On 9 July 2018, the Austrian Federal Competition Authority and the German Federal Cartel Office published the final version of the joint guidance on the application of the new transaction value based thresholds in merger control ("Guidance"). The publication of the final Guidance was preceded by a public consultation period. The authorities received thirteen submissions that led to changes in the final version of the Guidance. The final guidance paper is available for download on the websites of the Austrian and German competition authorities (the Guidance is available in both German and English).
The transaction value based jurisdictional thresholds were introduced into Austrian law in 2017 and complement the previously existing turnover based thresholds (which remain in effect unchanged). Based on the (additional) new thresholds, a concentration is also notifiable in Austria, if
- the combined worldwide turnover of all undertakings exceeds EUR 300 million;
- the combined Austrian turnover of all undertakings exceeds EUR 15 million;
- the value of the consideration for the transaction exceeds EUR 200 million; and
- the target company is (currently) active to a significant extent in Austria.
The Guidance, although not binding on courts, summarises the current view of the authorities with respect to (i) the value of the consideration and its calculation, (ii) the notion of significant domestic activities and (iii) some procedural aspects. The Guidance also sets out a number of practical examples. In the following, we comment on certain selected aspects:
Value of the consideration. The Guidance provides principles of the valuation of the consideration as well as details with respect to the methodology of calculation. It specifies that the value of the consideration encompasses all assets and other monetary benefits that the seller receives from the buyer in connection with the merger in question. It covers all cash payments and the transfer of voting rights, securities, tangible assets and intangible assets, as well as earn-out clauses, license fees, payments for non-competition by the seller etc. The Guidance makes clear that a distinction must be drawn between the company value and the consideration value for a company as the latter may be based i.a. on subjective appraisals. Liabilities (only interest-bearing components) assumed by the buyer also form part of the consideration and, in principle, need to be added to the purchase price: (i) in case of an asset deal only if in addition to the assets bought, any liabilities of the seller have been assumed, (ii) in case of a share deal the liabilities of the target.
The value of the consideration also includes future and variable purchase price components. The Guidance specifies that the relevant date for determining the value of the consideration is – in principle – the completion date of the merger. The value of future payments (e.g. resulting from an earn-out) must be based on discounting methods commonly used in the financial sector. Overall, the closer the value of the consideration is to the threshold of EUR 200 million, the more detail must be provided with respect to the calculation and its plausibility. In some cases, written confirmation of the valuation by each party independently may suffice.
The Guidance sets out that several acquisitions that are closely connected in material terms and timing may be regarded as a single merger project for the calculation of the consideration value. An early assessment in this regard is important as in some cases already the implementation of the first transaction step may potentially constitute a violation of the standstill obligation under Austrian case law.
Substantial domestic operations. Under the new thresholds, a concentration is only notifiable if the target company has substantial operations in Austria. This is meant to exclude cases, which at their core relate to the takeover of a company only operating abroad. According to the Guidance, when assessing the local nexus of operations, different criteria may be applied for different business sectors (e.g. depending on industry standards).
The Guidance gives numerous examples of criteria based on which the significance of domestic activities may be assessed, such as number of users or unique website visitors; location of assets if they are oriented at the domestic market; research and development activities, in particular if the products concerned are likely to be marketed in Austria; other activities aimed at market entry.
The final version of the Guidance (different to the draft) explains that the Austrian Federal Competition Authority will – on a regular basis – assume there is no significant domestic activity of the target if the target achieved revenues of less than EUR 500,000 in Austria, provided revenues adequately reflect the market position and the competitive potential of the target company. Although for activities in some industries, this may provide a first indication, particular attention needs to be given to the second part of the statement, as the assumption only applies if the revenues adequately reflect the market position and the competitive potential of the target.
Overall, the Guidance is a welcome and helpful clarification of the NCA's position and current thinking with respect to the new transaction value based jurisdictional thresholds. The German and Austrian competition authorities intend to update the Guidance to reflect the experience they will gain when applying the new test in practice.