of a person authorised to accept services in Germany.
The following information is not required by law, but is often included in a notification to facilitate the review process:
- the parties' market shares (even where the combined market share is less than 20%);
- separate data for the undertakings that are directly involved;
- descriptions of the markets affected by the merger and the merger's competitive effects; and
- other countries where the merger is intended to be notified or has been notified.
In cases where the parties expect the transaction to give rise to competitive concerns, it is common to provide detailed market information, often supported by economic studies.
Is there a pre-notification process before formal notification, and if so, what does this involve?
No standard pre-notification process exists and, in straightforward cases, the notification can be submitted without prior discussions or contact with the FCO. However, in more complex cases, it is advisable to have informal discussions and submit a draft notification to the FCO.
If a case officer is already familiar with the case and has seen a draft notification before the formal notification is submitted, this will generally (though not always) help to facilitate and speed up the process. In some cases, pre-notification discussions may even help to avoid Phase II proceedings. Hence, it is advisable to start the preparation of notifications early in the process and approach the FCO on an informal and confidential basis well ahead of the intended filing date.
Can a merger be implemented before clearance is obtained?
Implementing a merger before obtaining clearance from the FCO is an administrative offence subject to severe fines for the undertakings and individuals concerned. In addition, any implementing measures will be considered invalid under German civil law. However, the merging parties may apply to the FCO for an exemption from the suspension obligation. Exemptions are granted only in rare cases, where further delay would lead to severe damage for the merging parties. Special exemptions also apply for the implementation of public takeovers.
Guidance from authorities
What guidance is available from the authorities?
The FCO has published several guidance documents in English on its website at www.bundeskartellamt.de. For case-specific guidance, parties may initiate pre-notification discussions.
What fees are payable to the authority for filing a notification?
The FCO charges administrative fees of up to €50,000 (€100,000 in exceptional cases) after it has issued a decision. The fee amount is based on the FCO's administrative expenses and the economic significance of the case. Fees in straightforward cases are often below €10,000.
Publicity and confidentiality
What provisions apply regarding publicity and confidentiality?
Informal pre-notification discussions are kept confidential by the FCO. Within a few days of receipt of a formal notification, the FCO will publish the fact that a notification has been filed on its website. This publication includes the name of the parties to the transaction and the sector concerned. Thus, the transaction is no longer confidential.
While the merger notification itself is not published, possible intervening parties have the right to obtain non-confidential versions of the merger notification and all other relevant documents. The FCO is under a statutory obligation to ensure the confidentiality of business secrets which have been identified as such by the merging parties.
Are there any penalties for failing to notify a merger?
Implementing a transaction which is subject to German merger control without the necessary notification and clearance is an administrative offence. A fine of up to 10% of the total worldwide group turnover achieved in the preceding business year may be imposed on the undertakings concerned. The responsible individuals may also be fined up to €1 million. Moreover, all legal acts implementing the transaction are considered invalid under German civil law.
Procedure and test
Procedure and timetable
What procedures are followed by the authority? What is the timetable for the merger investigation?
The German merger control procedure consists of two phases.
Phase I The initial proceedings start when the Federal Cartel Office (FCO) receives a complete merger notification. The FCO then has one month to decide whether it intends to open main proceedings (Phase II). Main proceedings are initiated by the FCO only if it identifies substantive competition concerns. Otherwise, the FCO will clear the merger by way of an informal clearance letter. The clearance letter is not reasoned and may not be appealed. Most transactions (approximately 98%) are cleared in this manner. In straightforward cases with no substantive overlaps or insignificant effects in Germany, the FCO often issues clearance letters long before the end of the statutory one-month period – even within one week in exceptional cases. The exact duration depends on the workload of the decision board, its prior knowledge of the relevant markets and the level of information provided in the notification. The one-month period cannot be extended.
Phase II Main proceedings must be completed by a formal decision – either clearance, clearance with undertakings or prohibition. If the FCO plans to issue a prohibition decision, it will present its substantive competition concerns in a statement of objections beforehand and give the parties to the proceedings the opportunity to respond. The FCO is allowed four months from receipt of a complete notification to reach a decision. The FCO routinely uses the full four-month period to conduct in-depth investigations and prepare a reasoned decision. This period can be extended where:
- a party has submitted proposals for remedies (by one month);
- the parties agree to an extension;
- the parties' submission of incorrect or incomplete information causes delay; or
- the parties fail to supply information formally requested by the FCO in a timely manner.
What obligations are imposed on the parties during the process?
The obligations imposed on the parties are as follows:
- The parties must not implement the merger until it is cleared.
- The parties must respond to formal information requests correctly and in a timely manner.
- The parties must notify the Federal Cartel Office without delay after having put the concentration into effect.
What role can third parties play in the process?
The FCO often seeks market intelligence from competitors, suppliers and customers to understand the markets concerned better and to verify the information submitted by the merging parties. Market information is gathered extensively in Phase II cases.
Market participants may formally apply to participate in the merger control proceedings as intervening parties. They must demonstrate that the merger affects their commercial interests on the markets concerned. Intervening parties enjoy the right to be heard, the right to file and the right to appeal the FCO's decision. Apart from formal participation, anyone may submit comments and observations to the FCO in the course of merger control proceedings.
What is the substantive test applied by the authority?
The Federal Cartel Office (FCO) will prohibit a merger if it significantly impedes effective competition (SIEC) – in particular, if it will create or strengthen a dominant market position. The following exceptions apply:
- The undertakings concerned prove that the merger will also lead to improvements to the conditions of competition and that these improvements will outweigh the impediments to competition.
- The conditions for a prohibition relate only to a so-called ‘de minimis’ market which had a total market volume of less than €15 million in the last calendar year. This exception does not apply to:
- markets which have been in existence for less than five years;
- markets in which services are rendered free of charge; and
- acquisitions which are reportable only due to the transaction value.
- The target is a print media company in financial distress (and certain other criteria are met).
Does the legislation allow carve-out agreements in order to avoid delaying the global closing?
A carve-out of German completion in an international transaction is unlikely to succeed in practice, as the parties will have to structure the transaction in a way that ensures it was no longer subject to German merger control. This is difficult and sometimes impossible to achieve. If the carve-out fails, the Federal Cartel Office (FCO) may consider it as a deliberate act of gun jumping and impose a penalty. Hence, merging parties considering a carve-out agreement are strongly advised to seek legal guidance from local counsel and to contact the FCO beforehand.
Test for joint ventures
Is a special substantive test applied for joint ventures?
No special substantive test is applied for joint ventures. Joint ventures between competitors may additionally be investigated as restrictive practices (Section 1 of the Act against Restraints on Competition) in separate proceedings.
What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.
The potential outcomes of the merger investigation are:
- an informal clearance letter at the end of Phase I;
- a de facto clearance at the end of Phase I;
- a formal clearance decision at the end of Phase II;
- a de facto clearance at the end of Phase II;
- a formal clearance decision with commitments at the end of Phase II;
- a formal prohibition decision at the end of Phase II; or
- withdrawal of the merger notification by the parties at any time.
Initial proceedings (Phase I) are concluded by an informal clearance letter or initiation of the main proceedings. If the Federal Cartel Office (FCO) takes no action within one month of receipt of a complete notification, the transaction is deemed to be cleared by the FCO.
Main proceedings (Phase II) are concluded by a formal clearance or prohibition decision. The formal decision contains detailed reasoning and will subsequently be published in a non-confidential version on the FCO's website. Again, if the FCO takes no action within the prescribed period, the transaction is deemed to be cleared by the FCO.
The FCO may issue clearance decisions which are subject to commitments. Parties can propose commitments at any time during the procedure. However, commitments may not be used as a tool to avoid Phase II proceedings, as the FCO cannot issue a decision containing commitments in Phase I. Considering commitments is the logical next step when the FCO has sent a statement of objections. The FCO is usually open to discuss the substantive scope of the commitments, but dislikes extensive bargaining. If the parties propose remedies which are suitable to address and remove the competition concerns, the FCO will clear the merger. The remedies are nearly always of a structural nature (eg, the divestment of a business), as permanent behavioural remedies are not provided by law.
A remedy may take the legal form of a suspensive or dissolving condition or obligation. The FCO prefers to impose a structural measure as a suspensive condition to the clearance decision. This means that the transaction is not cleared – and thus may not be implemented – until the parties comply with the condition. In contrast, where the FCO imposes dissolving conditions or obligations, the merger may be implemented and a time limit (eg, six months) will be set within which the conditions and requirements must be fulfilled. If the parties fail to do so, the clearance decision becomes invalid or may be revoked, respectively. In the meantime, divestment commitments should be accompanied by a proposal on how to safeguard the business. A monitoring trustee will usually be appointed to oversee management and to preserve the competitive potential of the divested business. The FCO has published a Guidance Document on Remedies in Merger Control, available on its website.
Failure to comply with conditions or undertakings ordered by the FCO constitutes an administrative offense.
Where the FCO has already expressed substantial competition concerns, the parties may consider withdrawing their merger notification. A withdrawal has the benefit of avoiding a formal prohibition decision, thereby also avoiding a detailed publication of the case and the creation of an unwanted precedent.
If a prohibition decision is served, the parties may apply for authorisation of the transaction by the federal minister of economics and technology within one month (Section 42 of the Act against Restraints of Competition). These applications are rare and successful applications are even rarer (only nine since 1973). The minister may overrule the FCO because of an overriding public interest in the transaction or because of its advantages to the economy as a whole. The minister has discretion in making these assessments and will exercise this right only in exceptional cases.
Right of appeal
Is there a right of appeal?
Parties to a merger may appeal prohibition decisions and clearance decisions which were made subject to conditions or obligations. The Dusseldorf Higher Regional Court is the competent court for appeals and exercises full judicial review.
Do third parties have a right of appeal?
Third parties that were admitted as intervening parties during a merger control procedure may appeal the Federal Cartel Office’s formal (Phase II) clearance decision. A ministerial authorisation may be appealed only by a third party claiming direct infringement of its rights. Non-objection (Phase I) clearance letters may not be appealed.
What is the time limit for any appeal?
An appeal against a Federal Cartel Office decision must be lodged within one month of service of the decision. An appeal against a Dusseldorf Higher Regional Court judgment must be lodged within one month of service of the judgment.