On 5 December 2013, the German Federal Cartel Office (Bundeskartellamt) published new draft guidance to help companies determine whether a proposed merger has “domestic effects” within Germany and is therefore subject to notification in Germany.
According to the German Act Against Restraints of Competition (“ARC”), a merger is subject to German merger control if:-
the combined aggregate global turnover of the companies involved exceeds € 500m;
the domestic (German) turnover of at least one company involved exceeds € 25m; and
that of another company involved exceeds € 5m per year.
In addition to the turnover thresholds, it is required that the merger has a “significant effect” within Germany (the “effects doctrine” – “Auswirkungsprinzip”).
For foreign-to-foreign mergers, the definition of “significant effects within Germany” is not always clear. Foreign companies often have difficulties determining whether a merger has sufficient effects within Germany and is therefore subject to German merger control.
The new draft guidance identifies typical case scenarios for mergers that clearly do have appreciable domestic effects and mergers that clearly do not. For all other situations, the document outlines considerations which may be relevant to make a case-by-case assessment.
The Bundeskartellamt identified the following two cases as always having a domestic effect:
- If there are only two participants (e.g. acquirer and target in the case of acquisition of sole control) and the domestic turnover thresholds of € 25 m and € 5 m are fulfilled, the merger must always be notified. In such cases, the target company always achieves a turnover of more than € 5 million ($6.85 million) per year in Germany, and the merger is therefore generally assumed to have “significant effect” within Germany.
- If there are more than two participants (typically a joint venture company and parents), and the joint venture is or is intended to be active within Germany, the merger will also clearly have sufficient domestic effects if the German turnover achieved (or expected to be achieved over the foreseeable future) by the joint venture itself exceeds € 5 million.
The cases which the Cartel Office then clearly defines as not being subject to German merger control all relate to joint venture companies and their parents. For example, a domestic effect can clearly be ruled out if the joint venture company is neither currently active in Germany nor is it a potential competitor and the parent companies do not compete on domestic markets.
For all scenarios which cannot be allocated to one of the categories identified above, it will depend on the circumstances of each individual case whether they can be expected to have sufficient domestic effects.
In cases of doubt, the Bundeskartellamt recommends notifying the merger.
Looking at the guidance, above all, the Federal Cartel Office made it clear that it would always have competence to decide on cases where only two participants are involved on the basis that the turnover thresholds are fulfilled. Such cases will always be considered to have a “domestic effect”. It is irrelevant whether the thresholds are fulfilled by a domestic or a foreign company participating in the merger. The draft guidance only sets forth limits to German control of foreign-to-foreign mergers where more than two participants are involved.
While the draft guidance in fact helps foreign companies in assessing whether a merger is subject to German merger control, it does not appear to necessarily decrease the number of foreign-toforeign mergers being subject to German merger control. In the opposite, for the typical acquisition of sole control of a foreign target by a foreign purchaser, it is now clear that the German Cartel Office considers it sufficient if the turnover thresholds are fulfilled, even if the entire transaction takes place abroad.
The draft guidance is open to comment until 30 January 2014.