Germany: Merger Control

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In 2016, the Federal Cartel Office (FCO) received approximately 1,200 merger notifications, which is similar to the amount of notifications in previous years. Of the transactions notified in 2016, just 10 (ie, less than 1%) underwent an in-depth review (phase II), and only in one of these cases did the FCO make its clearance decision subject to remedies. Not a single transaction was prohibited. However, in four of the phase II cases, the parties withdrew their notification after the FCO expressed considerable concerns. To pull (and refile) is not unusual in situations where the originally notified transaction has no realistic chance of being approved within the remaining review period and/or subject to remedies, which are palatable to the parties.

Obligation to file

Merger control filings are mandatory for concentrations meeting the jurisdictional thresholds. The parties concerned - ie, usually the acquirer(s) and the target - are responsible for filing. In case of asset deals or acquisitions of at least 25% or 50% of the share capital or voting rights, the seller also has an obligation to notify. Separate filings are not required; normally the acquirer notifies on behalf of all parties concerned.

Section 41 of the Act against Restraints of Competition (ARC) prohibits implementing transactions without the required merger control clearance. There is an exemption for public offers provided the transaction is notified without undue delay and the acquirer does not exercise its voting rights prior to clearance. Moreover, under exceptional circumstances the FCO may grant a dispensation from the suspensive effect.

Finally, parties to a notifiable transaction are obliged to inform the FCO once the transaction was implemented (section 39(6) ARC).

Failure to notify

Implementation acts that fall foul of section 41 ARC are deemed null and void under German law. The FCO can order the dissolution of implemented transactions if they result in a significant impediment of effective competition. In addition, the FCO can impose fines of up to 10% of the infringing undertaking's global turnover for a violation of section 41 ARC. In more than 10 cases, the FCO fined companies for implementing a notifiable transaction prior to clearance (gun jumping). The highest such fine amounted to €4.5 million and was imposed on Mars Inc in 2008.

Once a transaction is implemented, it cannot be subject to a regular merger control filing anymore. Instead, the parties can inform the FCO about the implementation pursuant to section 39(6) ARC. The FCO will then review the competitive effects of the implemented transaction in dissolution proceedings pursuant to section 41(1) No. 3 ARC. If the conditions for a prohibition are not met, the FCO will close the dissolution proceedings (which are not subject to specific review periods). As a consequence, implementation acts that were previously deemed null and void will become valid retroactively.

Definition of concentration

In section 37, the ARC defines four types of concentrations:

  • The acquisition of all or a substantial part of the assets of another undertaking. There used to be broad consensus that the acquisition of assets required the acquisition of ownership. However, in the Lufthansa/Air Berlin case (2017), the FCO took the position that ownership does not necessarily need to be transferred but that a long-term wet-lease agreement may be sufficient. In the case at hand, the FCO ultimately left that question open. In any event, it is decisive that the transferred assets form the basis (or substrate) of an existing market position and allow the acquirer to take over that position from the seller.
  • The acquisition of direct or indirect control by one or more undertakings of the whole or a part of one or more other undertaking(s). The notion of control in German merger control is largely the same as under the EU rules. Control may be conferred by rights, contracts or any other means which, either separately or in combination and having regard to all factual and legal circumstances, confer the possibility of exercising decisive influence over the target, in particular through (i) ownership or the right to use all or part of the assets of the undertaking, or (ii) rights or contracts that confer decisive influence on the composition, voting or decisions of the governing bodies of the target.
    It is worth mentioning that German law contains a presumption that a majority shareholder controls its subsidiary. However, control may also be conferred by minority shareholdings or even purely contractual links as long as they provide the long-term ability to exercise decisive influence, eg, because of low attendance at the annual shareholders' meeting or due to contractual (veto) rights.
    Acquisitions of sole or joint control (including changes from joint to sole control and vice versa) are covered, as are changes within a group of jointly controlling shareholders.
  • The acquisition of capital or voting rights, which result in participations of at least 25% or 50% in the capital and/or voting rights of the target. Transactions that increase an existing participation of 25% or more, up to at least 50%, also need to be notified.
    Provided that the transaction results in two or more undertakings holding stakes of at least 25% in the target (joint venture), an additional concentration is deemed to arise between those undertakings (limited to the market(s) in which the joint venture is active). This has two consequences: First, all shareholders holding at least 25% of the joint venture qualify as ‘parties concerned' so that their turnovers need to be taken into account when assessing the filing thresholds. Second, the substantial assessment will comprise an analysis of overlaps between the parent companies' activities in the joint venture's market(s).
  • The acquisition of a competitively significant influence. This concept is the least clear-cut and serves as a subsidiary threshold, which becomes relevant only if none of the other definitions of concentration is applicable. A competitively significant influence must be based on (i) a structural link, usually a shareholding of less than 25% (even shareholdings below 10% can be sufficient), and (ii) so-called ‘plus factors' allowing the acquirer some degree of influence that does not amount to control. Such plus factors are, eg, superior familiarity with the market/industry, important business relations with the target or a seat in its decision-making bodies. If, considering the circumstances of the specific case, it has to be expected that the majority shareholder will take the minority shareholder's interests into consideration when determining the target's business strategy, the FCO will usually assume significant influence. In order for such influence to be competitively relevant, there need to be horizontal (or vertical) links between the acquirer and the influenced undertaking.
    In Edeka/Budnikowsky (2017), the FCO made clear that the required structural link does not necessarily have to consist of a shareholding in the target. Instead, a common joint venture, in which the acquirer of competitively significant influence has a 25.1% stake and which provides some crucial business functions for the target, may suffice.

Filing thresholds

Pursuant to section 35 ARC, concentrations that do not fall under the EU Merger Regulation are subject to German merger control if, during their last business year:

  • the parties concerned achieved an aggregate worldwide turnover of more than €500 million;
  • one party concerned had a German turnover in excess of €25 million; and
  • another party concerned generated a turnover of more than €5 million in Germany.

For the purposes of turnover calculation, the parties concerned are the group(s) of the acquirer(s) and the target, ie, the assets to be purchased or the legal entity/entities to be acquired including their controlled subsidiaries. The seller's turnover is not taken into account unless the seller retains a stake of at least 25% in the target. Intra-group sales, VAT and other taxes do not form part of the relevant turnover. Section 38 ARC contains further details on turnover calculation, including specific rules for certain industries (trading of goods, broadcasting, press, financial institutions and insurances).

With regard to the geographic allocation of turnover, the FCO follows the approach set out in the European Commission's Consolidated Jurisdictional Notice and focuses on the location where competition with alternative suppliers takes place. Thus, if customers purchase via a central purchasing department outside Germany, turnover with goods/services delivered to German production sites will usually be considered turnover generated in Germany.

In spite of reaching the above turnover thresholds, concentrations are not subject to the notification requirement if a company, which achieved a worldwide turnover of less than €10 million in its last business year, ‘merges' with another company (the so-called ‘de minimis clause'). This provision covers not only mergers but also acquisitions by/of de minimis companies. This preferential treatment is based on the rationale that owners of small companies should be enabled to participate in concentrations without the burden of merger control. Against this background, the entire group turnover needs to be taken into account in determining whether the €10 million threshold is met even on the seller's side. If, for example, a large group of companies with turnover exceeding €10 million sells a subsidiary or assets generating a turnover of less than €10 million, the deal will not benefit from the de minimis exemption.

Finally, it is noteworthy that joint venture scenarios, in which only the parents trigger the thresholds, may escape the filing obligation due to a lack of domestic effects, in particular if the joint venture has no actual or potential activities in Germany (see the FCO's guidance on domestic effects in merger control, which is available in English on the FCO's website).

New threshold based on transaction value

In June 2017, an additional threshold referring to the transaction value was introduced in section 35(1a) ARC in order to make acquisitions of targets with low turnover but large business potential (such as internet start-ups) subject to merger control. A merger filing is now also required in cases where:

  • the aggregate worldwide turnover of all undertakings concerned exceeded €500 million;
  • one undertaking concerned had a turnover of more than €25 million in Germany;
  • the transaction value exceeds €400 million; and
  • the target has significant activities in Germany.

The amendment was triggered by the Facebook/WhatsApp case in 2014, which did not trigger German (or EU) merger control due to WhatsApp's insignificant global turnover, even though the purchase price amounted to €19 billion. The new threshold is not expected to catch many additional transactions; the legislator estimated merely three per year. Nevertheless the new concept raises many questions. These concern, in particular, the determination of the transaction value, which is defined as comprising all assets and other compensation with monetary value owed by the purchaser to the seller as remuneration for the concentration, and the exact meaning of ‘significant', ie, non-marginal activities of the target in Germany.

Process and substantive issues

Review periods and timing considerations

There is no reporting deadline but implementation prior to clearance is prohibited. Filings can be made already based on the parties' (documented) good faith intention to do the transaction (eg, on the basis of a letter of intent). Pre-notification contacts are not mandatory but recommended in cases that could potentially give rise to competitive concerns or where timing is crucial. In particularly complex transactions, the FCO, upon receiving the necessary information upfront, may even provide the parties with a preliminary competitive assessment to allow them to assess the feasibility of their deal and, if needed, to amend their plans accordingly.

As of filing, the review periods are one month for phase I and four months for a full-blown investigation including phase II. The review period can be extended with the parties' consent and is automatically prolonged by one month if the parties offer remedies in phase II. The clock is stopped if the parties fail to fully and timely respond to a formal request for information.

Required information

The statutory requirements regarding information to be included in a German merger filing pursuant to section 39(3) ARC are moderate. In addition to certain mandatory information concerning the parties and the transaction, it is good practice also to describe the relevant markets and to provide market share estimates - even though the latter is only required for markets where the parties' combined share reaches at least 20%. Increasingly, the FCO follows the example of US and EU enforcers and asks for internal documents shedding light on the deal rationale and the parties' internal view on the transaction's effects on competition.

The parties are obliged to submit complete and accurate information. In several cases, the FCO imposed fines of up to €90,000 for the submission of incorrect or incomplete information in merger notifications. In Bongrain Europe SAS (2016), the FCO found that the parties had only succeeded to obtain merger clearance by submitting incorrect information and started dissolution proceedings, which were discontinued only upon divestiture of the shares in one of the companies concerned.

Substantive test

As at the EU level, the substantive test under the German merger control rules asks whether the notified transaction would lead to a significant impediment of effective competition (SIEC). However, in practice the FCO still focuses, at least in a first step, on the traditional dominance test and evaluates the creation or strengthening of a dominant position. In doing so, the FCO starts from the ARC's rebuttable presumptions for single firm dominance (combined market share of at least 40%, section 18(4) ARC) and collective dominance (three or less undertakings with a combined market share of at least 50%, section 18(5) ARC, or five or less undertakings with a combined share of two-thirds, section 18(6) ARC). In case these thresholds are met, the assessment then focuses on a detailed analysis of the case-specific market structure characteristics, such as the number and strength of competitors, market entry barriers and the issue of countervailing buyer power. Only if no dominance can be found does the FCO turn to assessing the possibility of a ‘gap case', which may justify the prohibition of a transaction even in the absence of dominance. Throughout the process, third parties can make their views known by responding to information requests of the FCO or at their own initiative.

A particularity of German merger control is that the FCO cannot prohibit transactions based solely on concerns regarding so-called de minimis markets, ie, markets, which have existed for at least five years and which had a total sales volume of less than €15 million in Germany during the last calendar year (section 36(1) No. 2 ARC). In practice, there are some exceptions from this rule allowing the FCO to bundle closely related geographic and/or product markets for the purposes of calculating the total sales volume. For example, pursuant to the Federal Supreme Court the FCO may take de minimis markets into consideration if a non-de minimis market upstream or downstream of the de minimis market is affected and if the competitive situation on the de minimis market materially influences competition in such a non-de minimis market. In CTS Eventim/FKP Scorpio (2017), the FCO extended the latter concept also to multi-sided (platform) markets including de minimis markets.


Unlike under EU law, in Germany remedies are only possible in phase II proceedings since phase I does not conclude with a formal decision that would allow the clearance to be made subject to conditions or obligations.

In May 2017, the FCO published an extensive guidance paper on remedies. For the first time, this paper summarises the FCO's (and the German courts') decisional practice in this area. Not surprisingly, it becomes apparent that the authority's approach is to a considerable and increasing extent aligned with the approach of the European Commission. For instance, the FCO generally prefers divestiture commitments over behavioural remedies and stresses that the latter must not result in the need for long-term monitoring by the authority. The FCO prefers conditions (such as upfront buyer conditions), which must be fulfilled for the clearance decision to become effective, over obligations, which only need to be complied with after the implementation of the transaction and, in the FCO's view, may not provide the parties with sufficient incentives for speedy implementation. In particular in case of major uncertainties regarding the availability of a suitable buyer for a divestiture business, the FCO may resort to fix-it-first solutions, by which the parties commit to (and implement) the divestiture during the review period.

Finally, the FCO expresses concerns about ‘mix-and-match' solutions where assets and personnel from different business divisions (and sometimes even from different parties) are bundled together in a divestiture package. However, the FCO's approach is highly case-specific; under certain circumstances, it may suffice to dispose of shareholdings in, or cut contractual links with, other companies in order to alleviate competitive concerns.

Model texts for the different types of commitments and a trustee mandate are available on the FCO's website.

Legal recourse and ministerial approval

Prohibitions and (conditional) clearance decisions issued by the FCO following a phase II investigation are subject to full judicial review by the Higher Regional Court of Düsseldorf. Judgments of that court can be appealed (on grounds of law) to the Federal Supreme Court. Provided that they are able to demonstrate that the FCO's decision directly and individually affects their competitive interests, third parties may also seek legal recourse against the FCO's decision.

Upon application by the parties, the federal minister for economic affairs and energy can approve a transaction that was prohibited by the FCO (section 42 ARC). In his or her decision, the minister has ample discretion to take economic and public interests into account but the decision is subject to judicial review. So far there have been 22 applications for ministerial approvals, nine of which were successful. The instrument is heavily disputed. In 2016, the approval of Edeka's acquisition of approximately 450 supermarkets of rival group Kaiser's Tengelmann subject to a number of non-competition-related conditions triggered heated discussions and culminated in legislative proposals ranging from the complete abolishment of the instrument to the introduction of a parliamentary veto right. In the end, only a procedural change was introduced - the ministerial approval is now subject to a six months deadline.

Hot topics

Digital economy and platform markets

The digital economy and its effects on competition have been a clear priority of the FCO's recent enforcement practice. An FCO think tank also conducted comprehensive research; the results were published in a working paper entitled ‘Market Power of Platforms and Networks' (available on the FCO's website). In this vein the FCO lobbied for the adaptation of German competition law to the realities of the digital era. These efforts were at least partly successful - the 2017 overhaul of the ARC introduced two changes, which are particularly relevant for platform markets and which will also have an impact on the FCO's future approach in the area of merger control.

First, the revised ARC clarifies that a ‘market' within the meaning of competition law can exist even if services are provided free of charge. This is often the case, for example, for two-sided platforms. The law now reflects the FCO's case law - in 2015 the authority had defined relevant markets in two merger cases concerning online real estate platforms and online dating platforms, respectively, even though some of the users did not have to pay for the services at issue.

Second, the ARC now contains additional criteria relevant for determining the existence of a dominant position, which are particularly important for the assessment of digital platforms. The additional aspects include network effects (in particular due to the associated economies of scale), access to data, user behaviour (including the use of parallel platforms, so-called multi-homing, and switching costs) and innovation-induced competitive pressure.

Minority shareholdings

The Monopoly Commission, an independent body advising the federal government mainly on regulatory issues and competition law, has repeatedly voiced concerns about minority shareholdings of institutional investors in several undertakings that are active in the same industry. Such indirect links between competitors are particularly common in the production of optical and electronic equipment and computers, as well as in the field of mechanical engineering. According to the Monopoly Commission, merger control proceedings should focus more on this issue as the combination of minority shareholdings has the potential to reduce the incentive to compete. So far, such considerations have not played a major role in the FCO's decisional practice but it seems not unlikely that they may play a more prominent role in the future. This development will be of particular relevance for private equity investors.

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