German merger control rules are contained in Section 35 et seq of the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen (GWB), or ARC). Furthermore, the German Federal Cartel Office (Bundeskartellamt, or FCO) has issued several guidance papers on its website; eg, in relation to domestic effects, market dominance and the size-of-transaction threshold.
A mandatory foreign investment filing is required in case that a non-EEA investor acquires (indirectly/directly) 10% or more of the voting rights in the target. In certain instances, this regime applies also to all non-domestic investors. Mandatory filings are required for investments in the defence sector and certain infrastructure for processing state classified information as well as for investments in critical infrastructures. Transactions involving targets outside the mandatory review sectors still can be investigated ex officio within five years after signing and, thus, a voluntary notification can be advisable depending on the target’s activities.
A further reform of the foreign investment regime is ongoing. A first step was the amendment of the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung) which entered into force on 3 June 2020 and now also includes companies that are essential for combating pandemics - such as manufacturers of medicines, vaccines or protective equipment. With the planned amendment to the Foreign Trade and Payments Act (Außenwirtschaftsgesetz), the EU Screening Regulation (EU) 2019/435 is to be implemented into German law as well as further far-reaching changes including strict prohibitions on gun jumping with criminal sanctions attached.
The acquisition/increase of a direct or indirect significant shareholding in an insurance company or in a financial services institution may be notifiable to the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or "Bafin") and/or to the German Central Bank (Deutsche Bundesbank). A filing obligation will be triggered in the event of:
The German merger control regime is enforced by the Federal Cartel Office (FCO), which has its seat in Bonn. The FCO is an independent, higher federal authority that deals with merger control cases through nine decision divisions and each division is responsible for specific industry sectors. The FCO is headed by its president, Andreas Mundt.
If a merger has been prohibited by the FCO, the parties may apply to the Federal Ministry of Economics and Energy under Section 42 ARC and ask for a ministerial authorisation of the transaction.
Notification is mandatory.
The ARC does not sanction a failure to notify but does impose sanctions for the implementation of a notifiable transaction prior to clearance (see 2.13 Penalties for the Implementation of a Transaction Before Clearance).
For merger control purposes, the ARC exhaustively defines concentrations as any of the following transactions:
This covers acquisitions of minority stakes of less than 25% in another company. Such transactions have to be notified if they confer upon the acquirer the ability to exercise influence on commercial policy and, thus, affect the competitive behaviour of the target company.
As in the EU merger control regime, the acquisition of shares for resale by credit institutions, financial institutions or insurance undertakings is not considered a concentration as long as the acquirer does not exercise the voting rights attached to the shares and resells the shares within one year.
Internal restructurings or reorganisations within the same economic entity are not subject to merger control.
Further, concentrations of public institutions in the framework of municipal reforms (situations where municipalities decide to merge their institutions or where municipalities merge themselves) are explicitly not subject to merger control review. In practice, this rule particularly affects hospitals and savings banks.
In contrast, the merger control provisions are applicable (analogously) to voluntary mergers of statutory health insurers. Prior to a prohibition in this sector, the FCO has to consult with the relevant supervisory authorities and, partly, different time limits and further specific rules apply.
The concept of control follows the EU merger control system and is regularly interpreted within this framework by the FCO. Control means the effective possibility of exercising decisive influence on an undertaking on a lasting basis. The actual exercise of control is not required. Control may be conferred through rights, agreements or other means (legal or factual) that individually or jointly enable the acquirer(s) to determine the target company’s strategic business decisions.
In terms of acquisition of minority, or other interests less than control, a transaction must be notified if the acquirer, following the transaction, holds 25% (or more) of the capital or the voting rights in another undertaking, or gains a competitively significant influence on another undertaking.
The latter scenario covers acquisitions of minority stakes of less than 25% in another company. Competitively significant influence arises where the acquired interest confers upon the acquirer the ability to influence the commercial policy and, thus, to affect the competitive behaviour of the target company. The FCO determines on a case-by-case basis whether this has occurred. In doing so, it considers the rights resulting from the amount of acquired shares as well as so-called plus factors as identified in FCO case law. These plus factors are, for example, voting and veto rights, and board representation rights of the acquirer; other personal links between the parties; options and pre-emptive rights, and information rights of the acquirer; and separate agreements with the target company.
Furthermore, the FCO also takes into consideration whether the acquirer and the target company are competitors or are active in (horizontally or vertically) neighbouring markets, or whether the acquirer pursues the same interests as other shareholders or the target company. Also relevant is whether the target company is economically dependent on the acquirer. Finally, the acquirer’s superior knowledge of the market or the sector affected by the transaction may also play an important role.
Plus factors do not necessarily have to be ensured by binding agreements: it is sufficient if they provide the acquirer with a factual and lasting influence.
German merger control law provides for a turnover thresholds test and, since 2017, for a subsidiary transaction value test.
Turnover Thresholds Test
Pursuant to Section 35(1) ARC, a transaction falls within the scope of German merger control law if in the last financial business year:
The ARC contains one exemption. A concentration falls outside the scope of German merger control law if an independent undertaking with a worldwide turnover of less than EUR10 million in the last financial year merges with another undertaking (de minimis threshold).
In addition, there is a size-of-transaction test that alternatively applies if the second domestic turnover threshold of EUR5 million is not met. A concentration has to be notified if in the last financial business year:
An exemption to both threshold tests can apply to the credit and banking sector if companies do not provide end consumer services.
The FCO Guidance on Transaction Value Thresholds for Mandatory Pre-merger Notification (published together with the Austrian Competition Authority in July 2018) contains additional information on the interpretation of the new Section 35(1a) ARC.
While there are no specific sector-related thresholds, for some sectors, specific rules on the calculation of turnover have to be considered (see 2.6 Calculations of Jurisdictional Thresholds).
Calculations of Jurisdictional Thresholds – General Rules
For the assessment of the turnover thresholds, the group turnover of the participating undertakings in the last financial business year has to be considered. This includes the consolidated revenues of all companies belonging to the same group, controlled by the same ultimate parent company, to which the respective participating undertaking belongs. If a participating undertaking is jointly controlled by several undertakings, the full group turnover of all parent companies has to be taken into account.
If parts of one or more undertakings are acquired, only the turnover relating to those parts is considered when calculating the turnover on the seller’s side. This does not, however, apply if the seller keeps control of 25% or more of the shares.
The internal turnover generated within a group of undertakings as well as sales or turnover taxes are excluded from turnover calculations.
As in the European Merger Control Law, several acts of acquisitions between the same undertakings (and with the same acquirer) conducted within a period of two years are calculated together for the purpose of the turnover thresholds, provided that they are subject to separate agreement acts and completion, and they meet the turnover thresholds. The entire transaction history within that period is then relevant for the turnover calculation, from the time of the last transaction.
Foreign currencies should be converted on the basis of the annual average exchange rates published by the European Central Bank.
Thresholds are related to turnovers and thus are not asset-based.
Special Turnover Calculation Rules
Special turnover calculation rules apply to:
undertakings wholly or partly engaged in the publication, production or distribution of newspapers or periodicals and broadcasting companies (the turnover must be multiplied by eight).
For the assessment of the turnover thresholds, the group turnover of the participating undertakings in the last financial business year must be considered.
Acquirer and Target
Participating undertakings are usually the acquirer (including its parent companies and its subsidiaries) and the target (either the legal entity and its subsidiaries or the business/assets to be acquired). Thus, on the acquirer’s side, all undertakings controlling the acquirer and all undertakings controlled by the acquirer form a group and have to be considered for the calculation of turnover.
On the target’s side, only turnover achieved by the entities controlled by the target and the target’s turnover are taken into account.
If parts of one or more undertakings are acquired, only the turnover relating to those parts is considered when calculating the turnover on the seller’s side. This does not, however, apply if the seller keeps control of 25% or more of the shares.
Joint Venture Company
In the case of a joint venture company, the turnover of all "parent" companies that, following the concentration, will either jointly control the joint venture or have a shareholding of at least 25% is relevant with a view to the turnover thresholds.
The turnover of the seller is generally not taken into account. However, this does not apply if the seller keeps control of 25% or more of the shares in the target. In these cases, the seller is a participating undertaking within the meaning of German merger control. This is, in particular, relevant for the setting up of a joint venture with no previous business activities.
Scope of Turnover Information
Turnover information has to be provided for the last business year. However, with respect to subsequent acquisitions and divestments, the date of the notification is relevant for the basis of consolidation. All acquisitions, divestments or business closures that were implemented until the date of notification of the intended transaction have to be considered. When calculating the relevant turnover, it has to be determined what the turnover of the group (as it stands at the notification date) would have been in the last completed business year.
Generally, German merger control rules also apply to mergers taking place outside Germany, as long as the relevant turnover thresholds are met and the proposed merger has a domestic effect.
The FCO’s Guidance on domestic effects in merger control (2014) is dealing with domestic effects of foreign-to-foreign mergers and joint ventures. According to these guidelines a transaction has domestic effects if it is likely to influence competition on the German market directly (appreciable effect). Different factors are taken into account; eg, the involved parties’ business activities in Germany or parties’ domestic subsidiaries/branches.
However, it is not explicitly required that the target company has a presence or assets in Germany for establishing these effects.
There are no market share thresholds under German merger control law.
The following joint ventures are subject to merger control legislation:
In Germany, joint ventures generally have to be notified if two or more acquirers gain joint control, or if each of them acquires at least 25% of the shares, or if they acquire a competitively significant influence on the target. Contrary to the EU merger control regime, this also includes non-full-function joint ventures.
If a participating undertaking is jointly controlled by several undertakings, the full turnover of all parent companies is considered when the turnover thresholds are calculated. Likewise, in cases where a parent company is a participating undertaking in a transaction, the full turnover of the joint venture has to be considered for the turnover calculation, not only in the amount of the interest held.
If a transaction does not meet the jurisdictional thresholds, the FCO does not have any competence to make further investigations.
The participating undertakings are prohibited from implementing the transaction prior to clearance (prohibition of "gun jumping").
If the participating undertakings infringe this suspension obligation, they are subject to fines of up to 10% of the undertaking’s total group turnover in the preceding business year. Individuals (eg, board members) who violate the suspension obligation are subject to fines of up to EUR1 million.
In the past, the FCO has issued fines in several cases where a concentration has been implemented prior to clearance and is certainly willing to continue this practice. The highest fines imposed on an undertaking at the time of writing amounted to EUR4.5 million in 2008 and EUR4.1 million in 2009. The average fine for undertakings ranges between EUR200,000 and EUR400,000. In most cases, the FCO issues a press release indicating the penalty for gun jumping and the undertakings concerned.
Based on publicly available information, the FCO has already imposed a fine of EUR40,000 on a board member for breaching the suspension obligation (however, this was later revoked by the courts). In practice, individual fines for gun jumping seem to be rare.
Legal acts (eg, the transfer of shares) that infringe the suspension obligation are void. However, legal invalidity resulting from gun jumping may be remedied. Remedying such actions requires notification of the implementation of the transaction to the FCO. The FCO then opens demerger proceedings, in the course of which it applies the same substantive test as in a standard merger control review. Demerger proceedings are not subject to any deadlines.
Should the FCO be satisfied that the transaction does not meet the requirements for a prohibition (as it is or after removal of the relevant competition concerns through obligations and conditions) or if the Federal Minister of Economics and Energy grants permission to implement the transaction (as discussed below), the FCO will close the demerger proceedings. This has an effect tantamount to a clearance decision, so the legal acts carried out in relation to the transaction will retroactively become valid. Otherwise, if the FCO does not approve the transaction, it may dissolve it.
Furthermore, under the ARC, the invalidity of specific transactions caused by gun jumping may be cured by way of registration. This applies to real estate agreements once they have become legally valid by entry into the land register; to certain agreements on the conversion, integration or formation of an undertaking; and to enterprise agreements once they have become legally valid by entry into the appropriate register.
The suspension obligation does not apply to public takeover bids or to the acquisition of shares in a series of transactions via stock exchanges as long as those concentrations have been notified to the FCO and the acquirer does not exercise the voting rights related to the shares, or exercises them only to maintain the full value of its investment on the basis of an exemption granted by the FCO.
The FCO may, upon application, grant derogations from the suspension obligation if the parties can justify such exemptions; in particular, where implementation before clearance will prevent serious damage to a participating undertaking or to a third party. The derogation may be granted at any time, even prior to notification, and may be made subject to specified conditions and obligations. However, in practice, derogations are rarely granted. In clear-cut Phase I cases, it is normally faster to obtain a clearance decision than derogation from the suspension obligation.
Apart from exceptions in relation to public takeovers or a specific authorisation by the FCO, parties are prohibited from closing the transaction before clearance, which usually includes carve-out solutions. Only in very exceptional circumstances may such scenarios be conceivable, and only then if separation and completion will, beyond any doubt, have no impact on the German market. This is usually difficult to prove and therefore rarely applied.
In any case, all carve-out solutions should be carefully prepared, analysed and discussed, together with the FCO, prior to implementation.
There is no formal deadline for filing a notification. Transaction planning should nevertheless take into account the potential periods required for preparing the filing and obtaining clearance within the statutory deadlines.
A binding agreement is not a prerequisite for filing. Parties only have to demonstrate a good faith intention to implement the transaction. They are not obliged to submit any (draft) agreements to the FCO, although the FCO can request these documents during the process (for example, this may be necessary to assess control rights in the case of joint venture transactions).
The FCO charges an administrative fee. Except for a general fee regulation act, there are no specific guidelines or regulations concerning its exact calculation. The FCO has discretion in determining the amount and various criteria are considered in this regard. The fee is calculated on a case-by-case basis.
The main factors that are considered are:
The maximum statutory amount is EUR50,000, or, in exceptionally complex cases, EUR100,000. In practice, fees usually vary between EUR5,000 and EUR15,000 (simple Phase I clearances), EUR10,000 and EUR25,000 (complex Phase I cases) or EUR20,000-plus (Phase II investigations).
Usually, the administrative fee is payable within one month following clearance of the transaction.
In theory, the acquirer and the target are obliged to notify in the event of an acquisition. If shares or assets are being acquired, the seller is also subject to a notification obligation.
In practice, however, the FCO is usually satisfied if one of the parties (normally the acquirer) submits a notification (ideally but not necessarily in co-ordination with the other parties that are obliged to notify). The other parties may also "join" the acquirer’s notification by submitting a one-line letter.
It is also possible (but not common) to notify jointly.
The FCO publishes as guidance a filing form on its website; however, this form is not mandatory and is rarely used in practice. Notifications are usually filed in the form of a letter to the FCO. The following information is mandatory for a complete filing, which triggers the deadlines.
Submitting a Filing
The filing has to be submitted in German. Parties are not obliged to submit further documents; eg, sale and purchase agreements. However, the FCO may ask for underlying agreements; in particular, in joint venture transactions.
It may also ask for other documents, such as market reports or case studies. Any accompanying documents, such as annual reports (which are usually enclosed), may be submitted in English.
The FCO normally requests only a written power of attorney upon initiating a Phase II investigation. At this stage, the notifying party is requested to provide a full power of attorney, whereas all other participating undertakings are requested to provide a power only for the service of documents (ie, the FCO’s decision). There are neither standard powers of attorney nor specific formal requirements.
The FCO’s review period to clear or prohibit the transaction does not start to run. The FCO can also issue a fine of up to EUR100,000 for incomplete filings. In January 2013, the FCO imposed a personal fine of EUR90,000 on the principal shareholder of a German meat manufacturer for submitting incomplete information in the merger control proceedings regarding a planned acquisition of an abattoir.
The review process may take longer than one month if the FCO declares the filing incomplete (in which case the one-month period only starts from the submission of the missing information).
The FCO can impose fines for (negligently or deliberately) providing incorrect information in merger control filings. Under the current provisions, fines can reach up to EUR100,000 (in exceptional cases, even more). In 2004, the FCO issued for the first time a fine for providing incorrect information on a subsidiary of the American Koch group.
The fine amounted to EUR250,000 as fine levels applicable before 2005 had to be considered. The FCO also conducted fine proceedings against external lawyers for not carefully checking incorrect information provided by the parties and, as a result, providing incorrect information (however, these proceedings were closed).
In October 2015, the FCO initiated divesture proceedings against Andechser and Söbbeke, which had submitted incorrect information in merger control proceedings, and finally also imposed a fine of EUR90,000 on the parent company Bongrain Europe SAS (now Savencia SA) in 2016.
The German merger control regime provides for a two-stage review process, with an annual average of more than 95% of cases receiving clearance after the first stage (Phase I). Very few cases are analysed in in-depth proceedings during the second stage (Hauptprüfverfahren – Phase II), discussed further below. Phase I
A Phase I review formally takes one calendar month following the filing of a complete notification. In practice, clearance may be granted earlier (eg, two/three weeks following submission of the notification), but this essentially depends on the case handler (workload, availability, etc). The review process may take longer than one month if the FCO declares the filing incomplete (in which case the one-month period only starts from the submission of the missing information), or in instances where the filing is withdrawn and re-notified, in which case the clock is reset to zero from the date of re-notification.
In Phase I, the FCO will focus particularly on testing the market definition and market share information submitted by the parties using existing information on the relevant industry sector or by contacting market players and other stakeholders, such as trade associations.
Should the FCO not be satisfied, during the Phase I period, that the proposed transaction does not significantly impede effective competition, it may enter into in-depth investigations. The parties are informed accordingly, usually by a formal letter. During its in-depth investigation the FCO sends out questionnaires – in particular, to competitors, customers and suppliers – to obtain more detailed information on the relevant products and to assess the market definition. The FCO will also ask the parties to submit further information.
A review resulting in a Phase II investigation may take up to four months following the filing of a complete notification (up to five months if the parties submit a first proposal for conditions and obligations). The review process may also be extended subject to the parties’ consent and it is not uncommon for the FCO to express that it would strongly prefer an extension.
There is no formal pre-notification process and informal pre-filing contact with the FCO is still not that typical. They are, however, commonly seen in very complex cases or cases where confidentiality is a crucial issue. However, officials of the FCO increasingly encourage parties also to clarify open issues of a general matter – such as who the relevant parties concerned are, which undertakings form a group or also the concept of domestic effect – in the course of informal pre-discussions.
For informal pre-filing contact, the FCO usually wants to receive at least the minimum information concerning the parties, the transaction and the market before entering into pre-notification discussions.
The FCO only makes a transaction public when it is formally notified.
It is not uncommon that the FCO asks for additional information after receiving the filing documents. Detailed questionnaires can be burdensome and providing answers may be subject to tight deadlines.
The timetable would only "(re)start" if the parties had filed an incomplete notification and subsequently submit the additional information. Further, the four-month examination period is put on hold if the undertakings concerned do not provide the information requested by the FCO completely or in due time.
There is no formal fast-track review process.
The FCO prohibits concentrations that would lead to a significant impediment to effective competition (SIEC test). As with European merger control law, the main example of the SIEC test is the creation or strengthening of a dominant position. The test allows, among others, the prohibition of anti-competitive concentrations in oligopolistic markets, even if undertakings are not or will not become dominant.
The FCO analyses a transaction through a comparison of competitive conditions in the relevant markets pre and post-merger. Parties are obliged to provide information on markets where the combined market share amounts to at least 20%. However, it is common practice to submit information on all markets where their activities either overlap or are vertically linked. The FCO determines post-merger effects on the basis of a forecast detailing how the relevant market will develop within an average period of three to five years. This period may be shorter or, in exceptional cases, longer, depending on the specific characteristic of the market structure. Such post-merger effects have to be likely to occur.
In cases where the post-merger effects result in a significant impediment to effective competition, the FCO has to demonstrate that they are caused by the transaction. By contrast, the parties have to show that the transaction has pro-competitive effects that outweigh the relevant anti-competitive effects.
Market dominance continues to play an important part in the analysis of a transaction. The ARC provides for presumptions of market dominance. A company is presumed to be dominant if it has a market share of at least 40%.
This presumption can be rebutted, particularly if the parties demonstrate that the company is exposed to substantial competition and that it does not have a paramount market position vis-à-vis its competitors.
A group of undertakings is presumed to be dominant if it consists of three undertakings or fewer that account for a combined market share of 50%, or if it consists of five undertakings or fewer that account for a combined market share of 66%. These presumptions can also be rebutted. To do so, the parties have to show either that competition conditions allow for the assumption of continuous substantial competition between the respective undertakings or that the group of undertakings has no paramount market position over the remaining competitors.
These market share thresholds are only assumptions; they do not keep the FCO from assuming a dominant market position in cases where market shares are lower than those discussed. The FCO also increasingly considers other factors in its competition assessment; in particular, financial power, access to supply and distribution, structural links to other companies, factual or legal market entry barriers, potential competition, flexibility of supply-side and demand-side substitution, and the ability of customers to switch between suppliers. In March 2012, the FCO published on its website extensive guidance on substantive merger control and the test of market dominance that details its approach and shows a sharper focus on economic findings and concepts in the decision-making process in line with the criteria of the SIEC test.
Special rules apply to concentrations in so-called de minimis markets. These are markets where goods or commercial services have been offered for at least five years and where sales of less than EUR15 million were generated in Germany in the last calendar year. While these concentrations have to be notified, the FCO cannot prohibit the transaction on the basis of a significant impediment to effective competition in such markets.
The FCO is an independent body performing its own assessment of the case. However, in practice, it also includes the decisional practice of the Commission and Courts in its assessment. Further, there is an intensive exchange within the European and International Network of Competition Authorities (ECN and ICN), which may have an impact in individual cases.
The FCO broadly distinguishes between horizontal mergers, vertical mergers and conglomerate mergers. Generally, it will investigate in each case the creation or strengthening of single or collective dominance (or, on the demand side, of buyer power in cases of horizontal mergers) and consider both co-ordinated and non-coordinated effects.
In the case of horizontal mergers, in order to establish single dominance, the FCO investigates which factors determine the parties’ market positions in the relevant market and whether, or how, these positions change as a result of the transaction. In addition to market share and concentration levels in the relevant market, various market and company-related factors may be relevant for the assessment: capacities and capacity constraints, customer preferences and switching costs, IP rights and know-how, market phase, access to suppliers and customers, corporate and personal links with other companies, financial resources, barriers to entry and countervailing buyer power.
In cases of collective dominance, the FCO analyses whether the transaction enables the parties to co-ordinate their behaviour in the market or if the transaction facilitates existing co-ordination or makes it more stable. To that extent, the FCO examines whether there is significant competition between the respective companies and, if that is not the case, whether there are no sufficient competitive constraints on third parties.
In the opinion of the FCO, horizontal mergers are seen to create the most prevalent competition concerns. Vertical mergers are considered to have more indirect competitive effects. Still, the FCO also increasingly assesses these mergers in detail (see CTS Eventim/Four Artists (2017) and DSD/Remondis (2019)).
In particular, the FCO focuses on the strengthening of market power following the vertical integration if one of the parties should already have a sufficiently strong market position in one of the relevant markets. The FCO then assesses in detail any foreclosure effects (input and customer foreclosure) on upstream and/or downstream markets taking into account pre-existing links between the merging companies, alternative supply sources for competitors and the degree of vertical integration of other market players, etc. However, such effects may create competition concerns only if the parties additionally have the ability and the incentive to foreclose.
A further concern may be that the vertically integrated company might gain access to the competitively sensitive information of its competitors.
In the case of collective dominance, the FCO assesses whether the vertical merger enhances co-ordination between the dominant companies; for example, if the other dominant companies are already vertically integrated, the vertical merger may enhance the structural symmetry between these companies and/or provide more market contacts in which the companies may monitor and sanction each other.
Conglomerate mergers – as with vertical mergers – are generally less likely to raise competition concerns than horizontal mergers because they do not entail the loss of direct competition between the merging firms. However, competition concerns may arise if the parties are active in economically related markets; ie, their products are complementary or close to substitution. Typically, this requires that at least one of the parties already has a sufficiently strong market position in one of the relevant markets.
The FCO has substantiated four cases in which conglomerate mergers may create competitive concerns: reduction of fringe and/or potential competition, ability and incentives for tying and bundling strategies, portfolio effects ("one-stop shop"), and strengthening of financial or business resources, which again may, in particular, discourage actual or potential competitors from exercising any competitive constraints.
As with vertical mergers, in the case of collective dominance, the FCO will assess whether the conglomerate merger facilitates co-ordination between the dominant companies.
The FCO will consider the countervailing benefits of a transaction. A concentration that would significantly impede effective competition may not be prohibited if the parties prove that the concentration will also have pro-competitive effects that outweigh the significant impediment to effective competition.
Generally, the FCO is rather hesitant to consider arguments of efficiencies. It argues that, in practice, efficiencies have played only a minor role so far. However, it has acknowledged that in SIEC test cases, which do not relate to the creation or strengthening of a dominant position, economic efficiencies may be more relevant.
To what extent this may change the approach of the FCO to efficiencies in the future is yet to be seen.
Generally, factors other than competition issues – such as industrial, social or political issues – cannot justify a significant impediment to effective competition. Accordingly, the FCO does not consider such issues in its decisions.
The situation is different with regards to the procedure for obtaining an authorisation from the Federal Minister of Economics and Energy (Ministererlaubnis). The Minister can overrule the FCO on the basis of social or political considerations (if the concentration’s benefits for the economy as a whole outweigh the disadvantages for competition). However, the cases in which such an exemption has been granted are rare.
In principle, joint ventures may be subject to a twofold assessment, both under the merger control provisions and the antitrust rules. Under the merger control regime, the SIEC test also applies to joint ventures.
The antitrust rules will additionally come into play in the case of co-operative effects, which particularly applies if the parent companies remain active in the joint venture’s fields of activity, or if they are competing in upstream or downstream markets. Only the extent to which the concentration, as such, creates anti-competitive concerns has to be assessed exclusively within the merger control process, which takes priority over the antitrust rules.
Contrary to the EU merger control regime, merger clearance does not automatically entail an exemption for ancillary restraints. Moreover, the deadlines that are applicable with regard to the merger control procedure do not apply to proceedings relating to Section 1 ARC/Article 101 of the Treaty on the Functioning of the European Union (TFEU). Therefore, the FCO usually gives priority to the merger control review of the joint venture.
In addition, it aims to analyse the joint venture under the antitrust rules and to form at least an opinion on potential infringements and possible exemptions in the course of the merger control proceedings. However, it is also not unusual for the FCO to postpone this assessment until a later stage, usually after the merger control process.
Should the FCO conclude that co-operation in the joint venture violates Section 1 ARC/Article 101 TFEU and that the conditions for an exemption are not fulfilled, the FCO may issue a prohibition decision, pursuant to Section 32 ARC. This is possible even after merger control clearance. Divergent decisions with regard to merger control and antitrust proceedings have, in fact, already occurred in practice.
Following the introduction of the SIEC test, there have been discussions about whether such a twofold assessment is still possible. Clearance of a joint venture would imply that it does not significantly impede effective competition. Accordingly, it would be difficult to argue later, under Section 1 ARC/Article 101 TFEU, that the joint venture impedes competition and therefore should be dissolved.
The FCO does have the power to prohibit or interfere with a transaction. It may do so in the course of the regular merger control process or in the course of demerger proceedings after the completion of the transaction. The FCO may initiate demerger proceedings following a corresponding notice from the parties or ex officio when it establishes that a completed transaction has not been notified in spite of the fact that it was subject to merger control.
In cases where the FCO expresses competition concerns regarding a proposed transaction, the parties may seek to eliminate such concerns through the offer and negotiation of remedies; ie, conditions and obligations.
The FCO is legally obliged to consider whether an authorisation with remedies would alleviate the competition concerns. However, this does not create an obligation to accept any offer of remedies. The FCO only has to accept remedies that will remove the significant impediment to effective competition.
In turn, the FCO must not impose remedies that the parties have not offered. It may propose remedies that it considers suitable, but it is not obliged to do so – it is ultimately up to the parties to develop and offer remedies.
Proposed conditions and obligations should primarily relate to the structural aspects of the transaction; ie, affect the structure of the market. Behavioural remedies are not allowed if they require continued control of the conduct of the parties. Only if they relate to one-time activities or activities within a short period, and are thus similar to structural effects, are they permissible. Differentiation may be difficult and requires analysis on a case-to-case basis.
In practice, behavioural remedies are rather rare.
There is no binding legal standard for remedies. However, the FCO published a Guidance on Remedies in Merger Control in May 2017 that describes the most important types of remedies and explains the requirements that they must fulfil. It incorporates, besides economic considerations, the FCO’s case practice and experience as well as the case law of the Düsseldorf Higher Regional Court and the German Federal Court of Justice.
The guidance document is not conclusive and should only serve as a guide, thus is not binding.
Standard remedies are the divesture of part(s) of the undertakings’ business or the granting of licences to third parties. However, the removal of structural or contractual links with competitors may be appropriate in certain situations; eg, in oligopolistic markets. In the past, the FCO has, among others, allowed the decommissioning of production plants as a suitable (behavioural) remedy, but has not accepted remedy proposals aiming at organisational obligations or investment controls.
Further, it has already imposed a prohibition to co-operate in the area of purchasing on parents that were parties to a joint venture transaction as part of a remedy package. Behavioural remedies, such as granting licences for important technologies or granting customers special termination rights for long-term contracts of the parties may also be appropriate. The mere closure of capacities or the use of "Chinese walls" within merged entities, however, is not generally considered an effective behavioural remedy.
The FCO does not consider non-competition issues.
Commitments in general can be submitted at any stage of the procedure, during or even before the first phase of merger control. In order to achieve a successful solution, it is highly recommended to co-operate with the FCO fully and at an early stage.
Remedy negotiations usually start as a result of competition concerns that are expressed by the FCO, informally or formally. Procedurally, before prohibiting a transaction, the FCO informs the notifying parties of its competitive concerns and related objections to the transaction. It does this by sending a so-called statement of objections, usually in the form of a draft prohibition decision. The statement of objections may be issued at any time during Phase II.
If remedy discussions start early and are successful, the statement of objections may never be formally issued. However, typically the FCO will send it out towards the end of Phase II. The parties can respond to the statement of objections. In order to prepare this response, they can have access to the FCO file.
Since the FCO is under a legal obligation to consider whether an authorisation with remedies (conditions and obligations) would alleviate the competition concerns, the statement of objections will also deal with possible remedies – even if the parties have not submitted a related proposal. However, as discussed above, the FCO cannot impose specific remedies on its own. It can only issue a clearance decision subject to conditions and obligations that have been offered by the parties.
If the parties agree with the FCO on suitable remedies, the FCO will lay down the conditions and obligations in its final clearance decision, which will also be published in a non-confidential version.
In the case of a divestiture remedy, the parties must generally provide evidence that the divestiture has been completed. This requirement is to prevent possible delays that might occur in the period between the signing of the agreement and the closing of the transaction. In these cases, it is necessary that the shares or assets to be transferred have been effectively transferred. It can, however, be sufficient for companies to take all necessary steps to initiate the transfer of ownership at a time when only the entry into the commercial register remains to be submitted, provided that an application for the entry has been lodged with the register.
In appropriate cases, it may be sufficient for the fulfilment of the remedy to provide evidence that all contracts necessary for the divestment have been concluded in a legally binding way. In cases where this appears to be a suitable approach, this will normally be explicitly mentioned in the text of the remedy decision. Any merger control proceedings that may be required with regard to the acquisition of the divestment business by the buyer have to be concluded within the time limit for the implementation of the divestment.
In so far as the remedies include other commitments in the form of a condition precedent, the parties have to prove that they have been implemented as well before they are allowed to complete the transaction.
If the divestitures commitment is a condition precedent (which is the common form; divestiture commitments in the form of obligations and conditions subsequent are the exception) for the clearance decision, a period of six months should be sufficient to meet the requirements. The divestiture period should be as short as possible. However, this will vary from case to case and will usually be set in the text of the remedy decision. An extension of the time limits provided by the remedies is only possible in exceptional cases.
In Phase I cases the FCO informs the parties by informal letter that the transaction does not fulfil the criteria for prohibition and therefore can be implemented. It does not issue a formal decision.
If the FCO does not inform the parties, within the one-month period of Phase I, that it has authorised the transaction or entered into Phase II proceedings, the transaction is deemed to have been cleared. In practice, this example is of very limited relevance.
In Phase II proceedings, the FCO issues a formal decision prohibiting or authorising the transaction (unconditional or subject to conditions and obligations). If the FCO does not issue a decision within the relevant deadline, the transaction is deemed to have been cleared.
The FCO publishes on its website that a concentration has been cleared or prohibited. Clearance/prohibition decisions may only be published in Phase II proceedings. The parties will be asked to review the decision and to mark any business secrets. The FCO usually accepts that turnover and market information is confidential. Market share information, however, may be replaced by ranges.
Since 2009, the FCO has also published short summaries (Fallberichte) of important Phase I and Phase II cases on its website.
There is no recent case law on the imposition of remedies or prohibitions of concentrations in foreign-to-foreign transactions. Based on our information the most recent case concerned the planned takeover of the Danish concrete manufacturer H + H International A/S by Xella International Holding S.à.r.l. (Luxembourg) which was prohibited in 2012.
A clearance decision does not automatically entail an exemption for ancillary restraints. There is also no separate notification procedure for ancillary restraints. The parties themselves have to assess any competition concerns in horizontal or vertical agreements.
As is the case with joint ventures, the FCO may analyse ancillary restraints at a later stage, independent of the merger control process. In practice, separate assessments during the merger control process appear to be more common.
Generally, the FCO applies more or less the same principles that apply under EU competition law, namely that ancillary restraints should be permitted if they are necessary and indispensable to the successful implementation of the transaction.
Third parties may apply to be admitted as interveners in the merger control proceedings at any stage of the process. They have to demonstrate that their economic interests will be substantially affected (directly or indirectly) by the decision. However, an application does not automatically result in an admission. The FCO has considerable discretion in this regard.
Although there are no legal provisions related to this issue, competitors, suppliers and customers will usually be deemed to have an economic interest. Associations and trade unions will have to prove that their own interests, or at least the interests of their members, will be affected by the decision.
It should also be noted that from each "stakeholder group" – such as competitors, suppliers, etc – the FCO will usually admit only a limited number in order not to overload the procedureFurthermore, interested parties often submit arguments to the case handlers on an informal basis. The parties will only have access to these submissions within the framework of access to the FCO’s file – and to the extent that the arguments are made in writing.
Third parties that have been admitted as interveners have the right to be heard and to access the file. In practice, this applies mainly to Phase II investigations. However, prior to granting access to the file, any business secrets will be removed.
The FCO usually contacts third parties and competitors during its review process to "market test" the transaction as well as the remedies. In most of the cases the FCO sends out questionnaires; however, depending on the amount of requested information, it may also call these parties. They are asked to submit their comments.
The fact that a notification has been submitted is published on the FCO’s website. In general, this happens a few days after the filing. Only in very rare cases has the FCO been willing to postpone the publication and only then under very special circumstances.
Besides file number and responsible decision division, the FCO publishes the names of the parties, the date of the filing and the relevant industry sector. The fact of an initiation of Phase II proceedings is published as well. At the end of the proceedings, the FCO will also publish the result of its analysis; ie, clearance (unconditional or subject to conditions and obligations) or prohibition.
During the merger control process, other market players may also become aware of the merger through the market investigation by the FCO. Contact by the FCO may be informal – eg, by phone – or through more extensive written requests for information.
Besides the Phase II decisions, the FCO usually publishes short summaries of important cases on its website as well as related press releases and descriptions in the activity report.
Generally, the FCO is obliged to ensure that confidential commercial information, including business secrets, that is obtained during the merger control process remains so. Interveners may have limited access to the file, but not to the business secrets of the parties. Phase II decisions are published in a non-confidential version that has been agreed with the parties.
Third parties may gain access to the merger control files under the Act Governing Access to Information held by the federal government (Freedom of Information Act – Informationsfreiheitsgesetz). However, this includes only commercial and business secrets if the affected parties agree. In practice, the relevance of the Freedom of Information Act in relation to merger control cases is limited.
The FCO is, among others, part of the International Competition Network (currently chaired by FCO president Andreas Mundt) and of the network of the European Competition Authorities (ECA). The ECA is a forum for discussion of all competition law-related matters between the NCAs within the EEA as well as the Commission and the European Free Trade Association (EFTA) supervisory authority. This discussion includes the exchange of information on all merger cases that are notifiable in more than one ECA country (multiple filings).
Such information sets out the names of the merging parties, the sector/industry concerned and/or products concerned, the date of the notification, the name of the case handler and the other member states concerned.
The FCO is also a member of the European Competition Network. The objective of the ECN is to ensure the effective and consistent application of European competition law. The FCO regularly contacts other NCAs through these networks.
The parties’ prior consent is not required. However, the FCO must not exchange confidential information relating to the parties with other NCAs unless the parties have given their consent. The information exchanged is only used for those competition law purposes for which it has been collected and the other NCAs are obliged to keep the information confidential. Its work complements the ECA notice system.
The FCO attaches strong importance to its independence. It could nevertheless speed up the process to inform the FCO of any other merger control clearances occurring in other jurisdictions. However, although the FCO would probably be interested in decisions from other NCAs, it may well adopt a deviating decision.
Phase II Appeals
The parties may file an appeal against Phase II decisions of the FCO to the Higher Regional Court of Düsseldorf within one month following the service of the decision. The appeal can be made on both legal and factual grounds, including new facts and evidence. The period of the appeal proceedings may vary significantly depending on the case, but an average duration of one to three years should be expected.
The decision of the Higher Regional Court may be appealed to the Federal Supreme Court within one month following the service of that decision. This appeal can only be made on legal grounds and the Higher Regional Court has to have permitted such appeal. The decision not to permit a legal appeal may be appealed to the Federal Supreme Court as well.
The proceedings of the Federal Supreme Court may vary in terms of duration, but again it might take one to three years before a final decision is reached.
In the event of mergers between statutory health insurers, the same rules for an appeal apply, with the exception that the Social Courts have competence.
Applications to the Federal Minster of Economics and Energy
In the event that the FCO prohibits a concentration or orders the unwinding of a non-notified concentration, the parties may also apply to the Federal Minister of Economics and Energy to request permission to implement the transaction. The deadline for such application is one month following the service of the decision of the FCO. The regular review period for the Federal Minister amounts to four months.
If they go beyond the regular four-month period for authorising a concentration that had been prohibited by the Federal Cartel Office, they have to decide on the submission within six months. Additionally, another prolongation of the six-month period for a further two months is possible. The ninth amendment of the ARC has restricted the right to appeal a Ministererlaubnis decision.
While under the previous rules third parties were admitted to appeal proceedings if their interests were substantially affected by the decision, they now have to claim the violation of individual rights.
The ministerial decision may also be fully appealed to the Higher Regional Court of Düsseldorf.
The proceedings for an application for ministerial permission do not preclude the appeal against the original decision of the FCO, the deadline for which starts to run only after service of the ministerial decision.
Regarding the typical timeline for an appeal, see the explanations above. Although it is not uncommon to challenge a FCO prohibition decision, in practice, successful appeals are rather rare. One example is the Phonak (now Sonova)/GN Resound transaction that was prohibited by the FCO in 2007. The Düsseldorf Higher Regional Court confirmed the FCO prohibition, however was finally overruled by the Federal Supreme Court.
As an example of an unsuccessful case, in the EDEKA/Tengelmann case, EDEKA and Tengelmann appealed in parallel the FCO’s decision (that only comprises of judicial aspects) and applied for a Ministererlaubnis. The Düsseldorf Higher Regional Court rejected the appeal and confirmed the FCO’s prohibition of the merger (which did not have a practical effect because of the Ministererlaubnis).
The right of appeal is also granted to third parties if the FCO decision directly and individually affects their competition interests. A further prerequisite is that such third parties must have been party to the FCO proceedings. This requires that they have at least applied to the FCO to be admitted as interveners and complied with all procedural requirements in this regard.
There is case law on successful appeals against clearance decisions of the FCO, eg, in the case Liberty Global/Kabel Baden-Württemberg in 2013. However, in 2015, the parties involved agreed on a settlement and the third parties withdrew their appeal so that the court’s decision is now groundless.
A draft Act on Digitalisation of German Competition Law (GWB-Digitalisierungsgesetz) was published on 24 January 2020. In the area of merger control, the amendments aim to re-focus the rules in light of the very high number of unproblematic notifications, the increasing number of filings submitted to the FCO, as well as the many competitively relevant transactions that are not within the scope of merger control in Germany.
First, the second domestic turnover threshold will be increased from EUR5 million to EUR10 million. Second, the de minimis threshold will be increased from EUR15 million to EUR20 million, and the assessment of de minimis markets will not be carried out on a single-market basis, but rather on a combined-market basis. Third, post-completion notices to the FCO will be abolished.
Companies will be able to calculate their turnover based on internationally recognised accounting standards such as IFRS. All of these amendments are intended to reduce the costs and burden for companies that deal with merger control proceedings in Germany.
However, the current draft also introduces a new notification obligation for the acquisition of targets with a turnover of EUR2 million (of which two thirds are in Germany), if the acquirer has worldwide sales of more than EUR250 million and has previously been designated by FCO decision as “serial acquirer” whose acquisitions may impede competition. The obligation to notify shall apply for three years following the FCO decision. Whilst this provision was initially triggered by competition concerns in rather traditional industries (in particular waste disposal), it is easy to see that it may also be used to handicap acquisitions in digital markets. There is still a lively debate on this provision dealing with so-called “killer acquisitions”.
Further, the FCO expects to focus its resources on cases of greater economic importance. Hence, the maximum duration of the Phase II review period will be extended from four to five months. Any additional extensions of the review period, by consent of the parties, will be limited to one month only.
Finally, the application for ministerial approval (Ministererlaubnis) will require that the FCO’s competitive assessment has been confirmed by a competent court, either on appeal, or in any interim proceedings. The reform is expected to enter into force towards the end of 2020.
Based on the most recent available figures, the FCO examined about 1,400 transactions in 2019. Of these, 14 notifications were assessed in Phase II proceedings. Four concentrations were prohibited (Miba/Zollern (which was later overruled by a ministerial authorisation), Heidelberger Druckmaschinen/MBO, Remondis/DSD and Loomis/Ziemann) and six filings were withdrawn. In two cases, clearance was granted without conditions and obligations.
In two other cases, the Phase II proceedings are still pending.
In general, competition authorities face new challenges in digital markets such as internet platforms and online sales as well as the commercial usage and valuation of personal data. Also, in Germany there are ongoing discussions within the upcoming reform whether competition law (including merger control) is flexible enough to address all relevant competition aspects or if new legislative measures are necessary.
As governments around the world mobilised public health and safety initiatives in response to COVID-19, most competition authorities, including the German FCO, implemented measures to protect staff, balance existing resources, and respond to new challenges. German merger review deadlines were temporarily extended by law for notifications filed between 1 March 2020 and 31 May 2020. The deadline was extended to two months for Phase I reviews and to six months for Phase II proceedings.
These rules were intended to give authorities more time to investigate and market test transactions, however, their impact was limited as the vast majority of filings was cleared within the regular Phase I period.